Treasury basics for an overseas expansion

BY BRAD HARDY, CPA AND KEN TYSIAC

Understanding regulatory requirements and standard operating procedures in international locations is essential for domestic corporations expanding into overseas markets. The following tips, compiled by Wells Fargo’s international banking division, can help companies establish an effective global treasury policy:

 Consult with key advisers early. Draft the overall scope and plan for international expansion with the help of tax advisers, bankers, legal consultants, and IT experts.

 Establish corporate objectives. A sound, fundamental policy that creates strategic goals and a consistent process for business operations worldwide is a necessity. All stakeholders need to agree to the basic principles in advance.

 Assess the risks. Unstable currency markets that pose devaluation risks must be taken into consideration. Corporations should understand the laws and economic and regulatory risks that exist in the markets where they are expanding. Tax structures, incentives, and implications for offshore companies can be determined with the help of tax advisers. Banking partners can advise on hedging strategies to help manage foreign exchange risks.

 Choose the right kinds of accounts. Local, in-country accounts and offshore, multicurrency accounts each have advantages. Local accounts allow access to local clearing systems and same-day value on domestic transactions. Branch and teller services are available for transactions such as cash deposits. It’s possible that there will be fewer regulatory requirements with local accounts, making it easier to deposit or withdraw funds. Offshore, multicurrency accounts have unified relationship management and client customer service available. Transferring funds between accounts is easy, and you can count on a consolidated electronic banking platform. Language and time zone problems should be minimal, and in some cases there are no additional foreign tax issues. In some cases, using both offshore and local banks is most effective.

 Give yourself time. It can take weeks or even months to establish a relationship and an operating account with a foreign bank. Researching how the process works in the location where you are expanding can make the process go more quickly.

 Set policies for capital management. A framework for treasury, foreign exchange, liquidity, and investment management practices must be established and communicated throughout the organization. Decide on protocol as you would for your U.S.-based treasury system. Will the offshore subsidiary be given autonomy to open accounts and set up credit lines? What will the offshore subsidiary be responsible for in terms of daily collecting and disbursing of funds? How will the subsidiary manage financial risks and address political risks? How will cross-border payments and currency conversions be managed? How much freedom will the subsidiary have to invest surplus cash? How will liquidity needs be forecast and managed by the corporation? These are just some of the questions that need to be answered.

 Assess technology needs. Technology already in place, such as your enterprise resource planning (ERP) system, can help you work more efficiently. You may also want to assess whether new platforms are worth investing in. XML technologies and communications through the Society for Worldwide Interbank Financial Telecommunication (SWIFT)—a member-owned cooperative through which banks, securities institutions, and corporate customers exchange standardized financial messages—are among options worth investigating.

 Pick the right bank partners. Choose banks that possess the capabilities and expertise to support your needs while minimizing transaction fees. Your banking partner can advise you on how to navigate local complexities and can provide local lending as the business grows.

—By Brad Hardy, CPA, ( hardyba@wellsfargo.com ) a senior vice president for Wells Fargo Global Banking, part of Wells Fargo’s International Group, in New York City, and Ken Tysiac, ( ktysiac@aicpa.org ) a JofA senior editor.

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