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#2238162 - 06/16/20 04:54 PM "Virtual" office address provided for CIP
Verifying Vinnie
Unregistered

BSA people, do you know what a "virtual office address" is? I didn't, until recently. It would look like this:

- Customer Jane Dough LLC opens a bank account and gives you their address as 1234 Main Street Suite 300, Big City, USA.
- It is a physical address, and a real address, and has an office building there.
- They provide you a copy of their registration to operate an LLC, and it lists the same address.
- If you have some way to check their business credit history, you'll see the same address there.
- If you mail something to that address, it will be delivered to them.

What you don't know is that for a low monthly fee (double digits), you can rent a "virtual office address" or "virtual office space" from any one of dozens of companies online. Their ads look like this:

- Reserve your virtual office space today
- This one is available: 1234 Main Street Suite 300, Big City, USA
- Price: $60/month, some features below involve additional costs
- This service gives you a local business address which you can use on your website, business cards, etc.
- Includes free notarization certifying you are located at that address!
- We receive your mail for you and notify you by phone or email when anything is received
- We can forward your mail to wherever you happen to be, anywhere in the world!
- 24/7 lobby staff to greet walk-ins
- Indoor lobby sign confirming the location of your business
- We can receive subpoenas on your behalf
- We can help with the formation of your corporation or LLC


So what all that tells me is, this is basically a fake address. I would consider it invalid for CIP purposes. CIP requires financial institutions to know the principal place of business or local office physical location of every business customer. This is designed to defeat that, among other things. And I'm betting that not one part of your existing CIP processes would be able to detect this, unless you're at a small bank and have the time and resources to perform an intensive online search of every business address you receive.

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#2238166 - 06/16/20 05:00 PM Re: "Virtual" office address provided for CIP Anonymous
Dan Persfull Online
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Dan Persfull
Joined: Aug 2002
Posts: 47,517
Bloomington, IN
Back in the 80's these were called "mail drops" although not quite as sophisticated as the above.
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The opinions expressed are mine and they are not to be taken as legal advice.

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#2238170 - 06/16/20 05:37 PM Re: "Virtual" office address provided for CIP Anonymous
RockChucker, CAMS Offline
Diamond Poster
Joined: Jul 2013
Posts: 1,700
The Country
Thanks for sharing!
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#2238185 - 06/16/20 06:42 PM Re: "Virtual" office address provided for CIP Anonymous
Goodland Offline
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Joined: Nov 2015
Posts: 35

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#2238190 - 06/16/20 07:07 PM Re: "Virtual" office address provided for CIP Anonymous
Verifying Vinnie
Unregistered

Interesting video! (And I was half-expecting Larry David to step out of the compact car in the first few seconds of the video - music and scene both remind me of Curb Your Enthusiasm.)

One state that is also interesting regarding virtual offices is Florida. There are at least 150 virtual offices available there, concentrated around the major cities.

To our regulator friends reading this thread: No, the answer to this situation is not more bank examinations! The answer is to address it at the level of Congress, where issues like this belong. The problem isn't that banks accept the address listed on state LLC/corporation paperwork; the problem is that states allow businesses to register with such addresses. If Congress determines that this issue cannot or should not be resolved by federal legislation, then the answer is to accept that, rather than attempting to legislate-through-bank-examinations.

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#2238256 - 06/17/20 04:39 PM Re: "Virtual" office address provided for CIP Anonymous
Verifying Vinnie
Unregistered

So let's say you find 1 of your customers has given you this kind of address. What do you do about it?

First off, I'm asking staff to get a real address from the customer. Doesn't have to be an office building, but we do need to know where the work of this company gets done, whether that's in a garage apartment across town, or somewhere in Eastern Europe, or wherever. I can't accept a Big City USA office suite address once I know our customer is not actually located there. So we're going to track this one and get it fixed; if they decline to offer a real address, they'll be facing account closure over failure to provide it.

Question: Would you SAR this account for nothing more than the use of a virtual office address? What would your total dollar amount be? (Every dollar transacted on the account, perhaps?)

As additional background that may cause you gooseflesh when considering the state of your own CIP efforts for new customers, I'll mention that this customer is only our customer because of the SBA PPP. Transaction history:
- Opening Deposit is SBA PPP credit.
- Outgoing Wire to self, to fake virtual office address.
- Zero balance.

