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Understanding Swiss Bank Secrecy

Swiss bank secrecy

Swiss bank secrecy began with the Banking Act of 1934. This act made disclosing account holder information to third parties a crime. As a result, substantial capital found its way into the coffers banks in Switzerland. The landscape is a bit different today. Nonetheless, the Swiss boast some of the strongest, most robust banks on the planet. You cannot necessarily “hide money” from the government.  But you can shield your funds from the law firm down the street that eyes you like a pack of hungry lions seeking its next meal.

Thus, if you want to get the most out of your asset protection plan, finding an offshore banking country with a reputation for banking secrecy is an important factor. What is one of the best ways to ensure your assets are there when you need them? Distance yourself from them. So, setting up an offshore asset protection trust that owns an offshore LLC and, and having a Swiss bank account inside of this structure that protects your privacy is a good way to do that.

Yes, the know-your-client regulations have changed in Switzerland. Plus,  Swiss banks are not going to help you evade your taxes. But privacy remains strong. That is, Swiss regulations still blind the prying eyes of those who wish see if you are a viable candidate for a lawsuit.

Many financial professionals would agree that few countries can rival Switzerland when it comes to banking secrecy. The country has a long history of protecting their account holders and maintaining account anonymity. This article will examine that history. Plus, it will explore what that might mean for individuals or companies interested in banking in Switzerland.

Switzerland Family Foundation

Taking Bank Secrecy Seriously

Switzerland is one a handful of countries that take extra measures to keep their clients’ bank accounts private and secure. International Living cites eight of these countries with bank secrecy laws as including Switzerland, Liechtenstein, Denmark, Austria, Singapore, Hong Kong, Panama, and Uruguay. Each of the countries has differing levels of protection and client confidentiality. But all of them have strong asset protection and privacy when combined with the proper legal tools.

When looking into just how private these secret banking countries are, it’s important to understand one thing. That is, there are still going to be “know your customer” rules with the creation of any account. No matter which bank you choose, the bank will still need identification information on their clients at the beginning of the process. Getting this information at the account creation stage is to avoid any illegal banking and money laundering. At the very least, these banks will require proof of citizenship and current residence. The bank might request other documents as well. These may include signing an IRS W-9 form. The bank may need to confirm your taxpayer identification number (TIN) and notify the IRS that the account exists.

Switzerland Map

Why Switzerland?

If there are so many countries with banking secrecy laws, you might wonder why Switzerland is the one this article is focusing on. Why are Swiss banks famous, and where did their reputation come from? The simple answer is that when it comes to banking privacy, experts still almost always place Switzerland right toward the top of the list.

Euroblawg has cited several of the reasons that people choose Switzerland. One of these is the economic and political stability of Switzerland. The country has remained neutral throughout the major European conflicts of the twentieth century. This neutrality has made it an ideal place to secure assets against confiscation and loss.

Low taxes are a large draw as well. Foreign account holders in Switzerland do not have to pay Swiss taxes on income, as long as the income did not come from a Swiss company or stock. Numbered accounts, also, held strong appeal in this offshore bank country. Numbered accounts protected the holder’s identity by assigning a number to their account instead of a name. The bank did not disclose these accounts to the public, or even to most of the employees of the bank. The numbered account is no longer available. Thus, in modern times, people open Swiss accounts in the name of an offshore LLC in order to enhance privacy.

Indeed, that is one of the biggest things that has made Switzerland famous in the banking world; the anonymity of their company account holders. This privacy has allowed many people to secure their assets in the face of legal issues, complex business deals, or just when their home country is politically or economically unstable. We’ll talk more about the rich history of Swiss banking secrecy in the following sections.

Swiss Bank History

Starting the Tradition

Swiss bank secrecy started over 300 years ago, according to How Stuff Works. It all began when the kings of France needed better banking options. They required strict secrecy, held substantial financial resources, and generally had the ability to pay back their loans. To address this need, the Swiss bankers of that time developed codes of secrecy regarding offshore banking for account holders. Although it started with royalty, this banker’s code kicked off Switzerland’s reputation as a haven for anyone seeking financial asylum.

Some financial legislation dates back this far as well. The Great Council of Geneva in 1713 established regulations that required all bankers to have registers of their clients. At the same time, it prohibited them from sharing the information outside of the bank. The exception to this requirement was if this need for information was agreed upon by the City Council. However, at this time, there were no criminal charges for bankers who did release information. Back then, only civil law regulated banking secrecy. That changed, however, with the Banking Act of 1934.

