A veil of secrecy is normally associated with Swiss banks, thanks to the way they have been depicted in Hollywood movies and novels. Men or women in black suits are shown as escorting the ‘account holder’ to his safety vault or seeking details of their ‘numbered accounts’. India got a reality check of Swiss Bank operations when names of seven Indians were disclosed by the government as having ‘black money’ accounts in these banks. The Supreme Court has now asked the government to disclose all names and details of 700 account holders.
Though Swiss banks also operate as regular banks, it is the associated confidentiality that have made them popular. A stringent code of secrecy is not something new for Swiss banks. These banks have been holding on to their secrets for over 300 years. The Great Council of Geneva, in 1713, established regulations that required bankers to keep registers of their clients but prohibited them from sharing the information with anyone except the client unless the City Council agreed with the need to divulge such information. In fact, in Switzerland it is a criminal offence on the part of a banker to reveal client information.
This code of secrecy made Switzerland a safe haven for unaccounted-for funds. Earlier, no questions were asked on the source of money or other forms of wealth (gold, jewellery, paintings among others) that entered Switzerland.But with terrorism, corruption and tax evasion on the rise, Swiss authorities (with some serious nudging from various countries) have now started rejecting those accounts which they suspect have illegal roots.
In case you are fascinated with the media coverage of names disclosed having a swiss bank account and desire to have one, here are 6 things you need to know before you make that trip to Switzerland.
1) Who can open an account
Any individual over the age of 18 is allowed to open a Swiss Bank account. However, the bank has the right to reject a ‘politically exposed’ person or if the bank suspects that the money stems from an illegal activity. If the origin of money is questionable or if its origin goes against Swiss regulations, the bank can reject the account. Strict money laundering laws have made scrutiny of money origins and subsequent deposits a high priority.
2) Can a resident Indian open a swiss bank account?
Under the new Liberalised Remittance Scheme, an Indian can open an account but with a ceiling for the financial year. However, for the purpose of conducting business such an account is permitted under the Foreign Exchange Management Act (FEMA). Further, there is an exception for a NRI who later becomes a resident Indian to continue holding his international bank account for unlimited time and there is no cap on the money that can be maintained in such accounts. Pradeep Burman of Dabur, whose name appeared in the black money list has argued that his Swiss bank account is operational from the time when he was a non-resident Indian.
3) How does one select the right Swiss bank?
There are nearly 400 banks in Switzerland with the top two – UBS and Credit Suisse Group --accounting for nearly half the balance sheet of all banks. Depending on one’s need for secrecy and end use, an individual has a choice to select from a big bank, regional or a private bank. In case you do not want to disclose your account details easily, choose a bank which does not have a branch in your country. Bank branches have to follow the law of the country in which the branch is located and not where the head office of the bank is located.
4) What type of accounts provides the most secrecy?
If secrecy is the only reason for you to open an account in Switzerland, then go in for a ‘numbered account’. All interaction with the account is through the account number. Very few people in the bank will know the name behind the numbered account. But such accounts are not easily provided. An individual wanting to possess a 'numbered account' has to be physically present while opening the account and personal details provided with an initial deposit of at least $100,000.
5) Accessing your money
Unless you want to be tracked down, do not accept a credit/debit card or a cheque facility on your account. Bank transfers, the kind which is shown in movies can also be tracked as the receiving bank normally requires details of the origin of money. The best way to operate the account is by using traveller’s cheques.
6) Closing your account
You can close your account any time without any restrictions or cost.
But before you book your flight to Switzerland, it is important that you know the colour of your money as per Indian government norms. Money used to be either white (accounted and tax duly paid) or black (tax evaded). But now government has defined a new colour – red - for the money found in Swiss accounts. Red money is one where the source is not known – it can be bribes, commissions in foreign currency, or drug or blood money. While black money is by and large only a tax evasion issue if one is able to prove the source or generation of income, red money is a completely different ball game. Needless to say, it is a serious criminal offence.