Co-operation with banks in Switzerland and Principality of Liechtenstein

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Despite the fact that opening accounts with Swiss and Liechtenstein banks is becoming more and more tricky, the said banking jurisdictions still have their attractiveness.

For an individual, an account with a Swiss or Liechtenstein bank is considered a prestige and a guarantee of the safety of funds. The reliability of our banks is certified by the centuries of experience and is currently supported by local financial regulators.

For a company, an account with a Swiss or Liechtenstein bank is not only a prestige and reliability, it is also a real implementation of the freedom-of-contract doctrine. Working with various currencies without any restrictions, no currency control, bank lending, multiple financial instruments – this is an incomplete list of the benefits. At the moment, the fact of the operating company having relations with a Swiss bank is a marker of its reliability and integrity, and to some extent, it even may be deemed a reputation asset that increases the value of the company itself.

The difficulty of opening an account with Swiss and Liechtenstein banks is due to the global trend of transparency of transactions, as well as due to the war on money laundering.

International conventions define “dirty” money not only as money received from the sale of drugs, weapons, the slave trade or as those aimed at financing terrorist organizations, they also include the non-taxable monetary funds. Therefore, all banks are required to verify the source of funds. Identification of the client and verification of its capital is considered the basis for the compliance procedure.

In today’s reality, every businessperson must compile a set of documents confirming the source of the previously earned funds, as well as constantly collect the ones confirming current income. Such set of documents is needed not only when opening a bank account, but also when concluding large transactions, investing and even when buying real estate.

 


Jost&Partners swiss law firm helps you choose a bank that will meet your goals and objectives, helps you to compile a set of documents confirming the source of your income and supports you at all stages of banking compliance. Our specialists are able to represent your interests in any banks, on emerging controversial issues and, if necessary, they also prepare written substantiated legal opinions. 

Jost&Partners swiss law firm provides your all future support, after opening an account. Our experts help you understand the terms of bank agreements, they monitor the account balance and analyze the various investment products offered by the bank.  

Jost&Partners swiss law firm has access to various databases around the world, including those used by banks to verify clients and their income. One of our services is “My own compliance”. Its result is truthful overview: how your bank / potential future business partner may see you, your income, connections and past events by the compliance procedure.


 

Choosing a bank

 

While choosing a bank, a number of features that may help you avoid misunderstandings and problems in the future must be known.

Swiss and Liechtenstein banks may be roughly divided into several categories:

  • Investment banks. These are the banks specializing in preserving and increasing your capital. Investment banks have a negative attitude towards the use of their clients’ accounts for settlement transactions in ordinary business activities, such as payment for supplies, any services, etc.;
  • Settlement banks. These are the banks specializing in carrying out said settlement transactions of the client’s ordinary business activities. Such banks also provide capital investment services, but, as a rule, they do not have their own investment strategy specialists and use these services on an outsourced basis, which is inconvenient and ineffective for the client.
  • Investment and settlement banks. These are the banks both performing investment activities and providing settlement services for the client’s ordinary business activities. At first glance, these banks must be “ideal” for the client. But this is only at first glance, since such “idealness” is quite expensive for a non-resident client. Allowing the use of settlement transactions in the client’s ordinary business activities, investment and settlement banks demand from their non-resident clients precautionary balances, investment in banking products and minimum annual turnover on the account.

Investment banks, in turn, may also be divided into several categories.

  • Investment banks preferring a very conservative investment approach as their main strategy. These banks may not present the client with the opportunity to earn much, and in some banks, it may earn nothing at all, but nevertheless it’ll be able not to worry about the safety of its funds, since all its possible risks are to be diversified to the maximum. Such banks are used as so-called pension savings.
  • Investment banks preferring a moderately conservative approach as their main strategy. Such banks may suit the very cautious clients who want their money to “keep busy” and bring minimal income. The risks in such banks are quite diversified, but if we consider the profitability of the investment portfolio, it is not high.
  • Active investment banks. These are the banks with a good team of investment strategists, actively working with various investment products, often changing the composition of the investment portfolio of clients and producing a sufficiently high profitability for the client. But at the same time, it should be noted that such banks may perform some unprofitable transactions that may affect the profitability of the entire portfolio as a whole.

Therefore, there is always the question of which bank will be more comfortable for the client, taking into account such client’s needs and plans.

Investment banks have three models of client relations:

  1. Discretionary mandate. The client trusts its funds to the bank, and the bank independently, without taking into account the client’s opinion, compiles and then changes the investment portfolio. At the stage of the initial compilation of the investment portfolio, the bank clarifies with the client its preferences, but this is rather ethical gesture, and not an action stipulated by contractual relations.
  2. Advisory mandate. The bank offers the client investment options and performs transactions only after receiving the client’s approval thereof.
  3. The client itself solves the issues of investing its own capital, and the bank only executes the client orders.

