Swiss banking has always been the center of attention for Hollywood when it comes to sketchy activities. Whether we’re dealing with tax evasion or securities fraud, Hollywood suggests that Swiss banks are the go-to haven. While there is some truth to this notion, this is not the primary reason that most individuals choose to go with Swiss banks. The real reason likely applies to you as well. So, here’s why the rich prefer Swiss banking and why you need a Swiss bank account today more than ever.
The legacy of Swiss bank
Starting, let’s take a look at how Switzerland even became famous for banking. The strong reputation of Swiss banks isn’t a new development by any means, it stretches way back to the 16th century. At the time, Europe was undergoing a massive spiritual transformation. The scientific findings of famous scientists such as Leonardo da Vinci and Galileo raised skepticism surrounding the existence of god. We also had revolutionaries like Martin Luther who challenged the control and teachings of the Roman Catholic Church. This surge of questioning long-lasting ideals eventually erupted and led to the famous Protestant Reformation. Some rulers supported the reformation as this meant they could take away power from the church while others stood strong in their support for the church. The religious freedom in your country, however, could change on a whim. If the king passed away, it didn’t take long for the son or daughter to take over and potentially switch to the other side. One of the only places, however, that was consistently neutral on the subject was reformed areas of Switzerland including Geneva, Basel, and Zurich. This neutrality attracted a large number of Huguenots and Protestant refugees from all over Europe. Geographically speaking, Switzerland is literally in the center of present-day France, Germany, and Italy. So, Switzerland was the closest refugee for much of Europe. Meanwhile, from Switzerland’s perspective, they didn’t naturally have much going for them. They were small, landlocked, and had few natural resources. So, when they saw an influx of talented refugees flooding into the area, they leaned into the opportunity. They stood strong in terms of consistent religious neutrality and this persuaded many wealthy businessmen to store their money in Switzerland. Throughout the 1600s, Switzerland continued to build up its reputation as a haven, but during this time, the trust in Switzerland was just that trust. In 1713, however, Switzerland decided to up its commitment. The Council of Geneva would pass legislation that prohibited Swiss banks from disclosing client information. Originally, this was simply designed to provide depositors with more security and privacy. Avoiding taxes wasn’t that big of a concern at the time. In most countries, income taxes weren’t even a thing. So, the primary reason wealthy Europeans used Swiss banks was truly for security. Near the end of the 1700s, we saw the American and French Revolutions, a plethora of political disputes, and dozens of wars across Europe. So, during these uncertain times, storing your money in a neutral place was extremely important.
Moving onto the 1800s, this is when countries around the world started to levy income taxes. The US, for instance, implemented the first income tax of 3% on August 5, 1861. Though income taxes started at just a couple of percent per year, it didn’t take long for them to grow into the double digits. And, by the end of the 1800s, people were looking for clever ways to avoid paying income taxes to the government. Given the privacy and security of Swiss banks, they became the first target for tax evasion schemes. For the first couple of decades, neighboring countries didn’t do much about individuals leveraging Swiss bank accounts for tax evasion. You see, income taxes were a new topic at the time, and governments around the world didn’t want to approach the topic too aggressively. So, they gave Swiss banks quite a bit of slack. However, as income taxes became more accepted by society, governments started to crack down on Swiss banks. In 1932, for instance, French authorities raided Swiss banks in Paris and this revealed massive amounts of untaxed money. But, this didn’t make things better. You see, this was during the great depression, and Switzerland was already seeing large amounts of capital leaving their banks. And, they weren’t going to let these countries come in and take even more. So, in 1934, Switzerland passed the SwissBanking Act of 1934 which made it a crime to disclose a client’s banking information to a third party without the client’s consent. And this gave rise to Switzerland becoming the tax haven of the world. Throughout the rest of the 1900s, wealthy individuals around the world sent their money over to Switzerland to avoid taxes and/or launder their money.
