The days of customers using private banks for tax evasions and shadowy deals have quickly come to an end. Over the past ten years regulators have come down hard on private banks and their customers, forcing them to disclose multiple citizenships, accounts, and personal information. The hardest hit could be foreign bankers, who have to work in this new transparent environment with both their local regulators as well as an exacting U.S. government.
In this edition of confessions, we spoke to a private banker based overseas with over a decade of experience at private banks. Answers have been lightly edited for clarity.
Are private banks a privacy haven for the very wealthy?
Not anymore. Banks are no longer able to get away with shenanigans, and some international banks have learned this the hard way. One bank in this country had to pay the U.S. government $250 million because they had enabled their US clients to get away with tax evasion. There are two more banks here that are currently under investigation for the same issue, and it’s very likely that they’ll also pay a huge fine to get out of going to court or having their international banking license revoked.
The Foreign Account Tax Compliant Act is what happened. FATCA targets US tax evaders with foreign accounts, and so, of course, any international bank was drawn into it when it became law in 2010. President Obama forced all international banks and even national banks that do money transfers to participate in the government’s new initiative. The penalty for not getting onboard with FATCA is tremendous. Anytime you want to transfer dollars, internationally and even nationally, the money has to travel through an American bank. If a bank doesn’t comply with FATCA, when the money moves through the American bank, the U.S. government takes 30% for themselves.
FATCA is a big deal: we had a customer with $1 billion in an unreported credit account. After FATCA, he ended up pretending that he’d never heard of the account, even though it meant that the entire account was seized by the federal government. It was either that or go to prison for a year. I even have a client who did a year-and-a-half for tax evasion after FATCA passed, and he’s in his eighties.
So how does FATCA impact your day-to-day?
Five or six years ago, we didn’t ask any questions. Today, this has changed by 180 degrees. Secrecy is dead. New customers have to tell us about all the citizenships they hold and where they need to file taxes. If the customer is a U.S. citizen, the bank will ask for his social security number and have him file a W9 straightaway.
Obviously, not all of our customers willing to adapt to these new standards. Even today, if I ask a customer what the source of the funds in his account are, some will answer that they’ve actually never reported this account, never acknowledged its existence. ‘But let’s pretend that this conversation never happened, and you just write that everything is ok.’ A lot of private bankers have to deal with customers like that.
Is FATCA the major regulation private banking’s had to absorb?
Hardly. Transparency is king in private banking, no matter what type of transaction or deal you’re trying to strike. After I first started working at *bank, my manager told me to go to the cashbox, withdraw a certain sum from a client’s account, take a cab to his house and give him the money, and come back.
That was the private banking of yesteryear. Today, there’s just no way to nonchalantly withdraw money for a client without his presence at the branch. Everything has to be documented on the computer today, according to a protocol established by the central bank. Same goes for email. We no longer accept email orders. Still, that hasn’t stopped scammers from trying to order wire transactions from customers’ hacked email accounts.
How have these regulations affected your work environment?
Senior management just wants to see that you’re profitable. Show me the money. They need to show shareholders that the bank is profitable and don’t care that the world is changing, that the entire market is slowing down. They have to earn more than last year, and this creates a lot of pressure. Every branch, every employee, we all have growth goals that we need to meet. Within the branches themselves, you’ll get branches with extreme pressure and little positive feedback, and there are branches with a positive vibe that are more professional.
Are branches doing anything to relieve some of the pressure?
It’s all down to the manager. Each year he’ll get a bundle of rankings from on high, to divvy up as he pleases. So, there are decent managers that give higher rankings to the young people in the bank because they earn so much less. He’ll want to promote them so that they can earn a higher salary. And then there are managers that say, ‘go fuck yourselves. I’ll do what I want’ and then he’ll give the higher ranking to veteran bankers so that he can keep them happy. It’s the same with bonuses. Senior management gives the branch a chunk of money and says here, give this out as you see fit. Obviously, the rankings and the bonuses are correlated to whether you met, exceeded, or fell short of your growth goals for the year.
Sales also keeps thinking of ways to keep employees incentivized, all sorts of credit card sale marathons, marathons to sell standing order direct debits for saving accounts, that type of thing. And HR will sometime throw in a pizza at our staff meetings. But we’re not high tech. And we’re never going to be high tech.