The Truth About Swiss Bank Accounts

February 23, 2011 No Comments »

When you think about Swiss Banks, the first thing that comes to mind is likely Switzerland’s well-known commitment to privacy. The Swiss banks have been getting money from the rich and the filthy-rich since the Middle Ages. These account holders are then known externally only by their account numbers, and only the banks know their true identities.

The primary reason for many people to use Swiss banks in the past was to evade taxes. Others have been known to use it for sheltering their money from being stolen, especially during times of war. Then there are some that simply opened a Swiss bank account because it was convenient when traveling or vacationing in Europe, because they could simply withdraw money with their own Swiss credit or charge cards.

Related: Foreign currency bank CDs may advertise higher interest rates but with greater risk due to lack of FDIC insurance. Some domestic banks will allow Americans to invest in growing economies around the world through bank deposits in foreign banks.

Who are the primary customers?

There are a few types of people that come to mind, such as politicians, celebrities, dictators, socialites, industrialists, financiers, white-collar criminals, and those who just don’t trust traditional banks. Some top criminals were known to have Swiss bank accounts, like Boston crime boss James “Whitey” Bulger, but run-of-the-mill Swiss nationals and legal residents are the main account holders at Swiss banks.

You may think they are exclusive, but in reality, anyone can open an account. You don’t have to have large amounts of money to open one either. At their web site Swiss-Bank-Accounts.com, anyone can open an account with as little as 5,000 francs. Right now, that’s just over $5,000. The American dollar is weaker than the Swiss franc, which has powered through the global crisis and avoided the drastic devaluation that has hurt other currencies.

How do you set up an account?

  • Like many domestic banks, you can often apply online. Or you can also apply by “correspondence”, or letter, at the bank of your choice.
  • You can transfer money from your bank to the Swiss bank through wire or the Internet, or mail a check or money order.
  • Paypal and Western Union can sometimes be used to fund the account, but contact the bank beforehand.
  • You may also be able to use a debit card or credit card to fund the account.
  • Go to a local branch of the Swiss bank, like Credit Suisse.
  • Or take a trip to Switzerland and visit a bank branch.

With these mundane techniques for opening an account, you may be wondering how confidentiality could possibly be maintained for account holders, especially with the electronic and paper trails they leave behind. But clients of these banks tend to be a bit more ingenious with ways to hide their funds, like using wire transfers and doing multiple offshoring, all the while opening and closing accounts until their money has reached the Swiss bank.

Of course, it’s useful to have the help of unscrupulous brokers, bankers and accountants. They help account holders by placing accounts in the name of other offshore companies, preferably with a multi-layered global presence. These corporations can be intentionally ambiguous phantom organizations with store-fronts and web sites that miraculous disappear and reappear with different names.

The USA Today recently reported on a prime example of this kind of illicit money transfer ingenuity. Leon Cohen-Levy and Mauricio Assor, father and son hoteliers, were accused of placing revenue from a sale of one of their hotels into an anonymous HSBC account that was officially held by a Panamanian firm, and the two men didn’t report their sale to the Internal Revenue Service.

The privacy laws behind Swiss banks have brought on a lot of suspicion regarding non-government and government organizations that have their money stored in offshore Swiss accounts. Accusations have been raised that the Swiss banks’ cloak of privacy has protected drug lords, dictator, suspected tax evaders, and terrorists.

Sound like fun?  Think again

America is proactively looking to uncover any American money that has been laundered using Swiss banks. Back in January of 2003, the U.S. Treasury announced that it would be signing an agreement with Switzerland that will involve sharing information for tax purposes. In March 2009, Switzerland agreed to increase their anti-money laundering laws to honor their agreement with the U.S. So now that the 2009 treaty is in effect, account holders of Swiss bank accounts are required to be identified and any transactions that are suspicious must be reported to the Money Laundering Reporting Office.

Criminal charges are also to be filed against 4,000 or so Americans who had an account with UBS. These account holders will be fully audited and will be liable for tax repayments and penalties, unless they are given leniency by the 2009 IRS voluntary disclosure program. This program has since ended, but the Justice Department and IRS are still putting pressure on suspects of UBS and other offshore bank account holders.

With the U.S. deficit mounting, and taxes inevitably on the rise, more and more U.S. citizens are being tempted to open up offshore accounts for their money. Even with all of the risks involved, like imprisonment, large fines, and disclosure threats, some are still risking it anyway. I, on the other hand, prefer just to keep my money close by.

This post comes from the NerdWallet.com team of financial bloggers and experts in helping consumers compare rewards credit cards.

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