My Client’s Recent Experiences with Mercury, Relay, and Payoneer

As a business owner, navigating the complexities of banking for foreign entrepreneurs has always been a challenge, but lately, it seems like things have gotten even more difficult. The recent wave of account closures by online banks like Mercury and Relay has brought new hurdles for people like myself, especially if you’re trying to run a business from outside the U.S. or using foreign passports. In the last few months, I’ve heard from multiple colleagues and clients who are facing account closures and issues with banking, particularly those using foreign IP addresses or operating out of certain “prohibited countries.”

Sadly, this isn’t an isolated issue. Mercury, for example, has been shutting down accounts for users who are not just passport holders or residents of certain countries but also for those logging in frequently from those locations. If you’re using a VPN or regularly accessing your account from abroad, that could raise a red flag for these banks. I found Mercury’s full list of prohibited countries here: Mercury’s Prohibited Country List. The list includes countries like Russia, North Korea, and Iran, which are not surprising, but there are also many countries on the list that you wouldn’t expect, like Nicaragua, the Philippines, and even Ukraine.

This sudden tightening of restrictions by Mercury isn’t unique to them. I’ve seen similar situations with Relay and even Payoneer, where one of my clients was recently asked for formation documents for their single-owner LLC. Unfortunately, this is a real risk when it comes to using single-owner LLCs as foreign entrepreneurs, especially because of the way these entities are treated for tax and banking purposes.

The Risks of Single-Owner LLCs for Foreign Business Owners

One of the biggest pitfalls I’ve encountered in the past few years is that foreign entrepreneurs often set up a single-owner LLC in the U.S., thinking that this is the best structure for running a small business remotely. I thought the same thing when I first started, but soon realized that the banking world sees single-member LLCs differently than multi-member LLCs or corporations.

Single-member LLCs are what the IRS refers to as “disregarded entities,” meaning the LLC itself is not taxed separately from its owner. For tax purposes, it’s as if the LLC doesn’t exist and the owner directly owns everything. While this can be great for keeping taxes simple, it also creates complications when it comes to banking—especially for foreign nationals like me.

From the perspective of U.S. banks, opening an account for a disregarded entity is almost the same as opening a personal bank account for the foreign owner. Since foreign nationals are subject to stricter scrutiny and regulations, banks like Mercury or Payoneer might reject the application outright, or worse, close an existing account without much explanation.

In fact, one of my clients recently tried to open a Payoneer account, only to have it denied after providing the formation documents for their LLC. This happened because, from the bank’s perspective, giving a foreign person a bank account directly brings with it a host of regulatory concerns and potential risks, especially with regard to anti-money laundering laws. It’s frustrating, but it’s part of the reality we have to deal with as foreign entrepreneurs.

The C-Corp Solution: Why a C-Corp Might Be the Better Route

After seeing account denials and closures repeatedly, I started advising clients to consider forming a C-Corporation (C-Corp) instead of an LLC, especially if they are dealing with banking issues. A C-Corp offers several advantages over a single-member LLC when it comes to banking and tax structure, particularly for foreign owners.

For one, banks tend to be more comfortable dealing with C-Corps because they are seen as separate legal entities from their owners. Unlike an LLC, where the owner and the company are essentially one for tax purposes, a C-Corp stands on its own, with its own tax liabilities and financial reporting. This makes banks feel more secure when opening accounts for C-Corps, as they can treat it like any other domestic company account.

Moreover, forming a C-Corp opens the door for you to later file a C-Corp election for tax purposes using Form 8832, which allows your company to be taxed as a corporation even if it started as an LLC. This must be done within 75 days of forming the C-Corp, so it’s something you should plan for early. By doing this, you create a more structured and bankable entity that can make it easier to access business banking services in the U.S.

Often formation companies such as Stripe Atlas help with forming a Delaware C-Corp and also includes bank opening as part of the package. I’ve seen clients who were denied accounts with Mercury or Relay successfully open bank accounts through Stripe Atlas as a C-Corp. The Delaware C-Corp structure, in particular, is a favorite among online banks because of Delaware’s strong legal framework for corporations and the ease of compliance.

