Bank Secrecy
Bank Secrecy, otherwise know as Financial Secrecy or Banking Secrecy is found in legislation which prohibits the release of client account information, usually enforced by a fine or jail term.
Although many countries have bank secrecy laws, it is only effectively enforced in a handful of countries. Many high-tax governments and some NGO's want to eradicate bank secrecy because they see it as an instrument for organized crime or tax evasion.
While a small minority of criminal elements have used and continue to use bank secrecy as a shield, most people have perfectly legal and understandable reasons for keeping their financial affairs private. In some countries just being wealthy makes you a target for frivolous legislation, and having a safe base ensures that fraudulent or excessive claims will not leave you empty handed.
Investors with politically or economically unstable home governments also like to keep portions of their wealth untraceably offshore in case of dramatic changes in legislation or threats to their security from organized crime!
Strict bank secrecy is most commonly found in tax havens (examples could be Switzerland, Panama or the Cayman Islands). More recently belize offshore banking gained a reputation for secrecy, although as jurisdictions are pressured to change their legislation and others spring up in their place, the list of countries where financial secrecy is actually enforced is constantly evolving. Since bank secrecy in any one country is difficult to guarantee, alternatives have sprung up which aim to maintain the same level of confidentiality irrespective of changes in secrecy legislation. One such alternative is internet offshore banking through confidential trusts.
Bank Secrecy and Money Laundering
Due to the room blanket bank secrecy gives for money laundering operations, bank secrecy legislation in most countries contains exceptions which oblige banks to report suspicious financial activity. The result is that in almost every country worldwide bank secrecy can be lifted on suspicions of terrorist activity, drug smuggling or money laundering. The difference between jurisdictions will depend on how much evidence is required to release information.
US Bank Secrecy Act 1970
Despite its highly developed services, the Cayman Islands and Cayman offshore banking have dubious bank secrecy, and individual account holders especially from the US/UK/EU cannot feel 100% sure of their privacy.
US law for example requires banks and other financial institutions to keep records of cash purchases of negotiable instruments, file reports of cash transactions exceeding $10,000 and to report suspicious activity that could be linked to money laundering, tax evasion, terrorism or other criminal activity. Otherwise known as the Currency and Foreign Transactions Reporting Act, this act has been further strengthened by the International Money Laundering Abatement and Financial Anti-Terrorism Act of 2001 (Part of the Patriot Act).
Swiss Banking Secrecy
The most noted of offshore banking centers for its bank secrecy is Switzerland, although other countries such as Liechtenstein, Panama, Hong Kong and Singapore also have very strict bank Secrecy laws.
Swiss bank secrecy is viewed as the strongest worldwide and is enshrined in Swiss law by the 1934 Swiss Banking Act.
Although breaking Swiss Bank Secrecy will still result in a jail sentence, the principle of secrecy has been gradually eroded over time. Anti Money Laundering regulations introduced in 2004 spelled the end for numbered accounts and anonymous bank accounts, with strict KYC ensuring that each customer has to be properly identified by banks before opening an account.
Switzerland has recently adopted OECD regulations governing international
banking transparency and information exchange. Previously Switzerland made a
clear distinction between tax fraud and tax evasion, and
Swiss offshore banking would not cooperate with foreign governments in cases concerned with tax evasion, which it did not view as a crime. Now it will provide information on the accounts of its foreign investors when provided with specific 'concrete' evidence of tax evasion by the home authority.
Uruguay and Panama Bank Secrecy
Uruguay and Panama still hold some of the strongest bank secrecy laws in the world. While other countries have been forced to water down their legislation, these jurisdictions have up to date managed to avoid the spotlight and uphold their sovereignty.
In Uruguay bank secrecy can never be broken for any tax issues, it can only be pierced after someone is convicted of a real, non-tax crime.
The law states that covered persons: "may not provide any information regarding funds or securities in checking, savings or any other account belonging to a natural person or juridical entity. They also may not report confidential information received from clients or regarding their clients. Referred operations and information are protected by professional secrecy and may only be revealed by the express written authorization of the interested party or by a well-founded resolution by Criminal Justice or competent Judicial authority when child support is at stake and in all cases, shall be subject to the strictest responsibilities of any damages stemming from lack of a well-founded request. No exceptions other than those established under this law shall be admitted. Those who do not comply with this article will be punished by three months to three years of prison."
Panama also has very strong bank secrecy laws. Within Panamanian Legal Code, Article 74 of Decree 238 prevents the Panama banking commission from conducting investigations on individual clients. Any information uncovered during its regulatory activities cannot be revealed, unless subpoenaed by a Panama court order. Anyone in violation of this law is subject to Article 101 which states: "Any person who furnishes information in violation of this Cabinet Decree, or who violates any of the prohibitions established in it, for which no specific punishment is provided for, shall be subject to a monetary fine as determined by the Banking Commission, without prejudice to applicable criminal and civil liabilities."
Article 170 goes even farther. "Any person that in the course of his occupation, employment, profession or activity obtains knowledge of confidential information that in the event of being made public could inflict damages, and such person discloses that information without the consent of the concerned party; or in the case that disclosure of such information were not necessary to safeguard a higher interest, shall be punishable by imprisonment of 10 months to 2 years or a comparable fine, and the inability to practice his occupation, employment, profession or activity for not more than 2 years."
Although these laws are very strong on paper, it is important to remember that sometimes paper laws are not physically enforced. Statutory confidentiality of client information in the Cayman Islands is provided by the Confidential Relationships Law, which is in letter very strict and clear. Those who unlawfully break bank secrecy should face a jail term. In practice disclosure of information, where backed by the US or other high-tax authority has taken place without repercussions for the whistleblowers.
The most important thing to remember when evaluating offshore banking accounts as potential places to
safe guard your wealth is to not to be bound to any one jurisdiction. As laws and government's change so do bank secrecy and one nation's relationship with another. Find about the benefits of Capital Conservator's risk managed offshore banking.
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