Why Banks Now Demand Physical Address Proof from Overseas Clients
Introduction
In recent years, U.S. banks have tightened customer due diligence (CDD) for non-U.S. clients. Both fintech “neobanks” (e.g. Mercury, Wise, Relay) and traditional banks (e.g. Bank of America) have begun insisting on a verifiable physical or “trading” address for overseas customers. This shift is driven by regulatory changes and guidance since ~2018 – including stricter U.S. anti-money laundering (AML) rules on customer identity and beneficial ownership – as well as pressure to meet international transparency standards. Below we examine key regulatory developments (FinCEN rules, the Corporate Transparency Act, etc.), global AML/CFT norms (FATF, OECD CRS), and commentary on why banks’ onboarding policies now require proof of a real operating address for foreign individuals and entities.
Strengthened U.S. KYC/AML Regulations (2018–2023)
FinCEN’s CDD Rule (2018)
A major catalyst was FinCEN’s Customer Due Diligence (CDD) Final Rule, which took effect May 11, 2018. This rule clarified and expanded U.S. KYC obligations, explicitly requiring banks and other covered institutions to “identify and verify the identity” of any beneficial owners behind legal entity accounts . In practice, that means when a company (like a foreign-owned LLC) opens an account, the bank must collect personal details for the real individuals who ultimately own or control the company – including name, date of birth, an identification number, and an address – and verify those details much as they would for the direct customer . FinCEN implemented this to “improve financial transparency and prevent criminals and terrorists from misusing companies to disguise their illicit activities and launder ill-gotten gains.” In short, since 2018 U.S. banks have been under a federal mandate to look through shell companies and document the true owners with identifying info and addresses, making anonymous accounts far more difficult.
Customer Identification Program (CIP) Requirements
Even before 2018, the USA PATRIOT Act and Bank Secrecy Act rules required banks to collect a physical street address for each customer as part of CIP/KYC onboarding. For individuals, this means a residential or business street address (or APO/FPO for military); for entities, a principal place of business or other physical location must be provided. A mere P.O. box or mail forwarding address does not satisfy this legal requirement.
Corporate Transparency Act (2021) and Beneficial Owner Reporting
In January 2021, Congress enacted the Corporate Transparency Act (CTA) as part of the AML Act of 2020. The CTA is a landmark reform requiring millions of business entities – including foreign-owned single-member LLCs – to directly report their beneficial owners’ information to FinCEN (effective Jan 1, 2024).
More information is available in the official FinCEN notice here.
IRS/Tax Transparency Rules
Around the same period, the U.S. Treasury also introduced tax transparency measures affecting foreign clients. Notably, in 2017 the IRS issued regulations treating any foreign-owned U.S. single-member LLC as a domestic corporation for reporting purposes, meaning it must obtain an EIN and file information on its foreign owner (via Form 5472).
See the official IRS guidelines on Form 5472.
International Standards Influencing U.S. Practices
FATF Recommendations and “Grey List” Pressure
U.S. regulators and banks are also responding to international AML/CFT standards set by the Financial Action Task Force (FATF). FATF Recommendation 10 requires banks globally to perform robust customer due diligence – identifying customers and beneficial owners and verifying their identity using independent source documents.
FATF also updated its standards on beneficial ownership transparency (Recommendation 24) in 2019–2022, calling on countries to ensure that competent authorities can quickly access accurate beneficial owner information for companies.
More details on FATF’s recommendations are available on the official FATF site.
Global Tax Transparency (FATCA/CRS)
Although the U.S. has not adopted the OECD Common Reporting Standard (CRS) for automatic exchange of financial account information, it participates in other information-sharing regimes (FATCA and tax treaties) that incentivize thorough KYC on foreign clients.
OECD’s overview of CRS is available here.
Bank Policies: Address Verification for Foreign Clients
Given the above regulatory climate, banks have updated their onboarding policies for non-U.S. clients – often communicating new documentation requirements. Proof of a physical operating address is now a common condition for opening or maintaining accounts for foreign nationals, non-resident U.S. entities, and foreign-owned businesses.
Regulatory Scrutiny and Enforcement
U.S. bank regulators (FDIC, OCC, Federal Reserve) have been closely watching fintech-bank arrangements and foreign client onboarding. A revealing case came to light in 2023 involving Mercury’s partner bank. The FDIC grew “concerned” that the bank (Choice Financial Group) “had opened Mercury accounts in legally risky countries”.
Read about the Mercury case on TechCrunch.
Expert Commentary on Implications
Lawyers and compliance experts note that these stricter address verification practices are a direct consequence of the evolving regulatory landscape. The goal is to prevent the U.S. from being exploited as a haven for anonymous shell companies, tax evasion, or sanctioned actors.