I’ve spent a lot of time in Switzerland over the years, including two semesters of college. But not much in recent times, when most of my travel and living has been in less developed countries. I did, however, log a few days in Zurich before Christmas to renew some old acquaintances.
Some readers may remember when, during the monetary crises of the ’70s and early ’80s especially, Switzerland was viewed as a logical, even the premier, refuge for Americans. Numerous privacy and investment seminars were sponsored here for Americans. Swiss insurance annuities had substantial tax benefits (which they’ve subsequently lost). Swiss bank accounts were the sine qua non of financial privacy. And second homes in Switzerland were sought after. You don’t hear much about any of these things now.
Having a Swiss annuity was a great idea when I recommended them years ago. And there are still some advantages. But further appreciation of the Swiss franc is hard to envision now, at least if purchasing power parity makes any sense as a way to value currencies – and it does. It used to be that foreigners could only buy Swiss property in certain (generally rural) enclaves; it’s now as easy as owning property anywhere in Europe. The problem is that it’s now extremely expensive by anyone’s standards. And, considering the costs (high), the weather (indifferent at best), the social atmosphere (constipated), the country is pretty far down my list as a place to live.
I think having a bank relationship in Switzerland still makes a lot of sense, though, because the Swiss live up to their reputations for stability, competence and reliability.
As a small country (only 7 million people), banking is necessarily very international in scope, as well as very important domestically, generating about 11 percent of the GDP and employing 100,000 people. There are currently 324 banks in Switzerland, of which 194 are Swiss-owned; the remainder are branches or subsidiaries of foreign banks. In terms of size, UBS and Credit Suisse together (since Swiss Bank Corporation and Volksbank have been acquired by them) equal 60 percent of the market. Americans should only consider banks that have no assets in the U.S. – although, for reasons I’ll discuss below, that distinction isn’t as important as it once was.
The underpinnings of Switzerland are sound. Even though it’s true the Swiss central bank has sold some of its gold in recent years, it still has perhaps the highest amount in the world relative to the money supply. The Swiss franc is, and will likely remain, a decent store of value. Regrettably, Switzerland, which never used to be a member of the dangerous clubs governments all tend to join, became a member of the IMF in 1992 and the U.N. in 2002. But it’s still outside of NATO, the OECD and the EU.
A few words on bank secrecy
Frankly, the main reason to have an account of any type in Europe today is for convenience and some geographical and political diversification. It doesn’t make much economic sense, per se, since the cost of everything in Europe is 50-100 percent higher than in the U.S. Switzerland has become especially offensive in this regard. Frankly, I don’t need to look at the right side of the menu any more when I want something, but, at the same time, nobody likes to feel they’re being taken advantage of. I’ve got to say I didn’t appreciate the Zurich InterContinental asking $8.50 for each 30 minutes of use of their broadband access, or 1 SF (US$.85) per two-minute unit of telephone time for local calls, after I was already paying over $200 for what I considered a small, second-rate room. So much for the “privileges” of membership in their overrated, and overpriced, Six Continents program.
Still, if you were to have an account in Europe, Switzerland probably remains your best choice. Unlike U.S. banks, which will promiscuously disclose absolutely everything they know about their clients to the most casual inquirer (forget about a government agent), and then sell the customer’s name to a mailing-list operation for good measure, Swiss banks really do maintain confidentiality. Accounts actually are private, unless proof is presented of an offense that’s a crime in Switzerland. And tax evasion is a civil, not a criminal, matter here. Unlike the U.S., the burden of proof rests on the state.
It’s still perfectly legal for Americans to have a Swiss or other foreign bank account. The bad news is 1) Americans must report any foreign accounts if they total over $10,000, which effectively makes any form of bank privacy illegal to start with, and 2) it’s the rare Swiss banker who’ll take an account from an American these days in the first place, simply because the potential aggravation from the U.S. government rarely makes it worthwhile.
The international hysteria about money laundering, the “crime” created out of whole cloth in the U.S. about 20 years ago, has compromised Swiss privacy to some degree. “Money laundering” is pretty much any financial offense prosecutors want it to say it is. So, unlike in the past, when bankers would take any amount of money, in any form, from anyone, the Swiss now apply the “know your customer rule,” so it’s now quite hard for someone to dispose of assets from dealing drugs, arms or looting the national treasury. The Swiss really had no choice but to acquiesce to pressure from other governments.
I don’t talk about things like “bank secrecy,” the more benign-sounding “financial privacy” or even completely legal “tax avoidance” in my newsletter or anywhere else these days. One reason is because even mentioning these things can draw official attention. And someone who talks about them in a favorable light can easily be accused of abetting “money laundering” or any number of other artificial crimes. Anyway, why bother discussing purely academic concepts? In today’s world, secrecy and privacy really only exist in people’s imaginations. And Boobus Americanus is suspicious of anyone who would have it otherwise – probably someone guilty of thinking un-American thoughts, or even a terrorist sympathizer.
In any event, someone looking for real financial privacy is way behind the power curve if they’re looking anywhere in Europe, certainly in the EU. The same goes for the little island tax havens around the world, especially in the Caribbean. They’ve long been riddled with stooges and rats for the U.S. Treasury, entirely apart from the fact the U.S. has made it completely clear they’ll be crushed like bugs if they even think of putting the interests of a client ahead of those of the U.S. government. Where to go? I suggest you look at the Far East and parts of the Arab world (like the UAE, where I am at the moment). These places aren’t inclined to ask “How high?” when The Empire says “Jump!”
Perversely, though, the more inconvenient and potentially dangerous it becomes to have a financial presence offshore, the more important it is. As outlandish as it may sound now, after the world has been financially and economically liberalizing in most regards over the last 20-some years, I expect the U.S. to come up with a regime of foreign exchange controls at some point in the fairly near future. The smartest diversification is to buy real estate; they can’t possibly make you repatriate it. And, as I’ve pointed out numerous times over the years, some has been (and remains) an outstanding investment.
Remember that governments, prominently including the U.S. government, have a life of their own. Disregard all the fatuous rhetoric about how they act in the best interest of the country, and are “of, for, and by the people” – this is propaganda suitable only for indoctrinating grade-school kids or moronic adults. The fact is governments are like any other organism, in that their prime directive is to survive. Government will always put its own interests before those of its subjects. It doesn’t necessarily want to harm its subjects anymore than any other parasite wants to harm its host; it’s simply the nature of the beast.
One stable datum that you can plan your life around is that government will never control itself when it can get what it wants by controlling its subjects. That’s why when the current dollar crisis really gets out of hand, and it almost certainly will, you can expect controls on sending money out of the country without strict approval. At that point, if you don’t already have a crib abroad, as well as fully stocked bank and brokerage accounts, you can forget about them.