Swiss Banks: Case studies

Switzerland is the preferred banking destination for the rich and the famous. Here are some case studies related to Swiss Banks.

Swiss Bank Crisis

Because Switzerland stayed neutral during World War II, it did not suffer much devastation as some of its neighbors.

As a result, Swiss banks began to flourish post World War II. In the 1970s and 80s, a wave of decolonization swept the African continent, and new-money dictators started stashing their wealth (often stolen) in Switzerland.

In 2007, a UBS employee violated Swiss bank secrecy laws and disclosed information about several UBS Swiss clients expected of tax evasion to the US Internal Revenue Service, the first domino in the collapse of bank secrecy.

In 2010, Congress passed the Foreign Account Tax Compliance Act (FATCA), requiring mandatory disclosure by all foreign banks of all assets of US tax residents, in order to stop citizens evading taxes by stashing assets offshore. Nearly all Swiss banks decided to comply, rather than absorb the penalty of 30 percent withholding on all US-originated payments to all the bank’s account holders.

Inspired by FATCA, the OECD passed comparable legislation, the Common Reporting Standards (CRS) that required the automatic exchange of information between the 105 participating tax authorities, dramatically reducing tax evasion opportunities for the worldly wealthy.

These two legislations damaged the Swiss banking industry, eroding its competitive advantage of secrecy. In the last couple of decades, Switzerland has also been facing competition from new financial centers such as Singapore and Hong Kong.

Whey the Rich Stash Money in Swiss Banks

Here are some of the reasons:

• Swiss Banks are the most liquid banks in the world.
• They do not get involved in to commercial activities.
• Their sole purpose is safe keeping the wealth of their customers.
• Another reason is secrecy.
• Switzerland is neutral on all political conflicts remaining a safe haven in times of war.
• Zero inflation since it is backed by gold reserve

Source: solomoncapital.eu

Whie Swiss banks don’t lend money, their service charges are high, and we are talking about $10 million minimum deposits in some of these banks. Even their cloud-based software cannot host servers outside Switzerland.

References

Chaos and Crisis: The Swiss Bank Case Study
Prof Sonja Verwey, Andrea Crystal & Evan Bloom