Note: the following article was originally published in Mountain Vision. We thought it was useful, timely and important and reproduce it here with the permission of our friends at BFI Capital Group.

The long-established and noble rule of Law, one of the greatest products of the character and tradition of British history, has suffered a deadly blow. Blackmail has become respectable.

~ Robert G. Menzies

Switzerland and its banks have been in the news a lot over the past few years. Lately, it has gotten even worse. Living in Switzerland and running a company in the wealth management ‘arena´ (emphasis added), does at times feel as if Switzerland were under siege.

The latest attacks by the US Justice Department, which ultimately resulted in the breakup of Wegelin, the oldest private bank of Switzerland, do create a considerable level of aggravation. I will refrain from commenting on the details of the Wegelin situation, or the general and dubious assault on Swiss banks here. However, I do want to emphasize the following fact to our international readers and clients: Banking secrecy was not founded on the premise of tax evasion. And, privacy is NOT illegal!

Swiss Banks, and Switzerland, in the Crosshairs of America

The Wegelin story is one that raises many questions. Some are related to the power of the media. Some relate to the rule of law. How far are bankrupt countries allowed to go in their pursuit of tax revenue?

Nothing has been proven and no one has gone to court. Nevertheless, a solid private bank like Wegelin, founded in 1741, can be driven to the point of surrender by the mere announcement of lawsuits, investigations, IRS penalties and criminal charges, and without a court ruling or proof of crime. Furthermore, the US froze Wegelin´s US dollar remittances in the US. Few international banks can live without the capacity of making and receiving USD-denominated payments. Many of Wegelin´s institutional clients, out of fear of frozen USD assets, or out of concern that they would be left out of USD foreign exchange transactions, were leaving the bank in droves.

In response, Wegelin decided to split off the non-US business and sold that part of Wegelin to Raiffeisen Group. US clients remain in Wegelin. Their names are not being handed over to the US. Wegelin is going to fight in court. Hopefully, rule of law will exist there, in the realm of US courts. We shall see.

But there are other questions that are hard to neglect: Is this really about tax dodgers? Is this really about fighting crime? Or, are their other agendas?

The diagram here depicts the long-term solvency positions of European countries. It is easy to recognize that Luxembourg and Switzerland stand apart from the rest. Frankly, I expect that as long as the debt and deficits in the countries around Switzerland, in America and the UK, continue to grow, the pressure on Switzerland will continue to grow as well.

Switzerland, in 2011, has again had a budget and trade surplus. Switzerland allows its people a say in political decisions via its system of direct democracy. It stands for sovereignty, for independence, for freedom, and for privacy. Switzerland, in the midst of insolvent OECD countries, in the midst of social unrest and unprecedented debt elsewhere, stands out like a sore thumb.

The Essence of Privacy

Anyone who understands anything about wealth preservation and asset protection also understands the importance of privacy. It is primarily privacy that protects you from the intrusions of frivolous lawsuits, greedy attorneys and other predators. Asset protection laws and structures are only the second line of defense. A good asset protection plan should aim at first avoiding, or at least minimizing, exposure and visibility.

What this DOES NOT mean is that you must break any laws. To the contrary, we recommend doing your offshore planning compliantly. However, in reading the newspapers, one could come to the conclusion that privacy is criminal. It is not. Governments around the world are running into fiscal problems, particularly the governments of Germany, the United Kingdom and America. Thus, they are setting off on an aggressive hunt for tax money, increasingly employing methods that are at the limit, if not beyond, legality.

When your government acts ‘above the law´, it is time for serious planning. In the absence of rule of law, the most fundamental prerequisite of a functioning free country is undermined. At that stage, protecting your freedom and your property within that country becomes a gamble. Privacy and property are in jeopardy and need to be protected OUTSIDE of your country.

Key Principles of Offshore Privacy

This is the point where you enter the realm of offshore (i.e. international) wealth management and tax planning. A few principles in this context must be understood by all of our Mountaineers, no matter which jurisdiction they come from:

•     Safekeeping and investing assets offshore – in other words, outside of the borders of your country – per se is NOT illegal. What may be required though is regular reporting of those assets, depending on where and how your assets are deposited and managed abroad. Not declaring assets held overseas is what can get you into trouble.
•     Making ‘offshore´ (i.e. international) arrangements for the deposit and management of your assets does not mean that you can thereby leave the tax rules of your country of residence behind. They will generally apply elsewhere, too. Therefore, one should aim at implementing an offshore plan that achieves asset protection and privacy in compliance with the rules of one´s country of residence.
•     The purpose of privacy is to protect the well-being and fortune of you and your family. Privacy does not necessarily require a numbered account though. It starts with your going about your affairs ‘quietly´, particularly in jurisdictions with a high level of litigation. It is important to keep a low profile if interested in avoiding unnecessary risk exposure.
•     Privacy amongst tax authorities within a country that is fiscally bankrupt will generally not exist. Countries like those mentioned earlier have given up such privacy protection long ago. Banks, accountants, and other financial professionals have, to a large degree, become tax agents. The transparent citizen has become the norm. This has become a fact of life already, or will be the common denominator across indebted countries in the near future.

Can Americans Still Own Swiss Bank Accounts?

The answer is a clear and simple yes. Don´t let anyone tell you otherwise. Nevertheless, the question is justified. In fact, and unfortunately, I know of several additional Swiss banks that have now decided to no longer accept American clients. Some of them will even send American clients away, whether those clients declared their account in their tax returns or not.

However, there are several good banks, asset managers and insurance companies that do accept American clients. As part of that group, we at BFI Wealth Management work with American clients, and will continue to do so. We help Americans open bank accounts. We manage their assets. And, we help them diversify their wealth internationally.