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#2238262 - 06/17/20 05:42 PM Re: "Virtual" office address provided for CIP Anonymous
John Burnett Offline
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John Burnett
Joined: Oct 2000
Posts: 40,086
Cape Cod
First, recognize that everyone from the borrower to the lender to the lender's staff, to the SBA, and back again, were under a lot of pressure to push the PPP loans out, and whoever on your staff accepted the virtual address may have been under similar pressure, and may not have enough background on virtual addresses to recognize one.

The borrower/depositor's reasons for using a virtual address may otherwise be legit (I'm assuming innocence here, for the sake of argument), and routinely gives that address when asked for the business address. Would the customer have responded with an actual address if asked something like "What is the address where your company is physically located -- where we might find company officials during business hours?" No one knows.

By all means, follow up with the customer to request the actual address (see if it's any of the loan files, first). And if you don't get the actual address, then decide whether to file a SAR.
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John S. Burnett
BankersOnline.com
Fighting for Compliance since 1976
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#2238277 - 06/17/20 08:27 PM Re: "Virtual" office address provided for CIP John Burnett
Verifying Vinnie
Unregistered

Thanks, John! That's a good point, and one I had made internally here too: I'm sure there are any number of perfectly valid, lawful reasons for using a virtual office address. Not every customer using one is operating a front business or is engaged in money laundering or SBA loan fraud. Some of them are not.

I think it just elevates our risk in terms of AML, and arguably creates a failure-to-verify situation with CIP (possibly...except for the fact that this pretend address is on corporate paperwork accepted by the state office in charge of deciding whether this business has complied with legal requirements for operating a business, and I don't think it's reasonable to expect us to intensively search every address of every customer, when that address is on government-issued identity documentation).

Curious to see if other banks here have had experience with this, or plan to do anything to try to detect it going forward, or see any reason to do so.

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#2238351 - 06/19/20 02:09 PM Re: "Virtual" office address provided for CIP Anonymous
Anonymous
Unregistered

If I am a small business owner that operates out of my home, isn't there at least a bit of argument that I don't want my customers to know where I live?

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#2238385 - 06/19/20 06:28 PM Re: "Virtual" office address provided for CIP Anonymous
BrianC Offline
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BrianC
Joined: Nov 2004
Posts: 6,694
Illinois
You're not telling your customers where you live. You're telling your bank which is required by law to have this information.
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#2238397 - 06/19/20 07:44 PM Re: "Virtual" office address provided for CIP Anonymous
Anonymous
Unregistered

Originally Posted by Anonymous
If I am a small business owner that operates out of my home, isn't there at least a bit of argument that I don't want my customers to know where I live?



I agree with BrianC. The burden is on the U.S. bank, as enforced by its state and federal examiners, to know the true location of the business. 31 CFR § 1020.220 requires your bank to know and have in its files your business's principal place of business or physical office location, whether that's the customer's home, or their mom's garage, or a rented beachside bungalow in the Pacific.

Providing a banker with a fake "virtual" address where you don't actually maintain a physical presence is a good way to get yourself reported to two dozen federal law enforcement agencies, because once we realize we don't know your true address, it hits us that you could be operating in another country, for all we know - anywhere in the world.

There are any number of things you would disclose to your bank that you wouldn't disclose to your customers, such as your age, your TIN or SSN, your income, etc. Disclosing those things to the bank does not mean they get revealed to your customers. Operating a business from home, or an online business, is an example of a perfectly legitimate and valid reason that a person might choose to utilize the services of a virtual address; nobody wants some customer showing up at their house asking to meet the person who made the arts and crafts stuff on Etsy. But your banker needs to have your "real" address on file, in order to offer you or continue to offer you an account.

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#2238432 - 06/22/20 04:18 PM Re: "Virtual" office address provided for CIP Goodland
BH Offline
New Poster
Joined: Mar 2018
Posts: 5
Wow....this was interesting clip!

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#2238483 - 06/23/20 01:28 PM Re: "Virtual" office address provided for CIP Anonymous
Anonymous
Unregistered

Isn't this the same concept as renting a mail box from a place like Mail Boxes Etc?

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#2238493 - 06/23/20 03:26 PM Re: "Virtual" office address provided for CIP Anonymous
RockChucker, CAMS Offline
Diamond Poster
Joined: Jul 2013
Posts: 1,700
The Country
There is no issue renting a mail box from Mail Boxes Etc but using it as your place of business address for BSA is not an acceptable option.
_________________________
A successful man is one who can lay a firm foundation with the bricks others have thrown at him.
-David Brinkley

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