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MONEY

Gold, secrecy and wealth: Six Swiss bank myths that need to be busted

In popular culture, Swiss banks are often synonymous with dirty money, illicit dealings and gold. But how true are these rumours?

Are gold bars really stashed under Zurich’s famed Bahnhofstrasse? Photo by Jingming Pan on Unsplash
Are gold bars really stashed under Zurich’s famed Bahnhofstrasse? Photo by Jingming Pan on Unsplash

Such images are often perpetuated by Hollywood films,  in which shady characters invariably have a banker in Zurich — an equally shady individual with a thin moustache and a dark suit — who quietly stashes illegally begotten money in secret accounts.

These are some other common myths circulating about Switzerland’s financial institutions.

Swiss banks are only for the wealthy

This story tells it all: A man carrying a big bag walks into a Swiss bank. He goes up to the window and whispers to the teller: “I have one million francs in this bag.”

The teller says: “There’s no need to whisper, sir. Poverty is nothing to be ashamed of.”

While this is obviously a joke, it does reflect a certain reality: many people living abroad believe only the super rich can have a bank account in Switzerland.

Not so: the deposit amount varies for each of the more than 400 banks in Switzerland but even a modest sum could suffice. However, if the deposit is under a certain amount, the bank could charge administrative fees.

Typically, an account with one of the larger banks in Switzerland will set you back around 5 francs per month in account-keeping fees. 

Unlike in some other countries, however, this will not include many associated transactions – like having credit or debit cards or using ATMs from non-affiliated banks. 

For an all-inclusive deal, you might need to upgrade to a ‘premium account’ – which will cost around 30 francs and will cover most usual transactions and withdrawals. 

READ MORE: How to open a bank account in Switzerland

You can stash the money in an “anonymous” account

This too can be attributed to Hollywood imagination.

While this may have been the case decades ago, it is illegal now. To open an account, you must have a valid ID like a passport, verification of your address, and a document to prove the origin of the money.

EXPLAINED: The best way to save money for your children in Switzerland

The latter condition is due to the fact that banks in Switzerland are not allowed to accept funds which they know or suspect have been obtained through criminal activities.

A typical proof that your money comes from legitimate sources could be a bank statement showing salary payments or documents from the sale of property.

Banking secrecy is alive and well in Switzerland

This ‘myth’ has some truth to it — for instance, in principle the banks can’t reveal your financial information to a third party. So the bank-client confidentiality is still (mostly) the rule.

However, there are some exceptions, as in order to prevent tax evasion, Switzerland has signed agreements with a number of countries to cooperate in exchange of financial information of their respective citizens.

EXPLAINED: Which banks are best for Americans in Switzerland?

In other words, if you are a foreign national, under the terms of the agreement the government of your country can request Switzerland to release your account(s) information and Switzerland must comply.

Switzerland’s banks are corrupt

It is true that in years past, some banks were involved in not-so-clean deals.  However, this started to change in 1998, when the Swiss began to clean up their act, at least in part due to international pressure. 

Legislation passed that year made money laundering illegal, while other laws require that any suspicious deposits be reported to the authorities.

Then, in 2011, another law was passed, allowing the government to confiscate funds deposited in Switzerland by plundering dictators and return the money to the country of origin.

Switzerland is a tax haven

This is not a total myth since (as mentioned above) Swiss banks were actively involved in hiding money.

In one very loud scandal in 2009, UBS was caught helping wealthy Americans stash $20 billion in undisclosed offshore accounts.

More recently, the Panama Papers scandal revealed the role some Swiss banks played in helping clients hide financial assets.

Because of these actions, the EU placed the country on its list of tax havens in 2017.

ANALYSIS: Is Switzerland actually a tax haven?

Two years later, however, Switzerland was removed from the list because Swiss voters accepted a legislation introducing major changes in the Swiss tax system by ending some preferential tax schemes and replacing them with new regulations which are in line with international standards.

Gold is stored under Zurich’s Bahnhofstrasse

The headquarters of several Swiss banks are located on the storied street, one of the world’s wealthiest.

But are its streets really lined with gold?

It may be partially true, as bullions could conceivably be kept in underground vaults. But that is one thing that should probably be chalked up to bank secrecy.

READ MORE: EXPLAINED: Which banks are best for foreigners in Switzerland?

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OPINION & ANALYSIS

OPINION: Why Switzerland needs to scrap its fabled 1,000 franc notes

If the Americans can get by with $100 bills, the British manage with £50 and EU citizens now mostly €200, why do the Swiss need such a large denomination? The answer is, they don’t, writes Clare O'Dea, as she explains why it should be binned.