Banking Restrictions and the Prohibited Country List

That said, even C-Corps are not immune to banking challenges, particularly if you or your business operate in or are connected to countries on the prohibited list. As I mentioned earlier, the list of prohibited countries used by Mercury and other online banks includes not just the obvious ones like North Korea, Russia, and Iran, but also many countries that you might not expect. Here’s a quick rundown of the countries currently on the list as of October 2024:

• Afghanistan
• Albania
• Belarus (Republic of Belarus)
• Bosnia & Herzegovina
• Burundi
• Cambodia
• Cameroon
• Central African Rep
• Congo (the Democratic Republic of the)
• Congo (the)
• Croatia
• Cuba (Republic of Cuba)
• Eritrea
• Haiti
• Iran (Islamic Republic of Iran)
• Iraq
• Lebanon
• Liberia
• Libya
• Mali
• Mozambique
• Myanmar (Burma)
• Nicaragua
• Nigeria
• North Korea (DPRK – Democratic People’s Republic of Korea)
• Pakistan
• Palestine (State of)
• Philippines
• Russia (Russian Federation)
• Somalia
• South Sudan
• Sudan (the)
• Syria (Syrian Arab Republic)
• Ukraine
• Venezuela (Bolivarian Republic of)
• Yemen
• Zimbabwe

This means that even if you’re not a resident or passport holder of one of these countries, repeated logins from IP addresses located in these regions can put your account at risk of closure. In today’s global economy, where many entrepreneurs travel frequently or manage teams across the world, it’s easy to see how someone could unintentionally trip up on these rules.

Unfortunately, this kind of sweeping restriction isn’t just limited to Mercury. Other banks and financial institutions are tightening their requirements and becoming more cautious about who they accept as customers. It’s an evolving landscape, and what works today may not work tomorrow. A couple of years ago, we saw this happen when Silicon Valley Bank (SVB) tightened its own restrictions, and many foreign entrepreneurs were forced to switch to other banks like Mercury, which was seen as the more open option at the time.

Next Steps: What You Can Do If Your Account Is Closed

If you’re facing account closures, whether with Mercury, Relay, or another online bank, you can try to open an account through other banks. I have heard of clients with accounts closed through Mercury who were able to reopen with Relay, or vis versa, but others I know have been rejected. Banks you can try to open accounts with include:

• Mercury

• Relay

• Payoneer

• Revolut

• Bank of America

• Paypal (not a bank, but some use in a similar function)

• Wise (also not a bank, but someuse in a similar function)

The next step is to assess your business structure. If you’re currently operating as a single-member LLC and having trouble with banking, I highly recommend considering switching to a C-Corp. Not only does this make your business more appealing to banks, but it can also offer tax advantages if structured correctly.

For those who have had accounts closed, applying for a new account through a service like Stripe Atlas may be a good option. Many clients have had success forming Delaware C-Corps and gaining banking access through this method. In fact, most Delaware C-Corps I’ve seen formed get their bank accounts approved fairly easily.

If you’re unsure about the best structure for your business or need help navigating the current banking environment, feel free to reach out. The world of banking is constantly changing, and it’s more restrictive than ever, but with the right approach, you can still find solutions that work for your business.

Conclusion: Stay Ahead of Banking Restrictions

The global banking environment is growing increasingly restrictive, especially for foreign entrepreneurs and small business owners. Whether you’re navigating account closures with Mercury, struggling to open a new account, or trying to figure out the best business structure for your company, it’s important to stay informed about the latest changes.

Switching from an LLC to a C-Corp, especially in a state like Delaware, can help you avoid many of the issues foreign entrepreneurs face with U.S. banking. If you’re concerned about your account being shut down or need help figuring out the right next step for your business, don’t hesitate to seek advice and explore new banking options. Need help figuring it out? Schedule a consultation call today to learn more.