Dateline: Kuala Lumpur, Malaysia
If you asked someone on the street about offshore banking, chances are, their mind will go directly to Switzerland.
Thanks to spy movies and the Wolf of Wall Street, Switzerland is the banking capital of the world in the mind of the everyday person.
The problem is that quite a bit has changed in the world of offshore banking.
Government regulation has changed how bank privacy works (if it does at all), but that’s not the only thing that has changed. Today, the average six- or seven-figure entrepreneur handles their money very differently than the high-net-worth individuals of the past.
The question you need to ask yourself now is, are Swiss banks really the best for your situation?
And if not, where should you go?
The History of Swiss Banking
Switzerland’s banks are a big part of the Cold War spy trope. Need a place to stash an exorbitant amount of gold for your evil, Soviet plot? Use a Swiss bank. Want to hide away a few extra passports in case of emergency? Swiss bank.
While you can’t trust a movie to get everything right, Swiss banks were the de facto institutions for banking secrecy for a very long time. So, the assumption is understandable.
Clients of Swiss banks before World War I could open an account in a friend’s name and come and go as they pleased without being bothered. Their information and funds were kept under a practically anonymous account number and their information was protected from the prying eyes of the government.
This was a very attractive style of banking for many entrepreneurs in the early 1900’s.
It became even more attractive right before World War I when many western countries began utilizing the income tax. The United States joined the bandwagon in 1913.
For entrepreneurs who had built up a small fortune, the secrecy provided by Swiss banks was a fantastic way to (often illegally) protect their money from income taxes.
The reputation of these Swiss banks only grew stronger with the prevalence of income taxation throughout the 1920’s and into the 30’s as the Swiss continually refused to aid governments in their efforts to track down tax evaders.
The more they refused to divulge their clients’ information to their governments, the more trustworthy Swiss banks became in the eyes of the upper class.
It wasn’t until 1932 that foreign governments started to fight back, beginning with France.
The French government authorized a raid on the offices of a Swiss bank located in France. The raid revealed that Swiss bankers had set up a system to help over 1,000 French clients evade capital gains and inheritance taxes.
While the raid was initially a political move meant to distract an unhappy public from the party’s dismal performance, it also sent a very clear warning to Swiss banks that France did not believe their practices were acceptable.
Switzerland responded by increasing transparency, but not as France had expected. Swiss banks became more transparent towards the Swiss government, but became even less so to foreigners, introducing a policy in1934 that made it a crime to disclose a bank customer’s identity to a foreign government.
After World War II, banks in other countries adopted similar policies to attract foreign investment. The Swiss become the model for every other aspiring tax haven to follow.
When the average person thinks about Swiss banking, this is the time period that likely comes to mind. Secret, numbered accounts. Tax havens for the obscenely wealthy.
But, it wasn’t going to last.
Modern Swiss Banks and FACTA
Since those first days of Swiss dominance in the world of offshore banking, the only real constant has been change.
Despite years of resistance, Swiss banks ultimately gave in to government demands for greater transparency. And, of course, the United States was one of the most persistent governments throwing its weight around to get Swiss banks to cave.
After pleading guilty to aiding US tax evaders, the Swiss bank Wegelin & Co, closed its doors after almost three centuries of business. They hadn’t broken any Swiss laws, but the US government still managed to claim millions in fines and restitution from the bank and completely put them out of business.
Since then, the Swiss government has required banks to provide the US government with details on US account holders and the banks have also closed the accounts of any American tax evader.
While the US government couldn’t force other countries to change their laws, they could force the banks in other countries to comply with US laws and compliance regulations by denying them the ability to do business in America.
The US government created the Foreign Account Compliance Act (FATCA), which essentially forces banks around the world to report information on their US customers.
FATCA has been in place for a decade now and other countries followed suit with the Common Reporting Standard (CRS). Both are mechanisms to demand information sharing between banks and governments, putting a serious dent in any bank’s ability to hide a client’s personal information (including Swiss banks).
More importantly, FACTA has created many problems for US persons looking to open offshore accounts for both legal and illegal purposes.
Created to discourage banks from accidentally or purposely dealing with criminals and terrorists, FACTA has pushed some banks to simply refuse to work with US citizens or residents at all.
