Thursday, 20 December 2018 13:58

What does bank secret mean?

article-2072067-0F1D243A00000578-579 634x454The Bank secret protects the confidentiality of clients’ information from third parties and includes all types of personal and economic information, including deposits, account numbers and transactions; without a doubt it isn’t to be confused with professional secrecy that regulates the discretion of banks and financial negotiators without the same level of protection.
The bank secret reigns fundamentally in extraterritorial or offshore banks almost always located in tax havens, protected by special laws that concede greater freedom to their clients in their operations, in addition to a more favorable tax treatment, on the basis of attracting deposits and investments from non-resident people or businesses, and which are not available for citizens of the country.
Extraterritorial or offshore banks are protected by law or even by the constitution, as is the case in Switzerland, which has set severe fines or prison for any bank employee that violates the bank secret of their clients. Even though the Tax Administrations have direct access to said information, which remains under the custody of the bank itself and its corresponding financial regulation organisms or central banks, and is revealed only through judicial order.
Some time ago, the Organization for Economic Cooperation and Development (OECD) and the G20 adopted measures to force extraterritorial or offshore banks and tax havens to relax the bank secret in cases of tax evasion crimes. To this effect, some jurisdictions were revealed as applying “harmful fiscal practices” proposing sanctions for not offering fiscal transparency.
Among other things, the famous “gray list” of tax havens and extraterritorial or offshore banks came into being, basically descending from the earlier “black lists” that gathered together the countries that didn’t seriously battle money laundering. They signed treaties such as the Mutual Legal Assistance Treaties, especially with the United States and Great Britain; and after the terrorist attacks of September 11, 2001, policies and norms against money laundering, known as Anti-Money Laundering policies were formed.
In the majority of the cases, we aren’t dealing with automatically revealing data or lifting the bank secret, which allows massive requests about accounts from a determined country, also known as “fishing trips”. On the contrary, most of the agreements demand that in order to make use of a fiscal information exchange clause, the account number, the name of the person to whom it belongs, or who is thought to be the beneficiary must be indicated; in addition, they must provide proof that a fiscal crime has been committed and show that the requested information cannot be obtained in any other way.

Published in Offshore Banking


Many in the world believe that the bank secret no longer exists in the United States and that the financial institutions share their clients’ personal information with the Government; however, a recent report by the Tax Justice Network shows the United States appears in third place, led only by Switzerland and Hong Kong, among the countries that most respect the bank secret.
Three years ago, this same report placed the United States in sixth place. What does this change mean? That most countries signed an agreement promoted by the OECD which established stricter norms regarding the exchange of banking information. The United States didn’t sign this agreement, and this made Andrew Penney, manager of the Rothschild Investment Bank, among others, consider this country as “the largest tax haven in the world”.
It is precisely the American resistance to the very strong standards of the international bank has influenced the positioning of this nation as one of the most attractive for receiving foreign riches. If years ago the richest people in the world preferred depositing their fortunes in places like the Cayman Islands and the Bahamas, it’s not strange now for them to transfer them to banks in Wyoming, South Dakota and Nevada. The reason is that the experts have identified ways to transfer wealth to the United States and avoid taxes there, as well as avoiding the exchange of banking information of the person’s country of origin.
For example, according to Penney, a well-to-do person living in Hong Kong can deposit his income in Nevada and shield this information so that the Chinese government doesn’t find out and, in addition, the operation doesn’t provoke taxes in the United States.
The America’s decision to not sign the agreement with the OECD on information exchanges is an important step and helps diminish fears of working with this country’s banks. To Penney, this “decision is shown to be an important motivation for growth in negotiations there.”

Published in Offshore Banking