The truth about Swiss bank accounts

A large number of Indians may have parked funds in the Alpine country, but, says Somasroy Chakraborty, getting a Swiss bank account is not an easy affair.

Opening an account in a Swiss bank, if anti-corruption activist and wannabe politician Arvind Kejriwal is to be believed, is easier for the country's rich than opening an account in State Bank of India.

The bank will send a representative to your home; he will get you to sign some papers, collect the money in cash and, before the day is over, it will reflect in your account at the place of your choice: Dubai or Geneva, for instance.

In contrast, for an ordinary mortal, opening a bank account requires at least one visit to the bank, furnishing copious identity documents and, last but not the least, references. That's perhaps what prompted Kejriwal to say that "you just need to contact HSBC in India" if you want to open an account abroad.

Once an exclusive club of the superrich, Swiss banks are where even small businessmen now put their money, Kejriwal went on to allege. Most high-street Swiss banks do not require a minimum deposit for an ordinary current or savings account.

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While some of the private banks do require a minimum deposit for their wealth management services, such deposits are not extravagant. For instance, HSBC Private Bank in Switzerland offers its services to clients willing to invest or borrow $3 million (roughly Rs 15 crore) or more.

What is legal, what is not? "It is not illegal for Indians to open accounts in a Swiss bank if the money is remitted through official channels. With more and more Indians travelling overseas for work or higher education, the demand for foreign bank accounts is certainly on the rise," says a banker who is in charge of private banking for a European bank in India.

While legally an account with a Swiss bank cannot be opened online, a customer does not necessarily need to travel to Switzerland to do so. It can be opened through an exchange of correspondence between the bank and the client, although most banks prefer to meet their customers face-to-face for an initial discussion.

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"Typically, a representative from the local office or a relationship manager from overseas will visit the customer and collect the necessary documents. You don't have to travel abroad to open your account," says a senior official with a private wealth management firm. And, as Kejriwal says, the depositor also doesn't need to travel abroad to operate it.

A phone call to the bank is enough to deposit or withdraw money; the bank provides doorstep services to collect or deliver cash.

While most bankers agree with Kejriwal up to this point, they insist that all banks adhere to strict due diligence norms while opening an overseas account. Under the liberalised remittance scheme, a resident Indian is allowed to remit up to $200,000 overseas in a financial year.

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"In that sense, anyone can approach a bank and open a Swiss account. But one has to disclose his source of funds and provide a legitimate reason for opening the account. Also, he has to give valid documents pertaining to his identity and place of residence. It involves lot of documentation. So, it is not as easy as Kejriwal is saying," says the head of retail banking operations of a large foreign bank in India.

That may be true but, bankers admit, depositors sometimes directly contact a bank's foreign office which sends a relationship manager to India and opens the account without involving the local branch.

The websites of most foreign banks allow customers seeking overseas accounts to leave their contact details and promise to call them back at the earliest.

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Bankers insist that an overseas account is only opened if there is a request from the client and banks do not market them aggressively.

"The rules are fairly clear. If a customer expresses his desire to open a Swiss account, only then do we refer him to relationship managers in Switzerland. Sometimes they approach our overseas office directly and the Indian entity of the bank is not involved at all," says the chief risk officer of a global bank operating in India.

According to the Swiss Bankers Association, a professional organisation of the Swiss financial centre, any adult person can open an account with a bank in Switzerland.

Any company, no matter whether its registered office is in Switzerland or elsewhere, can also open a Swiss bank account. It, however, adds that there are strict procedures involved. Banks have to verify the identity of their customers based on official documents such as a passport, in line with Swiss norms.

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The certified copy can be provided by a branch, representative office or group company of the bank, or by a correspondent bank or financial intermediary appointed by the bank.

A notary public or public office can also provide authorisation. The bank will also check the address of the new customer.

"Swiss banks are obliged to verify the identity of a client... The bank's staff will certainly ask questions to fulfil the bank's legal obligations with regard to due diligence. This will include asking for proof of your identity and also establishing the identity of the beneficial owner of the assets if you are depositing funds on behalf of someone else," SBA says on its website. The bank's staff may also enquire about the origin of funds, nature of business, general financial situation and usual financial transactions of the customer.

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Bankers say that besides the fact that it aids business or higher education abroad, Swiss accounts are also popular because of strict bank-customer confidentiality rules.

Any violation of these confidentiality rules, whether through negligence or intentionally, is punishable by a prison sentence of up to three years or a financial penalty. Violation of confidentiality remains a punishable offence even after the relationship between the bank and its customer has come to an end.

SBA, too, admits that privacy is one of the reasons why people across the globe prefer to open accounts with Swiss banks. "Although a desire for privacy can play an important part in an investor's decision to deposit... assets in a Swiss bank, it is not the sole or most important factor... Switzerland's political and monetary stability, its excellent banking infrastructure and the professional know-how and experience of its bankers are also attractive factors," its site says.

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Swiss banks attract global clients because they allow customers to keep their deposits in currencies such as the US dollar and Euro, besides the Swiss Franc, bankers say.

Contrary to popular perception, the concept of anonymous accounts does not exist in Switzerl#8743 banks need to know the client before opening an account. Even numbered accounts, where business is carried out under a number or code instead of the customer's name, are not anonymous.

"Anonymous accounts in Swiss banks exist only in the imagination of thriller writers... The name of the holder of a numbered account is known, though only to a small group of people inside the bank. As far as bank-customer confidentiality is concerned, there is no difference between numbered accounts and any other sort of account," SBA says.

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Numbered accounts are also not allowed to be used for global wire transfers as international laws stipulate mentioning the client's name, address and account number in such transactions.

Swiss banks are also liable to disclose client details in case of civil proceedings such as inheritance or divorce, for debt recovery and bankruptcy, and in criminal investigations.

Kejriwal's tirade against overseas accounts was focused on HSBC. The bank, he alleged, helped individuals and companies transfer funds abroad to the tune of Rs 2,100 crore (Rs 21 billion).

If his charges are proved correct, HSBC will not only face punishment in India but also attract penalties in Switzerland. The agreement on due diligence, issued by SBA as a set of self-regulatory guidelines, lays down obligations of banks with regard to identification of clients and beneficial owners.

It prohibits banks from actively assisting the flight of capital and evasion of taxes. The offences are punishable by fines of up to 10 million Swiss Francs.

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"The high level of confidentiality Swiss banks offer both to their domestic and foreign customers is not absolute and does not shield criminals. As a matter of principle the rights to privacy can be suspended when a criminal investigation is underway. Our aim is to protect the privacy of the honest bank client while exposing criminals to the full force of the law," SBA says.

HSBC India has declined to comment on "the specific details of the allegations" made by Kejriwal but maintains that under its new senior global leadership team, it is taking steps to strengthen compliance, risk management and banking culture.

The government has also said that it is taking action against all the individuals named in a list pertaining to black money, given to it by France in June 2011. But it has not confirmed whether it was the same list Kejriwal mentioned and has also declined to name the individuals named in that list.

While opening a Swiss bank account may be easy, keeping it a secret seems to be difficult.