Mixed signals from banks, for US citizens in Switzerland

Updated 01:00  Geneva, Switzerland (GenevaLunch) - Swiss banks have become more cautious in their relations with US citizens in the wake of problems the country’s largest bank, UBS, ran into in 2008 with the IRS over unreported income on the part of some of its clients. GenevaLunch, in a survey of several Lake Geneva area banks, found that without exception the banks say they do not discriminate against US citizens, and they continue to welcome new accounts. Stories nevertheless abound in Switzerland of US citizens who received letters in early 2009 from their banks saying their accounts were being closed – but few of of these people will speak openly about such letters, in part because the IRS tax authority encourages citizens to report on others who are not “compliant” in filing taxes as well as listing all worldwide assets.

US Ambassador Beyer suggests UBS could turn over fewer names

A GenevaLunch reporting team this week spoke with several people to determine the extent to which the personal banking problem is real or a recent urban myth. The team talked to seven of the eight banks which returned its calls and to a number of US citizens resident in Switzerland, as well as with members of American Citizens Abroad (ACA). Some of those interviewed participated in an informal meeting in Geneva 12 November with the new US ambassador to Switzerland, Donald Beyer, where  the banking problem was raised.

Beyer later in the day told WRS public radio in Geneva that some 9,000 Americans took advantage of an IRS amnesty for citizens overseas that ended 15 October. He suggested in the radio interview that the number of names UBS will turn over to the IRS is likely to be lower than the numbers – up to 50,000 – tossed about earlier in 2009 by international media.

The account-closing letters appear to have been received by several individuals and couples who had earlier filled out bank forms saying they are US citizens, but only if they had investments, even if indirectly through mutual funds, with the bank.

US banks closing accounts because of “know your customer” rules

The reason for the outcry about banking problems lies with the fact that many US banks, and the foreign branches of these banks, have also become nervous and are closing “home”, or US accounts of foreign citizens. This leaves US citizens two choices for doing their daily banking business: to work with a local bank in the foreign country or to give a US address of a friend of family member to the US bank and pretend it is their own.

”US banks have been doing more and more of this since 2001,” says an American woman married to an Italian, who is based in Switzerland. “It’s the KYC – know your customer - rule. They’re no longer comfortable with clients outside the country.” The problem, she points out, is that for Americans who either cannot or will not, give a false US address, one where they are not in fact resident, the only alternative is to bank with a foreign bank.

And if the foreign bank is Swiss it most likely limits its US customers to checking and savings, with no investment options, and no financially sensible way of transferring and managing investments in the US. Two of the cooperative-type banks, Migros and Raffaisen, have told US clients they may open and keep bank accounts in Switzerland, but the bank will have no contact with them if they are in the US.

Another American talks about a close friend who lived in Switzerland for several years, then retired to the US. She had her pension fund in one of these banks and she is unable to touch the money unless she leaves the US. The issue is not tax compliance, but a significant financial loss if she moves her money.

Americans who don’t find solutions may  be afraid to go home

Andy Sundberg of ACA told Ambassador Beyer and the group who met with him that he hears many stories of people who are afraid to tell the IRS now about assets abroad which they did not report earlier – many of them either unaware of the requirement to do so, or unable to cope with the paperwork or cost of having someone else do it. “And now there are a lot of people who think they won’t ever go back to the US. Who are afraid to return.” The penalties are so high, up to 100 percent of the highest amount in any account at any given time in the past six years, he notes, that some people fear it would wipe out their life savings

A case in point is another American who inherited a few thousand francs, but the money appeared in the account for only one day because it wiped out a debt. He doesn’t have the equivalent sum, nor would he be able to raise it, since he’s retired, and he doesn’t want to take the risk of talking to the IRS. Family inheritances, particularly in cases of mixed nationality, cause many of these problems. One American, born Swiss and with both passports, said her parents scraped for years to invest in a Swiss bluechip company so she could someday benefit from the shares, but their investment decision was made under the Swiss tax system, since both her parents are Swiss. Now her parents are proudly offering her this gift early, which they hope will help her since she’s been diagnosed with a chronic disorder. But she’s afraid to tell them that if she accepts it, under US tax laws – but not Swiss – a large percent of what they worked hard to put aside will disappear. And yet if she does accept it she won’t have enough money to retire early because of health problems, which her parents think they are helping her to do.

One couple with enough wealth to be attractive to private bankers Pictet in Geneva said they were told they could have investment accounts as well, as long as they managed the money themselves. “Their asset managers wouldn’t come near it – but who wants that?”

Swiss banks don’t want the expense, hassle of US clients

Bank Julius Baer in Zurich told GenevaLunch that it accepts US clients and will manage their investments “as long as they are tax compliant.” If they are a couple with one US citizen and one who is not, the non-American may balk at this, and several individuals told GenevaLunch this is their case.

The banks’ rationale in refusing to handle any kind of investment account, including pensions, is that the cost and hassle of trying to keep up with changes to US regulations is simply not worth it, journalists were told by bankers at a Geneva Financial Centre press conference in mid-October. Steve Bernard, director of the centre, says that it is too risky for the banks: not politically risky, but costly. He offers the example that the US tax authority, the IRS, recently issued new compliance guidelines for its latest interpretation of its own rules, which are in any event not always clear.

The solution for many dual citizenship individuals is to quietly fail to announce their US citizenship to the Swiss bank and use their other nationality. In the case of dual citizenship couples the US citizen may be unable to be a signatory party to any investments.

Where banking refugees turn

The banks contacted by GenevaLunch said, without exception, that US citizens who are legal residents of Switzerland may open an account, obtain a credit card and apply for a mortgage. MigrosBank, Raiffeisen and Coop Bank, the country’s three national cooperative banks, said that they welcome anyone without discrimination.

UBS’s communications officer Serge Steiner went further and said that the bank could be prosecuted for discrimination if it applies a national bias.

Any US citizen who needs investment or wealth management advice with UBS may obtain this, he says, via one of three US-regulated entities of UBS: the Zurich-based Swiss Financial Adivsors subidiary, a smaller Hong-Kong based unit, and the more than 400 branches of the former Paine Webber network in the USA. The bank did not state what papers it insists Americans supply if they want to open new investment accounts. Two UBS clients say they were sent forms asking if they are US citizens, and they simply ticked “no” next to the box since their spouses have other passports and they were nervous they would be turned down. Now they worry that if the other spouse dies they will have trouble accessing the accounts if their nationality becomes known.

Credit Suisse, for its part, says that it cannot give out information about “client segments.”

An indication that some banks are indeed discriminating against US citizens was given by one bank which responded that it has no problem with accepting such clients, and indeed has welcomed several such “banking refugees” from other banks.

Background: Swiss-US tensions: welcome to banking hell, GenevaLunch, 25 July 2009

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