Prior to FACTA, US persons were legally required to report foreign bank accounts to the IRS. The difference between previous, under-enforced methods and FACTA is that the compliance responsibility was on the tax-payer rather than the bank.
Now the bank has to report your account, and you do too.
The result is that, today, if you’re a US entrepreneur looking to move your money out of the US, you will need to jump through some hoops to make it worth it for offshore banks to do business with you.
Swiss banks will need a lot of convincing.
Swiss Banks and Modern Banking Secrecy
One of the questions we often get when talking about offshore banks, and especially Switzerland, is “Can I use an offshore bank to hide my money?”
If you read over the history lesson above instead of skipping to this section, you’ll know the answer is very clear:
No. Bank secrecy in the 21st century no longer exists.
In this day and age, the main benefits of going offshore center on the ideas of diversification, stability, asset protection, holding other currencies, and being able to access different kinds of investments you might not see at home. Squirreling money away in a secret numbered account just isn’t something you’re going to be able to do.
Swiss banks are now some of the most regulated in the world, both internally and externally.
The bureaucracy surrounding these banks has become large enough that there is an entire industry of people set up around helping you get an introduction and open an account with a Swiss bank.
But if you do work your way through the bureaucracy, there will be no hiding your money from your government. And no tax benefits.
That being said, there’s more to bank secrecy than reducing your taxes.
A friend of mine brought it to my attention that, while banks no longer have the ability to keep secrets from the government, many still have the ability to keep secrets from criminal enterprises.
In countries in South America, Southern Africa, Russia and the post-Soviet states, the purpose of bank secrecy is not to evade taxes but to avoid attracting the attention of the wrong people.
Bank secrecy laws in Switzerland and other countries will still work in your favor in this regard by limiting the amount of information the average banker or teller has about your account.
My friend, for example, has been running a business in Mexico. He told me that he keeps his account balances in Mexican banks low because the drug cartels will often pay off bankers for information on large accounts. The cartels use the information to pick targets they can shake down for a profit.
This isn’t going to be an issue everywhere you go and is becoming less of a problem in most places as the years go by, but it’s still going to be an issue that some people will want to take into account.
While Swiss banks are required to give your information to government agencies, they have very strict policies on which personnel within the bank’s structure gets to know what information. This protects you from corruption within the bank and keeps your information private.
Bank secrecy the way it was understood a century ago is very much dead. But, if you’re looking to limit the number of people who know your information, banking in wealth hubs like Switzerland could be worth your consideration.
Are Swiss Banks the Best in the World?
This is a complicated question and the answer is going to vary depending on the person asking it.
At Nomad Capitalist, we generally deal with younger, six- and seven-figure entrepreneurs who are a bit more modern and maybe even more transactional than others. Keep that audience in mind as you read my thoughts and look for how they could reflect on your particular situation.
The reality of the situation is that the world has changed over the last few decades. What has worked in the past won’t necessarily work now.
There are so many more options than there were in the “Wolf of Wall Street” era. Back then, China had less than 1/10 of the GDP that it does now. Entire countries that are now considered havens for wealth and opportunities for you to plant one of your banking flags weren’t even on the radar.
Today, Switzerland has a lot of competition.
The illegal and unsavory parts aside, Switzerland has historically done a pretty good job of marketing their services and keeping their clients’ money safe. But the modern offshore industry requires a little more than that from banks these days.
Are Swiss Banks Safe?
Switzerland may not be the universal answer for offshore banking, but, when we analyzed the research done by Global Finance Magazine, Switzerland came in second place for the world’s safest banks – right behind Germany, and right in front of the Netherlands.
Switzerland boasts a squeaky-clean reputation as one of the least corrupt nations in the world. A modern economy and infrastructure alongside a smaller population has led to a fairly peaceful nation devoid of political or economic corruption. Every form of bribery has been criminalized by the country’s criminal code.
Along with that, Switzerland also has no restrictions on how much cash you can bring into or out of the country and remains a good option for offshore gold storage.
These two facts may not affect your particular situation, but they are good to keep in mind if you’re thinking about trying to open an account.
How Do Swiss Banks Compare?
When we consider what makes the best offshore banks “the best”, we focus on the following criteria:
- Jurisdiction Quality
- Institution Quality
- Ease of Opening an Account
- Nomad Friendliness
Let’s break down how these apply to Switzerland.
