The reasons for doing Swiss banking are myriad: tax evasion is the most well known, though other reasons might include sheltering money due to domestic disputes, concealing stolen funds or, in war times, using a Swiss account as a safe haven.  (In non-banking global matters, Switzerland maintains neutrality.)  Then there is the simplest reason for opening a Swiss bank account – convenience when traveling or vacationing in Switzerland, and access to your money through a Swiss charge card.

Who uses Swiss banking?

Often, the lurid and flamboyant come to mind: dictators, film celebrities, socialites, politicians, financiers, industrialists, organized crime figures, white collar criminals and underground economy proponents.  (The likes of Ponzi-scheme “fund” manager Bernie Madoff and notorious fugitive Boston crime boss James “Whitey” Bulger may be among them.)  Controversy aside, Swiss nationals and legal residents, of course, would be expected to have a Swiss bank account.

But believe it or not, anyone can theoretically open an account.  Contrary to myth, you don’t need large cash pools to start a bank account in Switzerland.  According to informational website Swiss-Bank-Accounts.com, one can open an account for as little as 5,000 Swiss francs.  At this moment, the conversion amount in U.S. dollars would be about $5,040.  It should be noted the U.S. dollar tends to be weaker against the Swiss franc, which has managed to sidestep recent currency devaluation.

How does one set up a Swiss bank account?

• Written correspondence accompanied by a check or money order.  (Contact the Swiss bank of your choice.)
• Bank to bank funds transfer by wire or online banking (internet).
• Wire transfer or money exchange service such as Western Union or Pay Pal.  (Again, contact the bank first.)
• Credit or debit card accepted by the bank.
• In-person visit to a local Swiss bank branch such as Credit Suisse.
• In-person visit to a bank in Switzerland.

Given these rather mundane methods, one wonders how account confidentiality can be maintained since they leave paper trails and digital footprints.  But more sophisticated bank clients uncover ingenious ways to hide funds – doing multiple offshoring, making use of wire transfers, closing accounts and opening new ones until the funds reach their intended Swiss destination.  They may receive assistance from unscrupulous bankers, brokers, accountants, and other money management professionals.  The accounts can be held in the name of other offshore companies.  Some have a broad multi-layered global presence.  Others may be cleverly obscured phantom organizations with websites and store fronts that disappear and resurface under different names.  One example of illicit money transfer ingenuity was reported in USA Today.  Father and son hoteliers Mauricio Cohen Assor and Leon Cohen-Levy were accused of directing proceeds from a sale to an HSBC account in Switzerland.  The account holder was a Panamanian firm.  The pair did not report the sale to the IRS.

The nature of Switzerland’s tradition-old customer non-disclosure has raised the ire and suspicion of governments and non-government organizations (NGO) whose monetary reserves have been depleted through Swiss bank offshoring.  Many have accused Switzerland of using the cloak of “bank secrecy” to harbor terrorists, dictators, drug lords and citizens suspected of tax fraud/tax evasion.

Think twice before moving your own money offshore

The U.S. is taking a proactive stance to recover unreported American laundered money from the Swiss banking industry.  In January 2003, the U.S. Treasury announced an information sharing agreement intended to effect tax information exchange between the U.S. and Switzerland.  To offset lingering international criticism about its bank privacy policy, in March 2009 Switzerland agreed to increase anti-money laundering measures.  Under the 2009 treaty, holders of Swiss accounts must be identified and suspicious transactions reported to the Money Laundering Reporting Office.

Also under the 2009 treaty, the IRS and U.S. Justice Department plan to pursue criminal charges against some 4,000 American clients of Swiss bank UBS.  In addition to possible prosecution, the account holders will be subjected to a full audit, tax repayments, and penalties unless given leniency under the 2009 IRS voluntary disclosure program.  The program has ended but the IRS and the Justice Department continue to put the squeeze on suspected UBS clients and clients of offshore banks in other countries.

With the U.S. deficit mounting, the Bush tax cut nearing expiration, and increased dividend and capital gain tax legislation pending, more Americans might be tempted to offshore their money despite the risks.  At stake is the potential for a new cat-and-mouse game between U.S. officials who try to unveil tax evaders through threats of disclosure, heavy fines, imprisonment, etc. and Americans fighting to protect their investments.

This was a guest post from Tim Chen is founder and CEO of NerdWallet.com, a website that helps consumers to compare credit card rewards.  Tim also educates consumers about debt management and personal finance at the Forbes Moneybuilder Blog, the Huffington Post, and U.S.News.

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Demystifying Swiss Bank Accounts is from Investor Junkie Copyright © Empowering Media, Inc.