A Different Version of the "Dumb" Swiss Banker Story
A funny story out from Switzerland today. It was widely covered in the press (Link). I think the story that is "out there" is bullshit. My take:
The story in the media is that a Mr. Beda Singenberger, a Swiss Private Banker "accidentally" sent a list of US clients with black money accounts to the Department of Justice. The DOJ promptly smashed all 60 of them. Money was forfeited, fines were paid and some folks are doing time.
Fairyland. It doesn't work like that.
Beda was using a time-honored Swiss tradition referred to as either the "Double Blind" or simply, "Belt and Suspenders". A Swiss lawyer would set up a Trust Agreement for a newly formed trust that was legally domiciled in Lichtenstein. An actual trust was set up in Lichtenstein, but this is just a recording formality that has a small initial cost.
The new Trust is given a secret name; call it "Cassandra". The Swiss lawyer then proceeds to set up an investment account with a friendly Swiss banker. The name on the new account is Cassandra. There is no other information regarding the account other than that the account is legally registered in Lichtenstein.
A US person with this set up has two layers of protection from the IRS/DOJ. The first in the Swiss banking secrecy laws. For years it was believed that these laws would protect black accounts. That all fell apart in 2008. There is no Swiss banking secrecy that can provide a shield from the IRS any longer.
But, the second level of protection is impenetrable. The DOJ can lean all they want on the Swiss banker to divulge names. But, in this case, the only thing the banker has is the name Cassandra, and the name of a Swiss lawyer who set the Trust up.
The Swiss lawyers are completely protected. They, like US lawyers, are not obligated to reveal information regarding client activity. The Swiss version of the Attorney/Client confidentiality privilege will not be violated - ever.
You have to trust me on this - If I have all the details on how this works, then you can be 100% certain that the nice folks at the DOJ are also aware of the details. The boys at the DOJ hit a wall over client privilege. They must have been working overtime to break this last wall down.
The private Swiss bankers get money from clients, and they invest it. Nothing special, stocks and bonds. To do this basic investing requires a clearing relationship with some NY based entity. Assume that the SEC knew that Beda was dirty, and they wanted to nail him. The DOJ could easily put a block on the assets of the Swiss Private Bank. They would then send a nice letter that says, "Come talk to us".
Note: This was how the Wegelin Bank got shut down in the US.
At this point, an expensive D.C. tax lawyer gets involved and "he" has a sit down with "somebody". Cards get put on the table.
The Swiss banker is totally screwed. Not only are the assets of his US customers frozen, but other assets that belong to folks from Iran, South America, China, Africa etc are also blocked. If the banker ends up losing the assets of some pirate from Somalia, the banker will be found dead.
On the other hand, if the Swiss banker turns over the US names he is in violation of Swiss banking laws, he may end up in Swiss jail, and for sure, his banking career is finished. (He knows who they are - there are cash withdrawls and other decisions that require regular face-to-face meetings. Zurich is fun - great shopping with all the cash!)
So the Swiss banker's US lawyer cuts a deal. The Swiss banker will "accidentally" provide the names to the DOJ. In return, the DOJ releases any funds/assets that are not US owned.
The DOJ is pleased as punch. They finally broke down a double blind. Any other US person who thought they were protected by the Trusts and the lawyers, are now crapping in their pants. (There are thousands in this position today) If they were smart, they would do a disclosure/settlement deal with the DOJ. (Big Fines - No Jail time - No perp walk)
The Swiss banker can go on living. He may look stupid, but at least he doesn't have the Taiwanese mafia after him. And who knows, his remaining (non US) clients will appreciate what he did for them (screw the Americans). They might just give the banker a bit more loot to manage as a result. Everybody is happy - except a few folks in the US who got caught with their pants down.
So that's my story. The message in my version is that the DOJ is playing hard ball and winning. They are Terminators, nothing stops them. There is a positive spin to this story - folks who cheat the system are getting nailed. The dark side is that the Terminators are out there, and working 24/7. They have big computers and very big balls. Think of a rhino that puts its head down, and just charges through the bushes. Everything gets trampled in the process.
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