Transferring funds internationally is synonymous with frequent delays. The Department of Homeland Security flags and “holds” international transactions greater than $5,000. Additionally, you have to file a currency transaction report for each transaction over $10,000. Further, bank cut into profits. We have heard an average of $1,500 for SWIFT transfer.
Industry leaders are tired of waiting on and paying for big banks to carry out their transactions. By acquiring or establishing a banking institution, they can take control of their funds and bring critical banking functions in house.
Let’s take a pause to discuss some basic ins and outs of international financial transfer.
By international transfer, we are really talking about a few key areas:
1) Import and export of commodities
2) International wire transfer
3) Currency exchange
A few major networks are the primary players in the financial transfer market they include, SWIFT, Euroclear, Clearstream and ACH.
As banks make up the majority of membership into these networks, most individuals and firms rely on banks in order to access them. A select group of private trusts and fiduciary companies, however, are connected to the major financial transfer systems. Membership is not handed out to any international foundation or IBS, you will need a credible institution to join one of the major financial transfer networks.
In terms of currency transfer, SWIFT is the 2,000 pound gorilla. However, even a considerably smaller player like CHIPS has a huge foothold. In fact, “in three days, more dollars go through CHIPS than there are in the money supply of the US.”
The process for obtaining memberships in these organizations varies. Let’s use SWIFT as an example. There are four primary levels of SWIFT:
1) Shareholder or member is an organization which owns shares in SWIFT; these are typically banks, broker-dealers and investment management firms.
2)Non-shareholding members are organizations eligible for Shareholder status but choosing not to take on shares.
3)A sub-member is an organization “more than 50 percent directly” or “100 percent indirectly” owned by a Shareholder
4)Finally, a participant is Eligible for use, typically because of type of institution including: Brokers and Dealers, Central Depositories and Clearing Institutions, Financial Market Regulators, Fund Administrators and Investment Mgt. Institutions to name a few.
A complete listing is available on the SWIFT website at www.swift.com.
If you are eligible for even the participant level SWIFT membership, you will greatly reduce your transfer cost. Take this example of an international hedge-fund owner.
Our client called asking for a way to gain less costly access to SWIFT. He explained he was processing 10 transfers per week @ $1,600. Do the math, that’s about $64,000 per month. We provided him with an institution eligible for participant SWIFT membership and his transfers now cost an average of $30 per transfer. DO the math again, that is about $1,200 per month. His savings will total $62,800 per month, or $753,600 per year
It’s important to note he achieved these results immediately. The acquisition was turnkey, and he no longer has to deal with lack of control or frequent delays. Beyond these cost savings, he was afforded the various other benefits of an offshore acquisition.
The current economic crisis presents not just challenges but also opportunity. Many of us are considering new options to get lean and cut costs, and those measures will not expire when the economy turns around. By taking necessary steps today to gain control of your money, you will see greater profits in the future.