Is Bank Secrecy Dead?
To quote Mark Twain, "The rumors of my death have been greatly exaggerated"
I'm including an article regarding bank secrecy written by Mark Nestmann.
I've added something about the best way to hold an offshore bank account after the article.
Earlier this month, a dispatch from the Reuters news agency announced that Switzerland had officially ended bank secrecy. But to paraphrase Mark Twain, the rumors of this death are greatly exaggerated.
It’s true that Switzerland, along with every other major country (with the notable exception of the US) has signed on to implement the “Common Reporting Standard” (CRS). This is a supposedly voluntary standard from the Organisation for Economic Cooperation and Development (OECD) that sets up legal and technical infrastructure for countries to automatically exchange information from their financial institutions with tax authorities in other countries.
More than 100 countries have already agreed to implement the CRS. And while the CRS doesn’t specifically target low-tax jurisdictions, the new standard overwhelmingly benefits high-tax countries at the expense of low-tax ones.
What Reuters failed to mention, though, is that for virtually every purpose other than tax and serious criminal activity, bank secrecy in Switzerland remains intact. And Switzerland is determined to enforce it.
For instance, in 2015, a Swiss court sentenced Hervé Falciani, a former employee of HSBC’s Swiss private banking arm, to a five-year prison term. The conviction was for aggravated industrial espionage, data theft, and violation of commercial and banking secrecy.
This case conveys a great deal about the Swiss attitude toward bank secrecy. And three years later, that attitude hasn’t changed. For instance, last April, Raiffeisen, another Swiss bank, sent 114 clients banking statements for other customers. In compliance with Swiss law and banking regulations, it immediately reported the data breach to police and to the Swiss banking regulator. Those persons found responsible for the data breach could be imprisoned.
It’s easy to understand why Switzerland takes bank secrecy so seriously. Swiss banks and asset managers hold more than $7 trillion of the world’s wealth. That makes Switzerland the world leader in asset management, with more than 25% of the global market. Swiss banks employ nearly 100,000 people. And there are thousands more working in related businesses like asset management and trust administration, etc.
Bank secrecy in Switzerland originated in 1713, when the City Council of Geneva passed an ordinance that prohibited bankers from divulging any information about their clients’ transactions, except by agreement with the cantonal council. But it wasn’t until 1934 that the Swiss federal parliament enacted a national bank secrecy law. It punishes bankers who violate this trust with fines and prison sentences up to five years.
Bank employees covered by the law as are bank agents and representatives. Even a negligent violation of the secrecy rules is a criminal offense.
Switzerland’s militant attitude toward bank secrecy infuriates international busybodies. The Tax Justice Network – a leftist consortium dedicated to maintaining high tax rates globally – gave Switzerland the top rank in its 2018 Financial Secrecy Index. While the rating was intended to denigrate Switzerland as a “secrecy haven,” many Swiss citizens consider the rating a badge of pride.
While bank secrecy is highly controversial, there are some very practical reasons it exists in Switzerland and numerous other countries. The origin of Switzerland’s bank secrecy law is especially telling.
Until the 1930s, violations of bank secrecy weren't subject to criminal sanctions. However, when Adolf Hitler seized power in neighboring Germany in 1933, the Nazi secret police (Gestapo) began confiscating Jewish property. Many Jews responded to this threat by moving their assets out of Germany, often into Switzerland.
The Gestapo began making inquiries at Swiss banks about Jewish depositors, often through bribery or subterfuge. A bank employee might be asked to credit a small deposit to the account of "Mr. Josef Silverberg from Hamburg." If the deposit was accepted, this was considered proof that the individual had a Swiss account. In response, Switzerland enacted a federal bank secrecy law, backed by criminal penalties.
Bank secrecy should therefore be viewed not as a shield to criminal activity but as an essential element to protect wealth against its most threatening predators.
Bank secrecy protects individuals and families in countries where the rule of law is absent or under siege. Kidnappers, blackmailers, business rivals, and anyone else eager to find whether someone is worth targeting all are deterred by bank secrecy laws. Without them, little stands between someone trying to protect their wealth and criminal syndicates determined to get their hands on it.
Is Swiss secrecy really dead? Only if you’re determined to cheat the taxman or your account funds are of criminal origin. Otherwise, the Swiss government has repeatedly demonstrated its determination to protect the data of legitimate bank customers from thieves, kidnappers, or extortionate governments.
That’s 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 if government investigators want to review your domestic financial records, they don’t need to show probable cause. They merely need 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 worth considering. Unfortunately, if you’re a US citizen, it won’t be cheap, because to deal with a Swiss private bank you’ll need a minimum opening deposit of $500,000 – often more.
But your timing couldn’t be better. With the recent series of hikes in interest rates, the US dollar has soared against most global currencies. Because of this strength, you can buy a lot more international stocks, bonds, or foreign currencies at a bargain price than in recent years.
Of course, the dollar could go up farther. But if you live in the US, is it wise to keep all your eggs in one basket and only hold assets domestically? Or have your bank offer your data to just about anyone who’s interested?
The next move is up to you. What are you waiting for?
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Did you know IRA's and retirement plans are exempt from reporting a foreign bank account making them the best way to own an offshore bank account. Larry Grossman