Not so long ago, one of first things a newly-rich person would do was move some money into a numbered Swiss account or Cayman trust, where it would be safe from spouse, creditors, and tax collectors. Maybe not the most ethical way to behave, but what the hell, you’re rich and you can get away with it, and in your new social circle it’s not just condoned, it’s expected.
But that was then. Today, high-tax governments understand that tax havens like the Bahamas are easy to bully into information-sharing agreements. Even banking fortress Switzerland has been cracked by the IRS’s recent assault on UBS. The number of places guaranteed to protect your financial privacy is dwindling, and you can bet the remaining few will become targets once Switzerland is fully integrated into the global tax system.
But that’s not the main reason to come clean on offshore accounts. Technology is the real threat. Now that tens of thousands of bank account records can be loaded onto a CD or an email attachment, all the bank secrecy laws in the world won’t protect you from a computer technician with a gambling problem. This week, for instance, Swiss Bank HSBC announced that
… a former employee stole the personal details of about 24,000 clients of its private bank in Switzerland in a major security breach three years ago.
HSBC said a data theft it uncovered last year was far more serious than it first thought. Initially the bank believed that fewer than 10 customers had been affected. But it admitted on Thursday that approximately 15,000 existing clients and 9,000 previous clients with HSBC accounts in Switzerland before 2006 had been caught.
The breach, which affected 15 per cent of HSBC’s total private client base, will come as a serious blow to the reputation of the bank. HSBC said the stolen information was limited to accounts in Switzerland and confirmed that no data had been compromised for clients with accounts elsewhere. It did not believe the stolen data have allowed or would allow any third party to access any client account.
The French tax authorities had used the stolen data to launch a crackdown on tax evaders but have since returned the files to the Swiss Federal prosecutor, which is now leading a criminal investigation.
The data were stolen in 2006 by a former IT specialist who was based at the Geneva branch of HSBC. Hervé Falciani has admitted stealing the information and handing it to French tax authorities, though he denies receiving payment.
Other countries, Germany in particular, have dithered about what to do with this prize, alternately salivating over it and pushing it away. But in the end it doesn’t matter, because governments are less of a target market for this kind of information than organized (or entrepreneurial) crime. If you’re hiding a bunch of money overseas, every time the phone rings you’ll now have to wonder if a Russian-accented voice on the other end is going to inform you that he knows about your account but will keep quiet in return for $100,000 wired to his secret account. You’ll become prey to people even worse than tax collectors.
Does this mean that offshore investing is pointless? Of course not. It’s still a good idea to diversify geographically, both for access to assets not available at home and to put assets beyond the reach of your government — which, no matter where you live, is inching ever-closer to dictatorship. A Last Plane Account, to use the term coined by GoldMoney’s James Turk, is crucial for everyone with enough capital to worry about confiscation. But evading taxes on the returns this account generates is no longer a high percentage bet. So fill out the forms, pay the taxes, and get on with your diversification.