When deciding to open an account with a Swiss or Liechtenstein bank, one must expressly define what one wishes to expect from the bank and how one sees its business relations with the bank.

A client means business for a bank, a way to generate income. A bank means an instrument of its activity for a client, as well as a depository of its money, ensuring the growth of its capital. Problems arise when the client and the bank have different end goals. There are a lot of cases when a client opens an account with an investment bank, but in fact has no wish to invest anything – this is a direct path to conflict – the bank may not receive additional income, since the main income of an investment bank is management of the client’s investment portfolio, and the client may not get satisfied, being peeved that the bank “forces” investing money in investment products, when the client pays all maintenance fees of the account. In cases when the interests of the client and the bank coincide, they both enjoy a comfortable long-term mutually beneficial cooperation.

 

 Compliance and confirmation of sources of funds

 

One of the main stages of opening an account is considered obtaining the client’s approval by the bank’s compliance department. This stage is very important and time consuming.   The specialists of  Jost & Partners Swiss law firm help you to properly gather information and documentation for submission to the bank’s compliance department. The question as to whether the bank will open an account or not depends on the decision of this department. Multiple refusals by the compliance departments of various banks significantly reduce your chances of opening an account in a Swiss / Liechtenstein bank.

What aspects does compliance check?

Compliance is interested in the following matters:

  1. Identity of the beneficiary of the account. The scope of analysis includes not only the beneficiary himself, but also its close relatives, spouses and partners in joint business. Education, economic activity, political activity, conflicts with the law are also checked. The purpose of this stage is to make sure that the person who wants to open an account is a good citizen and can actually be the real owner of the declared assets.
  2. Source of income of the beneficiary of the account. The compliance checks whether the declared (or generally owned assets) were acquired using funds obtained through legal means, whether the assets owned by the close associates of the beneficiary of the account are the result of certain economic activities, and not bribes or other proceeds of crime. For compliance, it is important to obtain confirmation that the assets owned by the account beneficiary are known to the fiscal authorities in the country of tax residence of the account beneficiary. Neither the bank nor its employees are controllers of the payment of taxes by a certain person in the country of its tax residence.
  3. Future plans for the receipt and use of funds. At the time of submission of documents for opening an account, the beneficiary of the account must declare the future uses for the account. This declaration is the client’s definition of its usual activities. Examples of the use of funds may be such transactions as formation of an investment portfolio, purchase of commercial real estate, payment for the education of children, personal expenses, purchase of corporate rights in a particular enterprise, etc. Potential transactions declared at this stage must be entered into the client’s profile as its “ordinary activities”. If, in the course of cooperation with the bank, one need to perform a transaction that is not related to one’s ordinary activities, one must be prepared that the bank will check compliance with the individual operation and until the procedure is completed, noone will be able to dispose of the money. When verifying a transaction that is not typical for the client’s profile, the bank may request all documentation relating to the transaction and confirming its realness, as well as all data on the ultimate beneficiaries of the party sending the funds, if the client is the recipient, or the party receiving the funds, if the client is the sender.

Knowing the rules by which banks operate, you can avoid many inconveniences.

If banks are not tax controllers for their clients, then why do they conduct such checks? In Switzerland, not only an individual, but also a bank as a legal entity may be prosecuted for money laundering. This threatens the bank not only with reputational risks, but also with large monetary fines.

The bank and bank employees automatically become complicit in the crime, together with clients charged with money laundering.

The Swiss financial regulator (FINMA) has defined the term of money laundering as follows (https://www.finma.ch/en/supervision/cross-sector-issues/combating-money-laundering ):

What is money laundering?

Money laundering is defined as channelling funds from illegal activity into the legal economy. The money laundering cycle can be broken down into three phases:

  1. Placement: In the first phase, proceeds of crime are introduced into the legitimate financial system. For example, cash is paid directly into a bank account (or cheques acquired) and the funds are subsequently withdrawn and transferred to other accounts.
  2. Layering: The money launderers carry out a series of currency conversions or reallocations of funds. To disguise the source of the money, they may buy and sell investment instruments and transfer the money to other bank accounts, particularly in countries with less stringent rules on combating money laundering. Alternatively, the money may be used to buy goods and services to make it appear legal.
  3. Integration: If the money launderers succeed in using the first two phases to make their funds from criminal activity appear legitimate, they channel the money back into the legal economy by purchasing property and luxury goods or setting up companies.

The task of the bank’s compliance department is to make sure that the client is doing everything legally and that neither the bank nor its employees will be held liable for aiding money laundering.