Offshore Banking, Numbered Accounts, and bye bye UBS

This is about bank privacy in the age of Wikileaks.
If you want expert advice of course you would go to a financial adviser. What follows are my general thoughts on offshore banking, from the point of view of the very interested observer. And it involves much talk about the IRS (the tax collecting arm of the US Treasury).

First, it needs to be said, and said often, that these days the majority of people go offshore for perfectly legitimate reasons, being more interested in asset protection and capital preservation - and privacy and not having their details leaked all over the internet - than anything to do with tax.

And remember, tax planning, tax avoidance is NOT illegal. Tax evasion is.
The United States Supreme Court has stated that "The legal right of an individual to decrease the amount of what would otherwise be his taxes or altogether avoid them, by means which the law permits, cannot be doubted." See Gregory v. Helvering.

After the UBS/IRS storm a lot of investors, not surprisingly, are wary of Swiss banks.



You're a beautiful little country, Switzerland,
but we're saying Good Bye!
(photo from Switzerland.trips.com)

 Privacy is an important part of international planning and the feeling now is that privacy is under threat in Switzerland.

There has been a big fall-out from the UBS debacle, when the bank handed over names and private details of 4,450 of its clients to the American I.R.S. UBS has closed thousands of accounts where American residents or citizens were involved as signatories, including those who had been with them for decades. I make no more comment on the behaviour of UBS than to say this tells me all I need to know about Swiss banking.

Sadly but understandably after all this, Americans are not these days sought after as clients and their options are becoming limited.

So, for offshore banking, where are we now?

In earlier days one was recommended to the smaller Cantonal Banks in Switzerland, small local banks unknown outside their local area of Switzerland, who operated *numbered accounts (see below) and who did not outsource yet had the sophisticated expertise of their bigger cousins. The cantonals were thought to be safer, and because of their low profile less likely to be the target of people like the IRS. There are 24 of these small commercial banks, who account for 30% of Swiss banking business.

However, the IRS have opened branches all over the place, and are bustling about the world busying themselves with everyone's private affairs, and are at this moment chasing one of the larger cantonals, Basler Kantonalbank, and prosecuting a former UBS banker turned investment adviser, for advising his American client to conceal a cantonal account from the IRS. So that's the end of Cantonal Banks for most people. And Switzerland, too, as far as I'm concerned.

The fact is that, in the climate created by the IRS, no financial advisers or banks want anything to do with the unfortunate American client these days, because they would expect to have the IRS breathing down their necks at every turn.  It's as though the IRS doesn't want Americans to take their money out of the US.  America of all places is the land of  the free but these days Americans don't seem to have much freedom of movement with regard to their own money. It;s more a case of  'listen up, dude, keep your money at home or we're going to hound you to hell and back'.

*(All bank accounts are numbered, of course. But what is traditionally meant by the Numbered Account is one which does not appear on the bank's computer system. Your name and details will be in the bank's vault, and accessible and known only to a very few people, often just the President of the bank and one other highly placed person. The Wikileaks problem only arises when your private details are accessible to comparatively junior members of staff, who have no real stake in the bank, and usually have a grudge against their employer, and are simply looking to make money through their inside knowledge. So, in these days of Wikileaks, it is essential to have a classic Numbered Account as described above.)

So, if not Switzerland, where?

We have to refer to citizenship here. These days, because of the IRS, US citizens' options are more limited than, say, Canadians or Australians - many offshore banks no longer accept Americans as clients.

But even if you are a European, including UK citizens, you have to be careful. For you, the European Union Savings Tax Directive applies, so you must look for one of the tax-haven banking countries that is not a signatory to this treaty. That cuts out Switzerland (see what I mean), Andorra and the Cayman Islands for a start, and means you must look further afield to places like Panama or Singapore.

Obviously, Singapore has attracted a lot of attention, particularly from American investors. But again, it seems to me one has to be careful. Canadians might be OK, but be aware that both the EU and especially the UK, have strong influences there, and have proved very antagonistic to quite legitimate offshore banking.

Anyway, Europeans are not the target market for Singapore, though they are generally welcome. And Americans? They will be accepted, but the number of banks willing to work with Americans is smaller, I hear, and the entry level in terms of minimum deposits is quite a bit higher.

Personally, I agree with the advice that it's better to go for less high profile banks, and most certainly a bank that does not have offices or branches in your own country. And no out-sourcing. Glossy ads and high profile marketing attract far too much attention.  And do not go for convenience. Keep as far away as possible, geographically and culturally, from your home country and the places where all your fellow countrymen do their offshore banking.

For Europeans, think Latin America, maybe Panama and Uruguay. For Americans, look in the more obscure corners of Europe. But basically, look around and check them all out for yourself, because everyone's requirements are different.

And look for the culture of the bank and of it employees. Because we now have the added problem of the leaking culture, the disloyal, grudge-bearing syndrome of those that take their employers wages and then turn on them and their clients and sell private information to the highest bidder. And don't tell me there's any other nobler motive. It's done for money, pure and simple.

Insist on a real Private Numbered Account.

And monitor the situation the whole time, because things, institutions, laws, change - so keep your eyes on your investments, don't leave it entirely to your advisers, check everything frequently and keep watchful.


And Good Luck.