Jurisdiction and Institution Quality
An offshore bank can never rise above the reputation of the country where it operates. But as we’ve established, Switzerland has a squeaky-clean reputation. The government is stable and so is the currency. No problems there.
You also want to work with banks in jurisdictions that are business-friendly. The benefit of opening a Swiss bank account is that you’ll be working with a reputable jurisdiction from the get go. You’ll have significantly less trouble doing business around the world using your Swiss account because of its stable history and intense regulation.
Reputation doesn’t tend to be a problem when working with Swiss banks.
However, you also want a jurisdiction that has not caved to pressure from the United States and other groups. On that count, Switzerland doesn’t fare as well.
And when it comes to the banking institutions themselves, many Swiss banks are run by experts and professionals who want to take responsibility for your money and help grow your wealth.
Coming from an entrepreneur who works with other entrepreneurs, this isn’t always something you want.
Many entrepreneurs don’t want their money tied up. They want to be able to access their capital to do what they judge is best with it. But the feeling I have had from many Swiss banks is that they know better than you do. They don’t want you to worry, they just want you to give them all your money and let them handle making sure there’s more when you come back.
I can see this being a problem, particularly for younger entrepreneurs who want to be in control. They don’t really like having to jump through hoops, answer a lot of questions, provide all kinds of documents, and put up more money for less control.
If your preferences are otherwise, then this may not be a problem for you.
Ease of Opening an Account
You want to find a bank that shows you they want you by making it easy to bank with them.
“Easy” is, of course, a relative term. No matter where you go, you won’t be able to open a bank account with the simple push of a button. You’ll either need to travel there in person or remotely send in all kinds of documents proving your identity to open an account.
Easy doesn’t mean without effort, it means a bank that has a streamlined process with good customer service. There are more than a few banks that reside in great jurisdictions with excellent financials that are an absolute nightmare to deal with.
Many banks in high-profile banking jurisdictions, including Switzerland, will not make it easy to bank with them. They will require numerous appointments to set up your account, request high deposit minimums for foreigners (especially for US persons), and provide mediocre customer service.
If you are not willing to deposit somewhere around a million dollars just to get open an account, Swiss banks will not even consider you.
But if you do have a million dollars that you’re ready to park in a stable banking jurisdiction, Switzerland could be the perfect opportunity.
I personally believe there’s more to gain from diversification.
There’s something to be said for the redundancy and opportunity that comes from opening a variety of smaller accounts in jurisdictions with a slightly lower reputation. If one bank decides to close your account, you always have somewhere to go.
Spreading your wealth to different countries also gives you the opportunity to invest in countries that will be closed to you otherwise. So, why not take that million and spread it out to increase your diversification and your opportunities rather than locking it all up inside Switzerland?
The last thing that should make or break the decision to work with a Swiss bank is how well they operate alongside your Nomad Capitalist lifestyle.
Do the bank’s policies and services impede or enhance your version of an international lifestyle?
When you’re doing your research into Swiss banks, there are a few different factors that will tell you how well the bank will fit.
First, you want a bank with robust online banking. As a global citizen, chances are low that you will be in the same country as your bank account every day. Good, efficient online tools will help you manage your account without needing to call or visit to resolve issues.
Second, you want easy ATM access. Some banks will charge high fees on international transactions or sound off fraud alarms and restrict your account if you spend money in the wrong place.
The last thing you want is to be stranded in a country away from your account, making desperate calls to try and get your funds unlocked
Look for a bank that you can access while you’re traveling to any number of different countries, as well as one that offers 24-hour customer service and priority banking on the off-chance you do run into trouble.
There may be Swiss banks that meet these standards, but you need to do your homework to ensure they fit what you’re looking for.
Offshore Banking: Good, Better, and Best
There are people out there who are very willing to make the claim that Switzerland is still the best in the world when it comes to stable banks. People that believe that these banks are focused on looking out for the needs of the client and that the Swiss government is going to continue to encourage that.
Switzerland is still a great place, but I can’t get behind this idea.
In today’s competitive world, you can very easily find banks that are good, better, and best. Swiss banks just have too much competition to say that they are the de facto best. Places like Singapore, the UAE, Panama, different Eastern European countries, and, to a lesser extent, Hong Kong have become miniature wealth hubs.
