How Swiss Bank Accounts Work

Swiss banks have a reputation for anonymity and safety, and for the most part, those features still exist. But foreigners who use private banking services should know that there have been changes in recent years. Swiss banks are hesitant to work with overseas customers, and the days of top-secret accounts are over.

Still, U.S. citizens might benefit from using Swiss bank accounts. Switzerland is a global powerhouse in wealth management. The nation offers economic and political stability that doesn’t depend on the ability to serve as a tax haven, and it's possible to structure accounts in a way that discourages others from going after your assets.

Swiss Bank Account Privacy

Swiss banks have a long history of keeping account information private. After the arrest of two employees of a leading Swiss bank in 1932, Switzerland passed the Swiss Federal Banking Act of 1934. As a result, bankers who release information about private clients or acknowledge the existence of client accounts face criminal charges. Over time, the privacy of Swiss banks has been used to hide Nazi wealth, protect assets of the persecuted, and help countless others keep a low profile.

The strongest privacy comes from numbered accounts, which are identified internally by a number (instead of using the account holder’s name). However, numbered accounts are not anonymous—you need to provide identifying information to open one, and select staff members have access to the real names behind numbered accounts. Numbering simply limits who knows about your account and who can find it.

Pros and Cons of Privacy

The privacy that Swiss bank accounts afford has many benefits and downsides. Even if you’re a law-abiding citizen, you may appreciate additional layers of privacy. Wealthy individuals may want to stay under the radar to avoid getting hit with lawsuits or other unwanted attention. These accounts are well known for their ability to provide these types of protections.

However, Swiss bank accounts also have a reputation for being used for tax evasion or other criminal activities. Debates have long raged over which protections should be reduced, and some changes have been made over the years. Nonetheless, these accounts present more opportunities for these kinds of activities than perhaps anywhere in the world.

Information Sharing

Historically, Swiss bank accounts were used for shielding assets from law enforcement, creditors, and tax authorities. Supervillains in movies use Swiss accounts to accept payments by wire and stay under the radar. But asset protection doesn’t exist if you do anything that Swiss law recognizes as illegal.

Swiss banks face criticism and pressure to cooperate with foreign governments interested in tax revenues, fighting terrorism, and reducing fraud. As a result, banks provide information about clients in numerous situations, including criminal allegations, tax investigations, and divorce proceedings. While it may be possible to hide assets overseas, it’s likely illegal to do so, and it’s increasingly hard to get away with.

FATCA Agreement

Tax evasion is especially hard to pull off as a result of the Foreign Account Tax Compliance Act (FATCA). FATCA is U.S. law, but Swiss banks have agreed to share information about U.S. account holders, no doubt persuaded by stiff sanctions for noncompliance. It’s not illegal to hold assets overseas, but U.S. taxpayers are required to declare those accounts, which may lead to tax liabilities. If you don’t disclose the existence of the accounts, your bank may do it for you.

Creditor Protection

Most U.S. citizens do not get significant creditor protection from simply owning Swiss bank accounts. Swiss banks cooperate with civil and criminal judgments, making them virtually useless for avoiding legal penalties, laundering money, or hiding stolen funds where judgments come from U.S. courts. 

Still, it's possible to add layers of protection and shield assets from creditors without hiding assets or breaking the law. Victor J. Medina, CFP, an estate planning attorney and financial planner focusing on asset protection, says individuals can add protection by holding assets in entities such as trusts and LLCs located in non-U.S. jurisdictions, which would require obtaining judgments in those specific regions.

But it's not a bulletproof strategy. "You have to avoid running afoul of the fraudulent conveyance rules, and, at some point, the value of the claim is worth the cost of the litigation to get judgments enforced in those remote jurisdictions," says Medina. In other words, motivated claimants with deep pockets can overcome hurdles. Residents of nations prone to groundless seizures or unfair systems are more likely to benefit from creditor protection in Swiss accounts.

How to Open a Swiss Bank Account

If you understand the limitations and still want to proceed, be prepared for a long process. You’re not opening an online bank account—the task will result in hundreds of pages of paperwork (much of it on the bank’s end) and numerous hours of labor.

Prepare Documentation

Because of increased scrutiny and potential penalties, Swiss banks have strict procedures for due diligence on customers before opening accounts. In addition to valid identification, such as a passport, you’ll need to document the sources of your wealth. Private bankers need to understand how you earn income and where your money came from. For large deposits (from selling a property or business, for example), you may need to provide bank statements and copies of agreements that document the source of funds.

Apply for the Account

The goal is to ensure that banks know who their customers are and where the money comes from. That said, don’t make a trip to Switzerland hoping to just walk into a bank and apply; conduct your research, and start the conversation long before you need to open an account. Be mindful of the challenges that arise for banks working with U.S. citizens, such as the financial risk for the bank, regulatory burdens, and paperwork. Be prepared to hear “No.” Your chances for approval are probably best if you're working with an experienced team that has done this before and has relationships in Switzerland.

Use Your Account Sensibly

Most foreigners don’t use Swiss banks for everyday accounts. You may get debit and credit cards for spending, but the main benefits of private Swiss accounts are the stability of the banking system and privacy. If you use debit cards or write checks in public, you’re letting the world know that you have funds in a Swiss bank account, eliminating much of the privacy you worked so hard to gain.

Swiss Banking Alternatives

If the process of setting up a Swiss bank around sounds like more trouble than it's worth for you, there are still other ways you can benefit from some of the stability and privacy the Swiss banking system offers. Switzerland is known for additional services, such as vaults for storing gold and other valuables. Those arrangements do not feature the same disclosure and information-sharing requirements as bank accounts, but they have unique risks and rewards.

Regardless of what type of banking you consider doing in Switzerland—or anywhere overseas—be sure you do your research first. Before moving assets to an overseas account, investigate local factors such as the current political environment, relevant laws, currency stability, and other issues. Speak with a tax attorney to understand your obligations as a U.S. taxpayer.

Frequently Asked Questions (FAQs)