Switzerland is the world’s largest offshore financial center with more than $2.2 trillion of offshore assets. Earlier this year, the U.S. Justice Department declared that it expects to collect more than $1.36 billion from 80 Swiss banks as part of a broad legal settlement. Numerous Swiss banks admitted to planning illegal tax strategies to enable U.S. taxpayers conceal income from U.S. tax authorities through an intricate web of offshore accounts.

In 2009, UBS paid $780 million to the U.S. government and turned over more than 4,000 names to avoid criminal charges. In 2014, Credit Suisse pleaded guilty to one charge of encouraging tax evasion and paid $2.6 billion as part of a settlement to the Justice Department.

Collectively, in the last 6 years, the U.S. has collected more than $13 billion from individuals and financial firms in connection with secret offshore accounts whose singular objective is to evade paying taxes.

Why Swiss Banks?

Swiss banks typically offer two prominent rewards for depositors ― privacy and the low risk. Because Swiss laws forbid their bankers from disclosing the existence and identity of individual accounts without the consent of the account holder, depositors are able to hide their financial assets under a cloak of secrecy. Additionally, because the Swiss franc has virtually zero inflation with the backing gold reserves (at least 40%), depositors’ exposure to foreign currency risk is negligible. The political neutrality retained by the Swiss government in world affairs ensures very little political risk as well. Given these distinct benefits, Swiss banks have become a notorious haven for parking (un)accountable money.

Private vs. Retail Banking

Switzerland offers a wide array of private and retail banking services. Private banking refers to services provided by banks to private individuals with unusually large assets. Historically, exclusive private banking service has been reserved for those with liquid assets over $1 million. The services in a private bank include private counseling in wealth management, investments, tax concerns, and estate planning. Many private banks require a special invitation or referral by current customers.

Retail banking, on the other hand, is your traditional mass-market banking system offering checking, savings, personal loans, mortgages and other types of accounts for individuals. While many retail banks also offer investment services, they are not at the level of those offered by private banks.

EU and Swiss Banking Agreement

The European Union (EU) and Switzerland have agreed to exchange information on the bank accounts with the intention of preventing EU citizens from hiding undeclared income in Swiss banks from 2018. The pact means that EU countries will automatically receive the names, addresses, tax identification numbers and dates of birth of their residents with accounts in Swiss banks thereby making it almost impossible for EU citizens to hide wealth from EU-based tax jurisdictions.

The European Commission is negotiating similar agreements with Andorra, Liechtenstein and Monaco, which are three European microstates with very low levels of taxation and a popular destination for depositors intending to hide their financial assets from tax authorities.  

Tax-Free Rest of the World

Unfortunately, there are no such agreements between Switzerland and the rest of the world. Therefore, for the time being, citizens of non-EU and non-US jurisdictions are relatively free to evade taxes by tapping into the sophisticated Swiss banking system.

The irony is that countries with the maximum need for resources to fund investments in infra-structure, education and healthcare are unable to rely on tax-based revenues to fund their growth because of the private banking system. Largely because of corruption, governments of developing countries and emerging markets have very little economic incentives to enact measures, or to create bilateral agreements, to limit tax evasion.  

Benjamin Franklin once famously said “In this world nothing can be said to be certain, except death and taxes.” For much of the world population, while death is a forgone conclusion, paying taxes is not; thanks to Goddess Helvetia.

The link below identifies ways financial transactions were structured to evade the origin of funds and avoid taxes.

http://www.wsj.com/articles/inside-swiss-banks-tax-cheating-machinery-1445506381

February 20, 2016; 7.58P

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