Secret Swiss bank accounts are infamous in the public eye, largely thanks to James Bond movies, and for getting a number of the world’s biggest lenders into hot water.
UBS finally confirmed that it is under investigation by the US authorities, again, for helping rich Americans to evade taxes. It already stumped up £512 million in 2009 to settle a tax evasion probe.
Meanwhile, HSBC is suffering from a serious financial data dump by whistleblower Herve Falciani, which resulted in the leakage of thousands of clients bank account details and millions of pounds recuperated in tax.
So how does the Swiss banking system work?
How to get a bank account
Setting up a secret Swiss and Luxembourg based bank account isn’t as tricky as you may think. As with all bank accounts, you fill in forms and provide identification.
However, as one former private banker detailed, the level of scrutiny over identification over the last decade and significantly changed.
“In the late ’90s it took only a couple of sheets of A4 to register a new account,” Jay Vaananen, who anonymously wrote about the secretive world of private banking for years, told Business Insider UK.
“By 2005-2007, the amount of paperwork increased to around 10 sheets but by today’s standards, you need to go through around 100 pages.”
Due to the level of secrecy around the Swiss and Luxembourg banking industry, the scrutiny over identification is a lot tougher than it used to be. If you notice, the UBS and HSBC data and subsequent investigations all centre on the pre-credit crisis period and mainly in the early 2000s.
“I believe when HSBC says things are different now, because the industry has massively changed since 20 years ago. The attitude has dramatically changed from that time toward banks and tax accountancy. Banks are scared sick of inadvertently falling foul of regulators.”
What does a ‘secret’ bank account get you?
Unlike regular bank accounts, Swiss ones use numbers and not names. Under law, bankers do not have disclose the existence of an account, who it belongs to, or any other information, without your explicit permission or in very special circumstances.
Effectively, if you are seriously wealthy individual, like music legend David Bowie or fashion designer Diane Von Fürstenberg, you are able to hide the amount you have funneled away from the authorities. Whether you have £1 or £1 million in your bank account, no one will be given that information without you authorising this first.
This secrecy extends to the banks’ own directors.
“People forget that in Switzerland and Luxembourg, where I previously worked, the secrecy laws around banking are so strict that even other units within the same lender would not be privy to the information under the Swiss or Lux unit,” says Vaananen.
“Even if you sat on the board of directors at the parent group, unless you sat on the board of directors of the Swiss or Lux unit, you would not have information relating to the activities or clients at that bank. You’d only have overall profit figures and so forth.”
While Stephen Green, the CEO of HSBC bank group from 2006 and 2010, has not commented on the Swiss bank account data leak, the UK government is calling for him to give evidence.
Considering he was also chairman of HSBC Private Banking Holdings (Suisse) though, he could face a tough grilling.
What do private bankers do for you?
Private bankers are there to invest your money and seek out the more effective way in reaping in high returns for the wealthy. They don’t sort out your tax returns, that’s what accountants are for.
“The job of the private wealth banker is, of course, to invest clients money and deliver as favourable returns as possible. Banks did not care whether its client was declaring tax in its home country, that was the responsibility of the client’s accountant. The clients tax status was irrelevant outside Switzerland,” says Vaananen.
“This is not to say that banks were not aware of clients’ tax issues. From the Birkenfield leaked information, there were times when UBS bankers had allegedly smuggled diamonds in toothpaste tubes to avoid the IRS.“
Why everyone follows the US regulators’ lead
The HSBC scandal has landed on a variety of European government’s doorsteps but, usually, they follow the US’ lead in investigating and prosecuting firms and individuals.
The tax rules across different countries are horrendously complex. However, the US Bank Secrecy Act of 1970 and the USA Patriot Act actively helps the country to break down the walls in order to penalise serial tax evaders.
“Putting the moral element aside, you have to remember that leaking the private Swiss bank account information in the manner that Herve Falciani did was a criminal act. This can make it difficult, from a legal standpoint, to use in evidence is various jurisdictions,” says Vaananen.
“The US has become the stepping stone for for European regulators to launch investigations into several banks. Only the US has the real muscle and success is striking deals with the banks over a variety of financial scandals, especially tax evasion and avoidance.”
Belgium is mulling over whether to issue arrest warrants for directors for the Swiss division of the bank. France said it would like to see a coordinated European effort when it launches its investigation into the lender.
In the UK, the latest comment from Britain’s taxman shows how domestic regulators sometimes are seen to be ‘asleep at the wheel.’
“We received the data under an international treaty agreement with France, which had tight restrictions. We couldn’t move it outside the department; we could only use it for tax evasion purposes,” said an HMRC spokesperson when the BBC asked about why it did not notify the Financial Conduct Authority of the HSBC investigation.