Bank Secrecy

Swiss Banking Act of 1934

Swiss banking legislation prior to the twentieth century remained a product of civil law. As stated above, the Swiss Banking Act of 1934 put banking secrecy into the national law. The reason behind the act’s creation isn’t concrete, The Guardian explains. Some attribute it to protection from the Nazi’s, who were beginning to investigate accounts of those they thought were enemies of the state. Others speculate that the act’s creation was a response to a French scandal. The media-fueled scandal exposed undeclared accounts of several big figures, including politicians and church leaders.

No matter the reason, the Swiss Banking Act of 1934 made it a criminal offense for Swiss banks to disclose the identity of their clients to anyone outside of the bank. Even within the bank, only a handful of bankers knew the client’s identity. This was especially the case for numbered accounts. Yes, they have amended the laws and some things have changed. However, a breach of confidentiality by a Swiss banker is still punishable by three years in jail.

Legislation

Swiss Bank Secrecy Legislation

One of the reasons Swiss banks are so trusted is that they have refined their banking laws over the years. Any changes to the Swiss legislative framework have required approval at least by Parliament and sometimes by the population as well, International Law Office explains. In 1984, the Swiss population voted on and rejected a measure that was aimed to suppress banking secrecy. In 1998, Parliament voted to reject the abolition of banking secrecy. A poll by the Swiss Banker Association (SBA) in 2000 showed that 77% of people questioned supported the current banking privacy laws, and 72% of people would oppose their abolition even if the European Union demanded it.

The Swiss legislation was not created to give criminals an easy out, however. Swiss secrecy regulations are lifted in criminal proceedings including money laundering, insider trading, stock manipulation, tax fraud, and more. In July of 1977, the first version of the Exercise of Due Diligence was issued by the SBA. Its purpose was to solidify the “know your customer” principles and actively fight against aiding tax evasion or international capital flight. New articles in the Swiss Criminal Code were added on money laundering in August of 1990. They also included penalties for banks for their failure to exercise proper due diligence. The Swiss legislature added articles against corruption. This included the corruption of public officials outside Switzerland. These were added to the Swiss Criminal Code in May of 2000.

Information Exchange

Automatic Exchange of Information (AEOI)

On January 1, 2017, Switzerland joined a host of other countries by adopting the automatic exchange of information (AEOI) system, RT explains. Other countries involved in adopting this standard include Argentina, Mexico, Brazil, Uruguay, India, and South Africa, according to the Federal Department of Finance. Switzerland has agreed to automatic information exchange with a total of 38 countries, and is working on pacts with more.

AEOI is global standard started by the Organization for Economic Cooperation and Development (OECD) to fight tax evasion. Under this standard, all banks will automatically send client information to national tax authorities with data on foreign residents. The bank, in turn, will convey the information tax authorities in the client’s home country. Institutions share this information once a year, and AEOI works both ways. Switzerland will also receive information on foreign accounts held by their citizens.

This standard is meant to stop wealthy foreigners from hiding undeclared money in Switzerland and ensure that tax law is being followed worldwide. It will not change anything for account holders that are following the tax laws of Switzerland and their home country. The Swiss government issued a statement about the agreement that said, “This will contribute to strengthening the competitiveness, the credibility, and integrity of Switzerland’s financial center.”

The bottom line is, the Swiss will give honorable people safe havens for their financial resources. However, they act as a conduit to help people break the law.

Set up bank account

Opening An Account

When you’re ready to secure your assets in Switzerland, the requirements will vary depending on the bank you choose. To ensure you get the most out of your asset protection, be sure to consult an asset protection consultant first at the phone number above on this page. We can help you navigate the Swiss banking system and make sure that you are getting the best account to fit your individual needs.

There are over 400 banks in Switzerland, CNBC says, giving a wide variety to choose from. A Swiss bank account minimum deposit usually starts in the hundred thousands, with an average at or above $250,000. Account holders must be at least 18 years of age. Several banks require your or a financial service company, such as our firm, to finish the account opening process.

Talk to one of our experienced asset protection consultants today and see if a taking advantage of Swiss banking secrecy is a good fit for your asset protection plan. You can contact us by calling one of the numbers above or using the form on this page.

Last Updated on May 13, 2019