The truth about Swiss banks
But, since the 1980s, countries have heavily clamped down on tax evasion, especially with the help of technology. Nowadays, every single transaction is logged and easily traceable by the authorities, so it’s extremely difficult to even get your money to Switzerland without the authorities catching on. But, even if you somehow get your money there, now you have to deal with opening an account. While it’s true that Switzerland doesn’t care about whether or not you paid taxes in your home country, they do care about how you made the money. Swiss banks require extensive documentation regarding the sources of your money, and they do not put up with criminal activities. Even if you slide by the Swiss banker’s screening, your Swiss banking rights won’t hold up if a prosecutor brings up significant evidence suggesting that your money was made through illegal sources such as drug trafficking, organized crime, and securities fraud. So, money laundering through Swiss banks is quite difficult and in most cases, you will be caught just like The Wolf of Wall Street. If you made your money through legal sources, however, then you may very well be able to use Swiss bank accounts to evade taxes. But, in 99% of cases, multi-millionaires and billionaires who made their money through legal avenues have no interest in straight-up evading taxes. Sure, they’ll use every single loophole they can find in the book, but committing straight-up tax evasion is where they draw the line, as you know, they don’t want to go to jail. Moreover, there’s no point in even having all that untaxed money in Switzerland. Let’s say you get past all of the safeguards in place and successfully move your untaxed money to a Swiss bank. How are you going to spend it? Are you going to move to Switzerland? Are you going to eventually transfer it back to your home country? Whatever you do, every transaction you make is just going to increase the likelihood of getting caught. So, in reality, the vast majority of money stored in Swiss banks is not subject to tax evasion or money laundering. Something else to consider is that there are plenty of places where it’s way easier to commit these activities such as the Cayman Islands. But then why do the rich love Swiss banks? Well, there are three primary reasons for this love starting with neutrality.
Just like in the 16th century, Switzerland is still a completely neutral country. They don’t participate in wars, they don’t have any allies, they’re not part of the European Union, and they maintain positive diplomatic relations with nearly every single country in the world. Many countries have followed Switzerland’sfootsteps like Finland, Ireland, and Sweden. But, Switzerland’s neutrality is by far the oldest and most respected. Now, this isn’t that big of a deal for the US and most Western countries. But for wealthy individuals in countries with divisive politics, it makes sense to store your money in a neutral country. Think about millionaires and billionaires in countries like Saudi Arabia, Iraq, Afghanistan, China, and Russia. Jack Ma and Joseph Tsai, for instance, may have major ties with Swiss Banks. We know that Tsai’s private jet is mortgaged by Credit Suisse. But who knows how much money these mega-billionaire stores in Switzerland. As you can see, Switzerland’s neutrality is extremely attractive to many billionaires around the world. But this is not that big of a deal for most Western billionaires.
What is a major deal for Western billionaires, however, is inflation. And with all of the money printing from the Federal Reserve and the European Central Bank, inflation is a bigger threat than ever before. Now, the Federal Reserve assures us that inflation is temporary and that we’ll average 2 to 3% inflation like always. But even a single year of increased inflation could be quite costly for rich individuals. Let’s say inflation runs at 4% instead of 3% for a year. If you have $1 billion in cash, you just burned an extra $10 million worth of purchasing power for no reason. By putting the $1 billion into a Swiss bank account, however, you can not only avoid the extra percentage of inflation but you can often avoid inflation altogether. You see, Switzerland takes the value of its currency and its monetary policy extremely seriously given that banking is their crown jewel. They refuse to print trillions of dollars to fund eye-popping government budgets, and they’ll do anything including negative interest rates and reducing the money supply to maintain near-zero inflation rates. This is in stark contrast to any other Western country and this is extremely evident in their historical currency exchange rate. If we take a look at the USD to Swiss franc conversion rate, we’ll see that in the year 2000, a single dollar would give you 1.7 Swiss francs. Today, a single dollar will only give you Swiss francs. In other words, the US dollar is nearly halved in comparison to the Swiss Franc. If we look at a longer time frame, this disparity just becomes even larger. In 1975, a single British pound was equivalent to approximately 6 Swiss francs. Today, a British pound is only equivalent to 1.27 Swiss francs. This means that the British pound has nearly dropped 5x in value compared to the Swiss franc. To put that into perspective, even if we measure from the bottom of the 1974 stock market crash, you would’ve only grown your money 12x by perfectly timing the market. With that being said, if you’re gonna hold large amounts of cash for a long period, it’s a no-brainer to hold it SwissFrancs.
Unparalleled peace of mind
And that brings me to the final reason the rich love Swiss banks and that’s unparalleled peace of mind. Switzerland has one of the strictest reserve requirements and lending requirements in the world. Switzerland is so confident in its system that all Swiss bank accounts are insured 100%. In the US, FDIC insurance only stretched up to $250,000. Now, will Swiss banks be able to pay out the promised 100% if things go bad? I’m not sure, but what I am sure about is that they will pay out way more than any bank in any other country in that same situation. And that’s why $6.5 trillion or 25% of all global cross-border assets are stored in Swiss Banks today.
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