Swiss Banking Secrecy and US Citizens
There’s lots of scuttlebutt in the mainstream press – and beyond – about how bank secrecy is dead. But to paraphrase Mark Twain, “The rumors of my death are greatly exaggerated.”
To be sure, there’s an element of truth to this assertion. Thanks to laws like the Foreign Account Tax Compliance Act (FATCA), every non-US financial institution in the world must now identify their US clients. And once they do, they must share details of those clients’ transactions with the IRS.
It’s safe to say that if you’re a US citizen, offshore bank secrecy no longer exists when it comes to the IRS. But it’s certainly not dead for other purposes, and a recent case out of Switzerland proves my point.
5 Reasons to Have an Offshore Bank Account
An offshore bank account is often seen as exotic and slightly mysterious. But there are actually several practical reasons to get one. Find all the information here: Why have an offshore bank account.
The Hervé Falciani Case: Swiss Banking Secrecy and Data Theft
In November 2015, a Swiss court sentenced Hervé Falciani, a former employee of HSBC’s Swiss private banking arm, to a five-year prison term. The criminal conviction under Swiss law was for aggravated industrial espionage, data theft, and violation of commercial and banking secrecy.
From 2006–2008, Falciani worked in HSBC’s information technology department. While there, he secretly downloaded the account details of more than 100,000 HSBC clients. He is alleged to have then sold this information to tax authorities in France. Although Falciani claims his only motivation was to expose tax fraud at one of the world’s largest banks. Subsequently, France and other countries used the information Falciani provided to prosecute numerous prominent citizens for tax evasion.
It’s not likely that Falciani will ever spend a single day of this sentence in prison. He’s a dual French-Spanish national living in France, and both countries have refused extradition requests from Switzerland.
This case conveys a great deal about the Swiss attitude toward bank secrecy. In France and Spain, Falciani is considered a national hero for exposing wrongdoing at HSBC. But Switzerland insisted on prosecuting him for his data theft – and obtained a five-year conviction.
Swiss Banking Landscape
It’s easy to understand why. Swiss banks and asset managers hold nearly US$2 trillion of global wealth. Indeed, despite the bad publicity Switzerland has received in recent years, it still holds more of the world’s wealth than any other country.
The last thing Switzerland wants to do is to encourage more Hervé Falcianis to commit industrial espionage.
Also, Switzerland has already agreed to end or greatly restrict bank secrecy in tax-related investigations. That means any employee of a Swiss bank considering a similar exploit isn’t likely to have an altruistic motivation. More likely, it will be for criminal purposes – to sell client data to identity thieves, kidnappers, or governments like Russia’s that have launched “de-offshorization” campaigns to stem capital flight.
Is Swiss banking secrecy really dead? Only if you’re determined to cheat the taxman or are trying to use funds of criminal origin to fund your account. Otherwise, the Swiss government has demonstrated once again its determination to protect the data of legitimate bank customers from thieves, kidnappers, or extortionate governments.
Are Swiss Banks Safe?
Switzerland is one of the most popular places for our private consulting clients to set up an offshore bank account. That’s not because we’re biased in favor of Switzerland, or against other countries. It’s just that, for wealthier US clients, Switzerland continues to roll out the red carpet. That’s just not true of many other places unless you have a local residency permit.
Given how much we talk about how to protect yourself against bank bail-ins, the main concern for many of our clients is to find a bank that is safe.
How did Swiss banks got their reputation as a place for safe and secure banking options? And do they still live up to it in today’s ever-changing financial landscape with ever more regulations and rules?
You can find more information here: Are Swiss Banks Safe?
US vs. Switzerland
That’s certainly more than you can say for banks in the US.
Not only do US banks use your data to market to you directly or through affiliates, many of them also allow non-affiliated outside companies to market to you based on the size of your account and the activity that occurs in it. You can opt out of some (but not all) of these marketing arrangements. But it’s not always easy to figure out how to do it.
And of course, if a US government agency wants a look at your domestic financial records, it doesn’t need to show probable cause. It merely needs to issue a subpoena certifying that the records are relevant to a current investigation.
All in all, if you’re looking for a secure place to stash some of your wealth outside the US, and you want it in a country that takes financial secrecy seriously, Switzerland is definitely worth considering.
Unfortunately, if you’re a US citizen, it won’t be cheap, because you’ll need to deal with a Swiss private bank with a minimum opening deposit of US$500,000 – often more. Fortunately, you can open accounts at banks in other countries with stringent secrecy laws, including Austria and the Cook Islands, with a much lower initial investment.
Swiss Banking Secrecy: Then and Now
The Swiss Banking Law of 1934 established strict privacy laws. They made it a crime for banks to reveal account holders’ identities.
Of course, many countries have never liked these laws. They think Swiss banks have been used to help their citizens evade taxes.
In truth, they have. And after a series of legal challenges by the US government in the late 2000s / early 2010s, Switzerland was forced to become much more transparent in terms of tax. It has signed an information-sharing agreement with the United States to ensure the IRS receives information from Swiss banks similar to the data received from domestic banks. Switzerland has also signed onto the Common Reporting Standard (CRS), which calls for similar data sharing with the tax agencies of more than 100 other countries. [Note: The US is not part of the CRS.]
However, this transparency only applies to tax.
At a private sector level, Switzerland is still very private. You can set up an account there and, if the funds used for this purpose are legitimate, the only agency that will know of its existence is the IRS.
The Best Swiss Banks
Here are what we consider some of the best Swiss banks, what makes them good, and the pros and cons of banking in Switzerland generally: best Swiss banks.
Need Help?
Over the years, we’ve developed a specialty in helping US clients move assets to Switzerland. As part of a wealth protection plan, we can help you too.
To learn more, simply book in a free no-obligation call with one of our Associates.