OPINION: Why Switzerland needs to scrap its fabled 1,000 franc notes

The existence of the 1,000-franc note, so blatantly open to misuse, is justified with platitudes about the Swiss liking cash.

Apparently the 1,000-franc note is quite pretty but I can’t say for sure as I’ve never seen or touched one. With the exception of Singapore and Brunei, no other country sees fit to issue such a large-denomination note for the simple reason that it’s not needed for legitimate business.

Financial secrecy is obviously a big part of the appeal of the 1,000-franc note. To say otherwise is not really credible. Cash in this condensed form is anonymous, untraceable, easily transportable, easily concealed.

As Bradley Birkenfeld said in a 2015 CNBC interview, “I mean you could put half a million in your pocket, no problem”. Remember that name? Birkenfeld was the (in)famous UBS whistleblower who exposed the bank’s shady practices to the US authorities in 2007, triggering the dismantling of Swiss banking secrecy.

The Swiss National Bank (SNB) explains that the big note is used as a “store of value” to a considerable degree. What does that mean? The SNB’s own research shows that most people keep less than 1,000 francs in cash at home. Are we talking about storing value under the mattress or in a safe deposit box?  Who does that and for what reason?

Look, I’m sure there are people with 1,000 notes squirrelled around the place who run their finances in a totally clean and honest way. The latest SNB survey on payment methods found that half of the population had been in possession of at least one 1,000-franc note over the previous two years. The note is especially popular among men over the age of 55

But inevitably there are tax evaders, money launderers and other criminals who find the big notes come in very handy. The €500 note was scrapped after 17 years mainly because of its popularity with criminal gangs in the EU and beyond, to the extent that it had become an embarrassment.

The €500 note is still legal tender but no new notes have been issued in the euro zone since 2019, following the decision by the European Central Bank. The move came after serious concerns were expressed by academics, international police agencies and EU finance ministers.

When production of the €500 note officially ceased, the largest denomination note accounted for 20 per cent of the value of all euro notes in circulation. Doesn’t it seem odd that 60 per cent of the value of all francs in circulation are in 1,000-franc notes? That’s 9.4 per cent of all physical notes. Something doesn’t add up.

I have heard people argue that 1,000-franc notes are popular for big expenses, like buying a car or jewellery. Or for paying big bills over the counter at the post office (this I have seen). Rumour has it that farmers like to buy livestock with the purple polymer and paper mix. Each to his own.

But these financial practices are fast becoming dated and are anyway not common enough to explain the volume of 1,000 notes in circulation. Yes, it’s official: cash is no longer king in Switzerland.

As recently as 2017, some 70 per cent of non-recurring payments were made in cash, purchases like clothes, the supermarket shopping, or restaurant meals, according to the SNB survey on payment methods. This had reduced to 43 per cent by 2020, the last time the survey was carried out.

The most recent data on payment behaviour comes from the Swiss Payment Monitor, a joint research project between the University of St. Gallen and the ZHAW Zurich University of Applied Sciences, which reported in August of this year.

The study found that the debit card remains the most frequently used form of payment for face-to-face business (34.8 per cent), followed by cash (33.2). Credit cards are less popular at 16.5 per cent. Meanwhile mobile payments are growing in popularity, increasing share from 1.5 per cent of transactions to 11.2 per cent over the past five years. 

What this boils down to is that people are perfectly adept at paying electronically in all kinds of ways and the role of the 1,000-note in retail or person-to-person purchases is far from essential.

While we’re on the subject of money, this month saw the release of the Credit Suisse Global Wealth Report, in which Switzerland emerged as the world’s richest country. The average wealth of adult residents in this country is 672,508 francs, up 5.4 per cent from the previous year. Assets include stocks and shares, pensions savings, and property.

In case you’re feeling left out, the median wealth per adult in Switzerland is 165,266 francs. That means half of the population possesses less than this amount. The figures are skewed upwards by a smallish number of mega rich individuals, with a little help from the 1.1 million millionaires in Switzerland. My guess is that these two groups have the most use for the 1,000-franc notes.

Reading between the lines, I sense some national pride in the attachment to this world-beating high denomination note. Swiss people like to hold cash – that’s our way. We also like our privacy – so what!

Not to spoil the fun, but all cultures need to be aware that just because they’ve always done something a certain way does not mean the practice has merit and is worth preserving. I recommend taking a long, hard look at the legitimacy of the fabled 1,000-franc note.

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