Swiss Bank Accounts: Separating Fact From Fiction
Senior Editor, CNBC
Mention the words Swiss bank account and it can bring to mind corrupt politicians hiding vast sums of money, drug lords laundering ill gotten gains or filthy rich American citizens trying to avoid paying taxes. The reality, however, is quite different from the myths.
“Swiss banks must verify your identity and won’t accept your business if they think it is illegal, says Ken Wassell, CEO of Los Angeles, California-based Offshore Company, a firm that aids its customers in overseas financial services. “About five percent of applications a year are turned down because of possible fraud,” says Wassell.
It doesn't stop there. James Nason, spokesman for the Swiss Bankers Association, adds that Swiss banks must not only verify your identity but also verify the source of the funds you are putting in the bank. “And besides that,” says Nason, “the beneficiary of the funds must also be positively identified.”
That’s not to say there isn’t secrecy in having a Swiss bank account. Any Swiss banker today who reveals your information without your consent risks prison time by law. And there is secrecy when it comes to issues like inheritance or divorce. It’s up to plaintiffs to prove someone has a bank account in Switzerland, if they want access to it through a lawsuit.
There are, of course, exceptions to the secrecy rule, especially concerning crimes such as gun running and drug trafficking. Swiss banks are forbidden by law to accept money which they know might be as a result of a crime.
And when it comes to names, the so-called secret numbered accounts in Swiss banks are not completely secret.
"Yes, banks can set up an account by number only," says Nason," but you will have to go through the same process to open the account as a named account—at greater expense. Your name will be known to several upper management types in the bank and there are records of ownership."
Origins Of Secrecy
The concept got its start in the 18th century, when a group called The Great Council of Geneva passed a law in 1713, preventing banks from sharing information about their clients.
The modern Swiss banking system started in 1934 during the global depression era when France and Germany pressured Switzerland to divulge depositor information as part of an effort to prevent capital flight. Switzerland, in trying to maintain sovereignty, passed a law making the disclosure of such information a crime. And in 1984, some 73-percent of all Swiss citizens voted to keep bank secrecy.
Any American Swiss bank account holder does not pay taxes to Switzerland. But if an American is looking to hide money from the IRS, a Swiss bank account won’t do much good. As of January 1, 2001, unless a foreign bank obtained a status of QI or “qualified intermediary,” the bank must report to the IRS all earnings received from the U.S. and the names of the beneficial owners. If the bank does have a QI, which keeps a bank’s secrecy if it follows strict regulations, U.S. citizens can only have money in the bank if they are willing to disclose their identity to the IRS.
Opening An Account
If you still want to open an account, it's not complicated but it does take some time, effort and of course, money. A search on the Internet for Swiss bank accounts suggests that you don’t need much money to open an account, but that is one of the myths about how the system works.
Nason says that while the deposit amount varies for each of the more than 400 banks in Switzerland, most of them are looking to invest the money for a depositor, and not just hold it to generate a minimal amount of interest.
“I get letters nearly once a month from Americans asking about Swiss banks,” says Nason. “I recently got one from a man in Virginia, asking for help in finding a bank to hold his retirement savings account for him and his wife. But that’s not what Swiss banks really do. They are into professional asset management. A six-figure sum is usually the starting point for opening an account.”
Wassel says it’s more like $250,000. “Most people opening a Swiss bank account or doing so for privacy and from potential litigation,” says Wassel, “and to protect their assets.”
Besides the right amount of money, there is also the vast amount paper work to consider. Here’s what you more than likely need to have to set up an account:
? Valid Passport
? Verification of Address
? Documents to prove economic background
? Documents to prove economic origin of money being deposited
? Identification of any beneficiaries of the account
? You must be 18 years old
? You must go in person or have a financial service company open it for you
"Americans account for a very small percentage of our business currently," says Francois Xavier of Micheloud & Co., an immigration and financial consultancy based in Switzerland, which helps people set up accounts in Swiss banks.
"The QI regulations are definitely slowing banks down when it comes to Americans opening Swiss accounts," says Nason." It's a lot of regulation for these banks to conform with."
“There are less Americans now then during the Reagan administration because inflation was so high then,” explains Xavier. “People tried to escape the erosion of the American dollar. Maybe if things [economically] get worse in the U.S., that will change and more of them will open accounts.”