What is particularly terrifying to Swiss bankers is the new tax system being formulated called FATCA [Foreign Account Tax Compliance Act] which came into effect in 2010, but will only be fully in effect in 2014 with IRS agreement.
In this system there are features that will affect financial institutions worldwide.
Here are some of the reasons why Swiss banks are changing their handling of clients: -
- FATCA will impose all sorts of reporting requirements on U.S. taxpayers with foreign financial accounts. This is in ADDITION to form TDF 90-22.1, which is due to the Treasury Department each year by June 30th, and IRS form 1040 schedule B. Transparency will become the order of the day.
- The law requires ALL financial institutions across the world to share personal customer information with the U.S. authorities. Undoubtedly, all allies of the U.S. such as Canada as well as the rest of the developed world will cooperate with them quicker than others. Under certain conditions this could be extended to include gold and other precious metals, easily.
- FATCA has failed to define the terms, “foreign financial institution” and “foreign financial account“. These are defined generally just as a “financial security” is a transferable ownership right over an asset. Likewise a “financial institution” deals in and handles “financial securities”. Foreign nations have their own definitions of “foreign financial institutions” and ‘foreign financial account’s. No doubt these definitions will be accepted by the U.S. authorities.
- The law was passed in 2010 [final implementation 2014], when it became the responsibility of the IRS to interpret Congress’s intent in implementing FATCA. We expect a release of their interpretation of FATCA any time now.
This is Part 3 of Article Swiss Bank Clients Move From ‘Unallocated’ to ‘Allocated’ Gold Accounts
Let’s look at the recent history of UBS and Credit Suisse in the U.S. Add to this other Swiss banks under investigation for assisting U.S. citizens evade taxes, an investigation that is ongoing and costing Swiss banks [in the U.S. – not in Switzerland] huge fines to keep banking there.
Switzerland has laws which protect banking secrecy. If a Swiss banker discloses client information outside the bank he is liable for imprisonment. Switzerland, after all, has a history of over 300 years of protecting the assets of foreigners during World Wars and from outside governmental pressures.
Even in the recent UBS scandal where it was accused by the U.S. I.R.S. of harboring U.S. tax evaders, these bankers of UBS in the States, face imprisonment inside the U.S. if they did not disclose the names of account holders and faced imprisonment in Switzerland if they did disclose names.
After lengthy negotiations that included the Swiss Government, it was decided to disclose the names of 4,050 names out of 45,000 U.S. client so UBS. It appears that the Swiss government acceded to the principal that a tax evader was a criminal and so his information could be handed to the U.S. authorities, but the Swiss government refused to allow the disclosure of all 45,000 names, which is what the I.R.S. wanted. So the Swiss kept their integrity, the I.R.S. got [only] 4,050 tax evaders and Swiss bankers did not go to prison, but UBS got a massive fine, which they had to pay to continue banking in the U.S.
During that entire time and through until now, Swiss banks have been loathe to take on U.S. clients and have been nervous about continuing to keep the ones they already have. It becomes clear that the current story of offering ‘allocated’ accounts fits neatly into this story. Many Swiss banks simply dropped U.S. customers and refused new ones, erroneously believing that it would get rid of the problem.
This is Part 2 of Article Swiss Bank Clients Move From ‘Unallocated’ to ‘Allocated’ Gold Accounts