The United States has recently been lambasted for becoming the world's favorite new tax haven.
By not implementing new global disclosure standards, the U.S. – especially states like Wyoming, Nevada and South Dakota – is a place where the wealthy have access to accounts that can remain secret from overseas authorities. And this has caused outrage and disbelief in some quarters.
Peter A. Cotorceanu, a lawyer at a Zurich law firm, wrote in a legal journal: "How ironic – no, how perverse – that the USA, which has been so sanctimonious in its condemnation of Swiss banks, has become the banking secrecy jurisdiction du jour."
The issue of confidentiality in banking came to a head last year with the so-called Panama Papers. Some 11.5 million documents were leaked from the secretive Panamanian law firm Mossack Fonseca. At the time, I wrote that there was the suggestion that the company might have facilitated money laundering, sanctions busting, and/or tax evasion for its uber-rich clients, who included "heads of state, senior politicians, business leaders and celebrities."
Perhaps unsurprisingly there was widespread indignation. However, there is another side to the story here. It is one that all too often gets overlooked. The truth is there are many reasons why individuals would seek a bank that offers complete client confidentiality.
Such banks offer a genuine sanctuary for wealth for people who reside in places where there is economic uncertainty, which can result in extreme turbulence in currencies and hyperinflation, and/or where there is social and political turmoil that leads to harassment and exploitation from the ruling elite.
In these jurisdictions, extortion, fraud and bribery can often be a major issue. Those from minority groups – typically the richer ones – are all too often victims of atrocities, including kidnap, and/or government-approvement mistreatment.
Privacy helps protect and safeguard clients, their families, their businesses and their wealth in this regard. It is something that they, understandably, value highly.
That said, there is a clear distinction between privacy and secrecy. Information exchange between properly run governments for relevant tax issues is, on the whole, legitimate. But sharing private financial information with others, in fact anyone else, is not. Secrecy isn't crucial; privacy can be.
Private bank clients, who are generally based in offshore financial hubs and are often internationally mobile individuals, are also attracted by another major advantage: convenience.
These accounts offer secure, centralized, flexible and global access, regardless of where the holder resides and regardless of where they might relocate to later on. In addition, they can provide a range of saving options in most major currencies. Plus, in my experience of running a firm with 80,000 expat and international investor clients, they are serviced better and more effectively than they might be in regular banks. These are huge advantages for those who don't live in their country of origin, such as our clients and also myself. I travel almost continually, visiting our firm's 72 global offices, and I know how frustrating it can be working with traditional banks that, generally, just do not have the understanding, capacity, resources or will to deal with people who are on the move a lot of the time.
Whilst many are now criticizing the U.S. for "becoming the new Switzerland," for the many bona fide reasons I set out, I champion the financial anonymity that is available in the U.S.
And there's certainly a demand for it, with a reported $800 billion of offshore wealth currently in U.S. accounts. It is understood that around half of this comes from Latin America. Even though this figure puts America behind other jurisdictions where there is a well-established and robust industry offering financial privacy (such as St. Lucia and Singapore), it is growing at an astonishing rate.
And with the world becoming increasingly globalized but insecure, with people and companies becoming ever more international, and with cash-strapped governments seeking new ways to raid people's wealth through stealth taxes, banks offering financial confidentiality are likely to be more in demand than ever before.
