‘Numbered Swiss Account’

By Kevin D. Williamson

Friday, May 03, 2019

Writing in the New York Times about the least sympathetic subject in American life — the budgetary aspirations of the Internal Revenue Service — Jesse Eisinger and Paul Kiel mention that old chestnut, the “hidden Swiss bank account.”

The Swiss account — or the “numbered” Swiss account — is the stuff of legends. The reality of the thing is a lot more prosaic.

In reality, U.S banking rules under the 2010 Foreign Account Tax Compliance Act (FATCA, the inevitable stupid almost-acronym) make it very difficult, if not impossible, for Americans to open bank accounts in Switzerland. The rules impose compliance costs on Swiss banks that make it unattractive to do business with Americans, including many wealthy people who report the unhappy experience of being dismissed as clients by their Swiss banks, in some cases institutions with which they have had long relationships.

In fact, it is so difficult for an American to open a bank account in Switzerland that in 2016 the U.S. ambassador at the time, Suzan G. Levine, sent a letter to Swiss bank executives asking them to try to accommodate Americans.

Switzerland adheres to European legal norms of international cooperation in law enforcement, including in banking matters. Its banking conflicts traditionally have not been with other European nations, or with the world at large, but with the United State in particular.

Advice to scofflaws looking for a bank: You’re probably better off in Brunei or the Seychelles.

I recommend this very interesting (though outdated) account of the U.S. interest in “numbered Swiss accounts” by a Swiss banking lawyer, who traces the controversy to its postwar roots in political disputes about the disposition of Nazi loot held in Switzerland. A snippet:

Then followed the period of the valiant crusade of District Attorney Robert M. Morgenthau against foreign “secret” bank accounts. His efforts were spectacular, but probably doomed to failure from the very beginning, for already in 1968 Switzerland and the United States had earnestly begun to negotiate a legal assistance treaty. These negotiations lasted five years. After signature of the treaty by both countries in 1973, it became effective on January 23, 1977.

During its lifetime, the treaty has been used by the United States close to 500 times. The treaty contains a highly unusual chapter about legal assistance in cases of organized crime which was introduced at the vigorous insistence of the Americans.2″ Interestingly, this chapter has rarely been used. What unfortunately has become most important is legal assistance in connection with drug trafficking.

The United States enjoyed its preferential treatment for only six years, because in 1981, the Swiss Law on International Mutual Assistance in Criminal Matters (IMAC) was enacted. This law gives all countries essentially equal opportunity to obtain legal assistance from Switzerland, including the production of bank records. Obviously, the foreign request must meet certain standards. In the first place, the relevant facts of the case must show that the offense prosecuted in the requesting country contains all the elements of an offense punishable in Switzerland. In other words, if assistance is sought for an act which is not punishable in [Switzerland], the standard of dual criminality is not met, and a banker cannot be forced to testify. In addition, the IMAC provides certain exceptions where no legal assistance is granted. These include cases which may have a predominantly political character and military justice proceedings.

It is an interesting read, even now.

Of course people break the law from time to time when it comes to taxes. But the much more significant issue is the fact that the complexity and stupidity of our tax code creates very strong incentives for entirely legal tax-minimization shenanigans. When Apple or a hedge fund keeps a lot of money in an offshore partnership, they are not (usually) breaking the law, but following it to the letter. The IRS may need more money for law enforcement, but law enforcement is not the fundamental issue: The law itself is.