Numbered bank accounts don’t just exist in the movies. Discreet private banks are opening secret numbered bank accounts for their privacy-conscious wealthy clients more than ever before. Secret numbered accounts don’t just exist in Switzerland, but also in the best offshore banks in other European private banking havens including Austria, Singapore, Monaco and Andorra.

The main reason for this is probably recent high-profile data thefts by corrupt bank employees, hoping to turn a quick penny by turning over stolen data to foreign governments. A numbered bank account offers protection against the theft of data by corrupt bank employees. Although the holder’s identity is known to the bank, the files are kept in a safe using a paper based system accessible only to a few highly-trusted private bankers – typically the relationship manager and the branch manager. Anyone who may have access to the bank’s computer records only gets to see an account number – not a name.

Private bankers don’t, however, like to talk about these accounts!

“These accounts are subject to exactly the same duty of diligence as any other banking relationship,” UBS spokesman Dominique Gerster told swissinfo.ch. “We are obliged to know the origin of the funds and the identity of the beneficiary. If we receive a legal request, we can supply the authorities with information, just as we can for any other account,” he is reported as saying.

“We always know the identity of our clients, whether the account is a numbered one or not,” commented Jan Vonder Mühll, head of media relations at private bank Julius Bär in Zurich, in the same article.

“A colleague from another branch of our bank couldn’t discover the identity of a client who has an account with us,” an asset manager at the Ticino branch of a  Swiss co-operative bank told the swissinfo reporter. “Foreigners are now going for numbered accounts as a precaution…”

Apparently, smaller banks, particularly the independent co-operatives such as Raiffeisen banks, and the state-owned Swiss Cantonal banks which are both seen as bastions of strength, are profiting from the huge capital outflows at big international Swiss banks like UBS and Credit Suisse. Depositors feel safer dealing with smaller, more personal banks that better reflect the Swiss banking traditions of yesteryear.

“There’s no doubt that given the attacks by the Italian government in particular, or to ensure that their details do not fall into the hands of some untrustworthy bank employee, our customers are becoming more and more demanding as far as confidentiality is concerned. And there is nothing better than a numbered account to respond to their expectations,” he explained.

Fortunately, the article also points out that it  is not only for tax reasons that clients of private banks are looking for numbered accounts:

In cases of divorce, inheritance or even blackmail it gives the holder additional protection. If there is a court case, the plaintiff has to name the bank where he believes the funds in question are held before proceedings can go ahead. And that is a major advantage for potential victims of blackmail, such as politicians or celebrities.

Most bank orders pass through several hands within a bank and any bank slip normally includes the client’s name and address, but a numbered account avoids these risks.

Who can open a numbered bank account? Almost anyone with a private bank account in one of the European offshore banking centres can qualify for this type of account. Like anything else, it’s a service that costs money and the banks will charge extra for the additional administrative burden involved. But it’s not a service that is advertised in flashy brochures at the counter. It’s a matter of knowing who to ask.

More information on numbered bank accounts can be found in the Practical Offshore Banking Guide, available free to members of Q Wealth. Not yet a member? Click here to see what you are missing!

Offshore hedge funds, mutual funds and so-called high yield investment programs could be next on the IRS hitlist. That’s the conclusion of a recent Wall Street Journal article. After the recent events with Swiss banking behemoth UBS, other large offshore banks and financial institutions are ‘low hanging fruit.’ What does this mean for you as an offshore investor? Peter Macfarlane explains below.

Alex Raskolnikov, a professor and offshore tax expert at Columbia University Law School quoted by the Journal, believes that the IRS and US Justice Department will try to identify tax evaders who invest with offshore hedge funds managed by offshore banks. This will play out as as part of the US government’s ongoing effort to have big foreign financial institutions, which are incorrectly regarded by many as the best offshore banks, to provide them with confidential information about Americans who open offshore bank accounts.

Legislation recently introduced in the US Senate by Finance Committee Chairman Max Baucus would go beyond the existing FBAR (Foreign Bank Account Reporting) requirements, which are filed by taxpayers only on annual basis. It would require U.S. financial institutions to report to the IRS transfers of money into any foreign financial account in real time. The IRS would therefore automatically receive electronic information on new offshore bank accounts as soon as they were opened. Scary stuff, for sure! But that is exactly the purpose of it.

Until recently, US tax attorneys  understood that FBAR requirements did not apply to interests in off-shore hedge funds. However in June of this year, according to the article,  an IRS official stated that the term “financial interest” would include hedge funds that “function as mutual funds.”

Ironically, anecdotal evidence suggests that the majority of investors in offshore hedge funds are in turn US tax-exempt hedge funds such as charitable organizations and pension funds. However, while hedge funds were once the domain of sophisticated investors playing with millions, there is no doubt that many are now operating more like regular mutual funds.

Of course, it is by no means clear how this information on transfers of money into foreign bank accounts would help the IRS. Millions of international transactions clear in New York every day and surely few investors seeking confidentiality offshore would directly transfer money between accounts held in their own names.

How could investors avoid popping up on the IRS radar? Simple. By transacting business in currencies other than the US dollar. This will surely be an advantage rather than an inconvenience for most American offshore investors. The major motivation for going offshore these days is not tax at all, but rather protecting the value of assets against the terminal decline of the dollar and the collapse of the US financial system.

Many of the more private European banks are now actively trying to dissuade clients from transacting business in US dollars at all, preferring that their customer data doesn’t have to be sent to New York. For example, one private banker recently told me that when a client wants to transfer dollars to another bank, they typically fix a EUR-USD rate in advance with the other bank. The transaction settles in Euros, and then is converted back to dollars on arrival in the internal books of the beneficiary/receiving bank. Importantly, my banker prefers to absorb the additional costs of the spread, rather than expose clients to dollar transaction clearance in the US.

Gold is also emerging as a settlement currency for interbank transactions in the mainstream banking system. This is a pleasing novelty that I hadn’t expected to see. Whilst regular readers know I’m a big fan of holding physical gold bullion as opposed to paper or electronic gold liabilities, such liabilities are certainly useful for short term transactions.

Raiffeisen Zentralbank Austria, which with its Eastern European and Asian clients has one of the highest volumes of US dollar clearing outside the USA, has been pioneering this. Since earlier this year they have been offering regular bank accounts denominated in gold ounces, which have prompted a number of offshore banks to offer such services to their clients, using RZB as the correspondent and clearer. A number of banks are now offering gold as a regular currency option in the currency portfolio of their multi-currency bank accounts. Yes, that means you can actually send and receive SWIFT transfers denominated in gold, provided both the sending and receiving banks have appropriate correspondent accounts.

Of course, for many Americans – those most affected by this clampdown – opening bank accounts denominated in other major world currencies appears to be  just a pipe dream. Very few American banks even offer Euro accounts. That’s a far cry from some of the banks we routinely refer clients to, which allow you to hold balances in more than thirty currencies conveniently managed under one account number. And then, there is the problem that many foreign banks simply refuse to work with US clients.

The fact is, however, that despite the government propoganda, opening an offshore bank account is a lot easier than you might think.

It is perfectly legal for Americans to hold as many offshore bank accounts as they wish. And there are still distinguished private banks in reputable tax havens that welcome American clients – especially those who don’t wish to do business in dollars. You will a special note for US Citizens (together with another special note for European Union Citizens) in Q Wealth’s Practical Offshore Banking Guide 2009. Best of all, it includes specific contact details of various banks and brokerage houses. In many cases you can use this information to open your account with no need for hiring an intermediary, and to open an account without even leaving home! You can download this 40-page manual absolutely free with your membership of Q Wealth.

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