The reasons for our clients to work with us? Their primary objectives are safety, wealth preservation, and risk management – all kinds of risks.

Sincerely,
Your “Swiss Mountain Guide”

Frank R. Suess

The following is extracted from Q Bytes dated 11th Fenruary, 2012. We thought it was important to republish it here on the blog. To be sure you don’t miss out on matters like this (including the full text of the newsletter, that has been redacted here to remove some references to individuals) then please sign up for Q Bytes – it’s free!

In the article below:
… WEGELIN: THE IRS CONTINUE TO ATTACK SWISS BANKS

… COURT VICTORY FOR BANKING SECRECY IN FRANCE

… MAJOR DEVELOPMENT ON FATCA IN EUROPE
“What’s new? Quite a lot this week!” says Peter Macfarlane

I am just back from my trip to the BFI conference in the Bahamas, followed by a whirlwind visit to several Caribbean countries working on the ground on hot topics affecting readers: in particular, economic citizenship (that’s second passports to those unfamiliar with the euphemism), and the use of offshore LLCs in IRAs for Americans and in SIPPs for Brits.

In fact, we are currently putting together a deal on the latter that will be very useful to our many readers who have onshore retirement accounts. Retirement nest-eggs are easy, low-hanging fruit for governments to seize (err, I’m sorry, to safeguard) – we’ve already seen this happen in France, Hungary and Argentina and I believe it is only a matter of time before it happens in the USA. More on this in the next month or two. Meanwhile, any feedback and ideas would be appreciated while we are putting this together. Contact us here.
WEGELIN IN THE SPOTLIGHT: THE IRS CONTINUE TO ATTACK SWISS BANKS

The US Justice Department created quite a stir last week by filing charges against Wegelin, Switzerland’s oldest private bank. The DoJ alleges that, from 2008, Wegelin followed a deliberate policy of attracting former American clients of UBS who were alarmed by the US action against UBS and were looking to move their funds elsewhere. Wegelin has no branches outside Switzerland, making it difficult for the US authorities to seize its assets. (They seized $16 million from a US correspondent account, but that’s pocket change for a bank that had about $25 billion under management)

The technique used, says the DoJ, involved creating nominee accounts for clients in other jurisdictions such as Liechtenstein, Panama and Hong Kong, held in the names of offshore companies and private interest foundations. Thereby, although the accounts were managed from Switzerland, they were not actually Swiss accounts. None of the charges, of course, have been proven as yet.

Our take on this is not one of surprise. Nobody thought the Americans would stop at UBS. And Wegelin’s bosses had been quite outspoken in criticizing US actions, so it’s hardly surprising that they would be targeted first. Anyone who, incredibly, still has an undeclared Swiss bank account needs to take appropriate professional advice urgently, that is right now! We can make necessary referrals for Q Wealth members. There are still things that can be done, but time is running out.

COURT VICTORY FOR BANKING SECRECY IN FRANCE

In a less reported court action, however, came some good news for those of us who still support due process and the rule of law: France’s Supreme Court has ruled that information stolen from HSBC Private Bank’s Geneva branch cannot be used in the prosecution of alleged tax evaders.

The facts of the matter are that in 2007 an HSBC employee, Herve Falciani, illicitly copied the details of thousands of client accounts and took the stolen to France, where he tried unsuccessfully to sell it. The Swiss government issued a warrant for his arrest for theft of the data. In a convoluted action, the French authorities then used this warrant as an excuse to raid Falciani’s home and seize the data in question. Falciani is now hiding out under a witness protection programme.

France subsequently made the confidential information available to tax enforcement agencies of many other countries, as well as using it to investigate its own tax residents, including searching their homes.

However, it now turns out that these searches were all illegal. One of the targetted individuals complained to France’s lower appeal court and in February last year succeeded in having the tax authorities’ actions ruled unlawful. The French Budget Ministry appealed that ruling but has now lost in the country’s highest court.

A spokesman for HSBC Private Bank Geneva is reported as saying: “We are pleased with the judgment which confirms that the data was illegally acquired, as we have always maintained.”

The Budget Ministry issued a statement to the effect that the Supreme Court decision would only have a limited effect by restricting its search powers. It is likely that the French authorities always knew the information could not be used in evidence, but have used it to pressure suspects into making admissions.

MAJOR DEVELOPMENT ON FATCA IN EUROPE

This week the governments of Germany, France, Spain, Italy and the UK agreed to collect information from banks within their borders and pass it on to the US tax authorities on the banks’ behalf, as from January 2013. Banks in these countries will apparently no longer have the option of ‘opting out’ of FATCA, and neither will they need to sign individual agreements with the IRS.

This will require a change to the 1998 EU Data Protection Directive, which includes a blanket prohibition on the passing of any kind of private information to the USA.

In return the USA has agreed to collect information on US bank accounts operated by European residents and automatically pass it to the relevant national tax authority.

The European Commission claims a huge benefit, in that if European banks had been forced to comply individually with FATCA it would have cost them around $100 million.

The US Treasury, meanwhile, stressed that it is not contemplating an exemption from FATCA “for any jurisdiction”. This may not please the Canadian government, which has been lobbying for exactly that. The implication is that Canada will be offered the same kind of agreement as the five European governments have accepted. We would also expect to see similar developments soon in Asian banking centres like Singapore and Hong Kong, as well as major Latin American countries like Brazil, Argentina and Mexico.

That’s all we have for you this weekend, but we’ll be back soon with more important freedom, wealth and privacy information! If you would like to be kept up to date, don’t miss out on our free Q Bytes weekly newsletter.