Malta, Cyprus, Latvia, and in some cases the UK sport banking opportunities that, while some have gone down the Switzerland route of compliance, have more transactional banking approaches. They have lower minimums, easier access to credit cards, and a greater ability to move where and when you need it.
In many ways, Swiss banks can’t keep up.
The OCBC Bank in Singapore has a very large display that discusses how the lifestyles of the wealthy have changed over the last generation. The simple fact is that what people wanted 30 or 40 years ago isn’t necessarily what people are looking for today.
It used to be that the country club membership was the sign that you’d made it. Now, there are plenty of wealthy people like myself that don’t even own a car. Switzerland is the country club of offshore banks.
That might be the lifestyle you’re looking for. You might like being heavy in cash and feel like a million is irrelevant. Maybe, one day, I might even feel the same. I won’t say I wouldn’t go out and do that, but the flexibility and diversification that comes with working with smaller, more accessible banks creates opportunities I wouldn’t have working with one of these Swiss banks.
I probably have somewhere around 24 different bank accounts that have helped me establish residence in countries that I want to spend my time in; helping me streamline my Nomad Capitalist lifestyle.
Some of these accounts I have because of their higher interest rates or because they allow me to easily invest in that country. Some allow me to hold onto different currencies or create a network that allows me to quickly move money where I need it.
There are people who could make Swiss banks work, but for a good portion of the modern wealthy, there are better options.
Using a Swiss Bank as a US Person
As I’ve mentioned, FACTA has made offshore banking for US persons very difficult.
The US government is directly responsible for two bank closures in Switzerland – closures, not failures. Two solvent banks closed their doors because the US didn’t like how they handled American clients.
In many places around the world, being a US citizen or resident is not going to be to your advantage when opening an offshore bank account. The threat imposed by FACTA is often too much for banks to deal with. We’ve seen plenty of US persons rejected and even some who’ve had their already existing accounts closed.
If you do manage to get the account, you’re dealings with that bank going forward are going to involve much higher fees than non-US clients and mounds of paperwork that you need to be filling out every year.
All so the bank can stay compliant with FACTA.
It isn’t a good option for offshore banking. Not when there are more easily-accessed options that will require much less of you.
If you’re from the US or another high-tax western country and you’re having problems opening an offshore account, there are steps you can take to make the process simpler.
The first thing you can do is legally give up your tax payer status in your home country. This is much easier for non-US persons because most other countries rely on residential or territorial tax systems.
Non-US westerners can create a legal strategy that makes them a tax-resident in a country with less invasive reporting policies. This will reduce their tax burden and allow them to explore more international options.
For US citizens and residents, giving up tax payer status requires renouncing citizenship. This separates you from the US tax system and the demands of FACTA, allowing you to create a strategy where you can go where you’re treated best.
This may not be the best option for your individual situation. Every person requires their own personal and financial strategy when it comes to becoming a global citizen.
Better Options than Swiss Banks
Switzerland used to be like the place you’ve seen in the movies.
You could go there and nobody would ask you questions.
You could put the account in your friend’s name and they would take it and give you a number so that no one would know the account was tied to you.
People would secretively pick up bags of money and take it to the bank.
That doesn’t exist anymore.
I’m glad Switzerland got everything in order and became friends with the US, but they kind of shot themselves in the foot when they went overboard with all the secrecy and anonymity. And now they’ve gone to the other extreme and are some of the most regulated banks in the world – both internally and via the government.
I’m all for legality, but I think Switzerland has become too bureaucratic for its own good. They don’t want people who could pose a problem, which means they probably don’t want you.
But you have so many other options.
The world has changed. What used to work isn’t going to cut it now. To create the best situation with the most opportunity for growth, you can’t depend on traditional offshore solutions. They’re outdated and many of them were illegal to begin with.
There are still ways to legally reduce your tax burden, grow your wealth, and go where you’re treated best, but they require more than opening an “anonymous” account in Switzerland and trying to dodge the taxman.
The Nomad Capitalist lifestyle can give you the opportunity to expand your business as well as your lifestyle, all while reducing the amount you spend on living in your home country.
There are some situations where a Swiss bank might become a part of that lifestyle, but with a world of better options, you’re more likely to find what you need somewhere else.