The old saying about “waiting for the other shoe to drop” goes back to the days when wooden buildings had thin ceilings and nearly every tell-tale sound upstairs (coughing, squeaking bed springs) could be heard by those below.
When someone took off a shoe and dropped it on the floor, it made a startling clunk, especially irritating if it awoke you from sleep. Before sleep returned one was forced to “wait for the other shoe to drop.”
Cantonal Banks Targeted
Well, as predicted, the U.S. Internal Revenue is building on its success in attacking the giant UBS for assisting in massive U.S. tax evasion. It is reported today that the U.S. Justice Department has opened criminal investigations into Swiss regional banks suspected of helping wealthy Americans evade taxes.
The new DOJ/IRS investigation centers on Basler Kantonalbank, one of the larger regional banks, but includes other cantonal banks.
It is also reported that the DOJ is looking at “Wall Street banks” that provide banking services to the Swiss regional banks, known as cantonal banks.
Cantonal banks are run by the various Swiss “cantons,” as the self-governing provinces are called. They offer full services, lower minimum deposits and are insured by cantonal governments. Under the Swiss federal structure, 24 of the country’s 26 cantons have their own cantonal banks.
Founded in the 19th century, the cantonal banks reflect the development of their respective economies and peoples. Traditionally they engage in mortgage lending and provide credit to small and medium sized enterprises.
In recent years some have diversified into private banking, personal loans and export finance, which may have opened the door to tax avoiding U.S. clients seeking less visible banks.
Since 2008 when the IRS cracked down larger Swiss banks, including UBS and Credit Suisse, have suffered huge outflows. UBS paid a $780 million fine in 2009 and agreed to turn over 4,450 names of American clients. Much of the U.S. and European client money was assumed to have gone to the Far East but perhaps tens of billions of dollars may have ended up in cantonal banks.
Cantonal banks hold about 30% of the Swiss banking business, with combined assets of 300 billion Swiss francs, or about US$313 billion.
Unnamed sources claim the “Wall Street banks” might have been used unwittingly by the Swiss banks to pool U.S. client money so that individual clients could not be identified by the IRS. Large U.S. banks often maintain “correspondent accounts” for small foreign banks, accepting deposits and conducting some financial transactions.
The Name Game Again
In a possible repeat of the UBS mess, the U.S. is expected to demand names of clients of certain cantonal banks under the terms of the Swiss-U.S. tax treaty. Another option is to have the U.S. Federal Reserve shut down the Swiss banks’ correspondent banking relationships with American banks, a radical action permitted under the PATRIOT Act.
For a full discussion of what it means to U.S. persons when the U.S. demands Swiss bank client names see my previous article on this topic.
All things considered, it has been another dismal week for Swiss banking. German tax police raided the homes of several Credit Suisse officials in Germany and in Miami an ex-UBS banker plead guilty to conspiracy in helping Americans evade U.S. taxes.
Help for You
All is not lost, friends.
At the Sovereign Society we work with Swiss and other offshore bankers who can be trusted to adhere to U.S. tax and reporting laws. We have agreements with reputable Swiss banks willing to accept accounts from Sovereign Society members. These arrangements are in full compliance with IRS and SEC rules and other U.S. laws. U.S. clients must sign an IRS Form W-9 that allows an offshore bank to report required information to the IRS.
As it has been since our founding 13 years ago, our staff is available to assist our members in opening a Swiss or other offshore account. Take advantage of these special Swiss banking arrangements and the advice of our Swiss advisors — sign up here for Sovereign Society membership. Once you are a member, you can contact us for help via email at firstname.lastname@example.org
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