Offshore Investments in Switzerland

I left Zurich recently after a three-day visit. Not having visited the city in winter before, I saw a side of Zurich that I'd not previously encountered. Everything still works flawlessly, and the trains leave exactly on time–not even one minute late. But prices are somewhat more affordable in winter, now that most tourists have departed for warmer climates.  It was the perfect opportunity to research offshore investments.

I came to Zurich to look into some alternative offshore investment arrangements for our U.S. clients. As regular readers of these posts realize, most offshore banks, money managers, and trust companies have severed relationships with their U.S. clients. There are numerous reasons, but by far the one most cited is a notorious U.S. statute with the acronym "FATCA": the Foreign Account Tax Compliance Act. Then there's the Dodd-Frank law, comprising more than 2,000 pages of mind-numbing bureaucratese.

The bottom line is that it's extraordinarily difficult for a foreign financial institution to do business with U.S. citizens or residents without:

• Agreeing to provide details of all U.S. client activity to the IRS, even if doing so violates local law.
• For financial institutions or asset managers who purchase securities on behalf of U.S. resident clients, jumping through all the hoops necessary to become a "registered advisor" with the U.S. Securities & Exchange Commission.

It's not surprising that most offshore financial institutions have simply decided it's not worth dealing with U.S. clients regarding offshore investments. In the last two years, I've received hundreds of inquiries from panicked customers informing me their bank or asset manager has either informed them they must close their account, or limit themselves to investments that don't involve securities trading; e.g., spot FX, loans, or deposits. Not only does this greatly reduce the utility of offshore investing, but it magnifies risk, because all client assets remain on the bank's balance sheet.

However, the United States remains the world's largest economy. And the free market has produced hundreds of thousands of very affluent investors. Many of these investors want to invest outside the United States, if only to diversify risk outside their own country and their own currency. With the vast majority of international banks and asset managers slamming the door on them, an opportunity has emerged for offshore entrepreneurs. The opportunity is obvious: Negotiate the IRS and SEC regulatory maze and set yourself up to deal with U.S. clients. If you do, U.S. investors will beat a path to your door.

In my visit to Zurich, it became apparent to me that this trend is well advanced. Numerous banks have set up SEC-registered subsidiaries that now can deal with U.S. clients. Even a larger number of asset managers have set up SEC-registered subsidiaries. These managers then deal with Swiss banks willing to comply with FATCA, but who don't wish to subject themselves to U.S. securities laws. The banks function purely as custodians.

I think this trend will continue, and not just in Switzerland. The U.S. market is too large to ignore. One asset manager I spoke to says he anticipates a flow of more than $40 billion in U.S. assets into Switzerland alone in the next year or two as a consequence of these developments.

This is very good news for U.S. citizens and residents. If your offshore bank has informed you that it is closing your account, or restricting your ability to trade securities, and you have at least $500,000 to redeploy to a Swiss money manager, please contact me at info [at] nestmann.com. I’d be happy to discuss your options with you.

Minimums are lower outside Switzerland. We can assist you in opening accounts at FATCA-compliant banks in Austria and Denmark for a minimum deposit of $200,000.

Copyright (c) 2012 by Mark Nestmann