Acquiring an International Bank in Puerto Rico: A Step-by-Step Guide

Purchasing an international bank in Puerto Rico, often structured as an International Financial Entity (IFE), is a complex process that involves negotiation, regulatory scrutiny, and compliance with local financial laws. Puerto Rico’s banking sector, regulated by the Office of the Commissioner of Financial Institutions (OCIF), offers attractive opportunities for investors due to its tax incentives and strategic location. However, the acquisition requires careful planning to navigate seller expectations and regulatory approvals. Based on insights from industry experts, the process can be broken down into three key phases: negotiating a binding Letter of Intent (LOI), preparing and filing for a Change of Control with regulators, and finalizing the transfer. This article outlines each step, highlighting critical considerations for prospective buyers.

Step 1: Negotiating a Binding Letter of Intent (LOI)

The first phase focuses on reaching an agreement with the seller. Sellers evaluate potential buyers not just on the offered price but also on their likelihood of securing regulatory approval. In competitive scenarios, a lower bid from a well-qualified buyer might prevail over a higher one from a riskier candidate—illustrating the importance of demonstrating credibility.

To position yourself as a strong buyer:

• Provide Detailed Buyer Information: Complete a comprehensive questionnaire akin to one used for forming a new bank. This includes your intended business model (e.g., target markets, services like international lending or asset management), source of funds, and details on shareholders, investors, officers, and directors. Citizenship details for each individual are crucial, as they impact regulatory reviews.
• Build Seller Confidence: Emphasize your group’s qualifications, such as prior financial experience or clean regulatory history, to assure the seller of a smooth approval process.
• Craft the LOI: The seller typically issues the LOI, but it serves as a negotiation tool. Agree on terms like purchase price, contingencies, and timelines. Once signed, the LOI binds both parties to proceed in good faith.

This step can take weeks to months, depending on negotiations. Sellers prioritize buyers who minimize risks, so transparency is key.

Step 2: Preparing and Filing for Change of Control

Upon signing the LOI, the focus shifts to regulatory approval through a Change of Control application with OCIF. This is the most labor-intensive phase, requiring extensive documentation to prove the buyer’s fitness to own and operate the bank.

Key tasks include:

• Bank Audit: Conduct a thorough audit of the target bank to uncover financial risks, verify assets, and clarify its operational health. This helps identify any issues that could derail the deal.
• Third-Party Due Diligence: Engage a firm like J.S. Held (formerly Berkeley Research) for background reports on all shareholders, investors, and directors. Costs vary based on the number of individuals and their countries of residence—expect higher fees for international parties. These reports assess criminal history, financial stability, and reputational risks.
• Personal History Forms: Each key individual (shareholders, officers, directors) must submit a sworn Personal History Form (detailed below). This includes personal details, education, disclosures on legal issues, and supporting documents.
• Financial Documentation: A major hurdle is providing audited or reviewed financial statements (not just compiled) for the past three years, prepared under U.S. GAAP and in USD. U.S. CPAs can handle this, but international shareholders must ensure compliance.
• Filing and Negotiation: Submit the full application to OCIF, which reviews for compliance with Puerto Rico’s financial laws. Negotiate any regulator concerns, such as additional disclosures or adjustments to the business plan.

This phase demands meticulous preparation, as any gaps can lead to delays or denial. Only proceed if the LOI bid is successful, as costs (e.g., due diligence reports) can be substantial.

Step 3: Receiving Approval and Transferring Ownership

Once OCIF approves the Change of Control, the final phase involves closing the deal. This includes:

• Transfer of Assets: Execute the purchase agreement, transfer shares or assets, and update ownership records.
• Operational Handover: Integrate new management, update licenses, and ensure continuity of operations.
• Post-Approval Compliance: Notify stakeholders and comply with any conditions set by regulators.

The entire process can span 6–12 months, influenced by the complexity of the buyer’s group and regulatory workload. Success hinges on early preparation—consulting attorneys familiar with Puerto Rican banking laws is essential to avoid pitfalls.

In summary, acquiring a bank in Puerto Rico rewards strategic investors but requires proving financial acumen, integrity, and regulatory viability. By prioritizing transparency and expert guidance, buyers can navigate this rigorous path effectively.

Summary of the Personal History Form

The “Statement of Personal History” form (Rev. 07/2024) is a mandatory, sworn document required by the Office of the Commissioner of Financial Institutions (OCIF) in Puerto Rico for directors, officers (including compliance officers), managers, members, and owners of International Financial Entities (IFEs). It must be completed by individuals who possess, control, or intend to control any interest in the IFE’s capital. The form ensures regulatory vetting for integrity and suitability, with instructions emphasizing full disclosure—misrepresentations can lead to denial or revocation of appointments. Documents notarized outside the U.S. require an Apostille.

The 10-page form is structured as follows:

• Instructions (Page 1): Outlines who must complete it, how to answer (use N/A if inapplicable, attach sheets for details), and warnings about alterations or omissions.
• Section 1: Personal Information (Page 2): Requires full name, SSN, birth details, nationality, passport number, civil status, addresses (business/residence/previous), phone/email, occupation, position in IFE (with estimated monthly hours), ownership details (amount/percentage), and any agreements for additional interest.
• Section 2: Education (Page 3): Lists formal education (school, location, graduation date, degree) and specialized training/licenses (e.g., banking, finance, BSA/AML, CPA, attorney, FINRA Series exams with proof of active registration).
• Section 3: Likely employment history (inferred from structure, as Page 4 is truncated in the provided excerpt, but continues the form’s progression).
• Section 4: References (Page 5): Requires three non-relative, non-employer references (name, business, address, phone) known for at least five years.
• Section 5: Disclosure Questions (Pages 5–8): A series of yes/no questions on financial issues (e.g., bankruptcy, foreclosures, bonds, judgments, child support), criminal history (felonies/misdemeanors involving fraud, theft, etc., including organizational involvement), civil judicial actions, regulatory actions (e.g., violations, revocations by agencies like SROs), customer arbitration/litigation, and termination disclosures. Affirmative answers require detailed attachments. Events during IFE association must be reported immediately to OCIF.
• Section 6: Additional Documents (Page 9): This section, the focus of the summary, requires submission of supporting materials as part of the form:
  • Two 2×2 photographs.
  • Financial Statement:
    • For shareholders/controlling persons: Audited statements for the three preceding years, prepared by a CPA, including balance sheet, income statement, and cash flow in U.S. GAAP (or equivalent) and USD. “Control” means power to influence management/policies.
    • For new directors/officers: Recent compilation by a CPA is acceptable.
  • Criminal Background Check (Criminal and Reputational Review): Prepared by approved firms (e.g., Kroll, NFC Global, Kreller Group, JS Held), covering all business jurisdictions and associates; sent directly to OCIF.
  • Credit Report: For shareholders/controlling persons, the most recent from national repositories.
  • Resume.
  • Negative Debt Certification: Issued by Puerto Rico Treasury Department (if applicable, e.g., for PR residents).
  • Passport copy.
  • USA Visa ID (if applicable).
• Sworn Certification (Page 10): A notarized affidavit affirming the form’s truthfulness, with spaces for signature, affidavit number, personal details, and notary seal.

The form must be initialed on each page and emphasizes ongoing disclosure obligations. It’s an official, unalterable document designed to assess fitness for IFE roles.