International Business Law Advisor Insights on International Litigation & Transactions

Swiss Banks Shutting Out U.S. Clients Due to Unprecedented Banking Oversight

Posted in International Banking

on my visit to Switzerland with my wife and daughter this past April, there was a palpable sense of uneasiness in the unusually damp alpine air. As we made our way down Zurich’s Bahnhofstrasse—the main artery running through the city’s financial district, I could not help but notice the sheer number of jaw-clenched bankers passing us by. Given the current regulatory climate, the bankers’ uneasiness is understandable. As Mark Scott of Business Week’s Europe Insight blog explained in his post U.S. May Target Other Swiss Banks in Tax Probe, Swiss bankers are coming under intense scrutiny concerning the portfolios of their  wealthy U.S. clients:

Swiss banks also are becoming more reticent towards U.S. clients. Several bankers, who declined to give their names due to the sensitivity of the topic, say the extra oversight involved in managing American money — coupled with the bad publicity associated with the UBS case — has taken the shine off providing wealth management services to U.S. high-earners. Despite the sizeable American market, many would prefer to tap the growing wealth from Asian economies, instead of dealing with the added pressure associated with U.S. clients.”

Although I touched on this topic in an earlier post, it remains to be seen whether Swiss banks will continue to limit or even eliminate private wealth services to U.S. clients.  Due to the ongoing saga between the IRS and UBS, many Swiss banks have chosen to shut out U.S. clients entirely.  At present, it’s mostly the smaller Swiss banks that have announced their intent to limit their services to non-U.S. clients. Wegelin & Co., Switzerland’s oldest bank,  for example, has instructed wealthy clients to sell their U.S. assets, or switch banks, because of concerns that new rules will burden investors with tax obligations in the U.S. At least two of the major Swiss banks — Julius Baer (JBHGF) and Credit Suisse Group (CS) — have yet to publicly announced whether or not they will change their procedures for handling U.S. clients. 

As this banking saga continues to unfold, it will be up to Switzerland to draw the line on banking reform. Swiss foreign minister MichelineCalmy-Rey put it succinctly when she told Reuters, "For us this is not primarily about UBS. It is about Switzerland’s sovereignty. We want our laws to be respected. It is also about our financial center and about jobs. A solution in the UBS case must fall within Swiss laws."

 

 Trend to Watch: Look for increased tension between Switzerland and other nations as France and Germany step up their efforts to further erode Swiss bank secrecy laws.