Wealth managers, lawyers and accountants are assessing how they
can win business from US clients who need to declare undisclosed
assets by a 23 September deadline.

It is predicted $30 billion in client assets
could be moved around by US citizens, mainly in Switzerland,
spooked by the US’s legal pursuit of UBS and its offshore

The country’s Internal Revenue Service (IRS)
has laid out a framework for citizens who have undisclosed assets
to pay tax and take penalties without the need for prosecution. It
includes a charge to clients of 20 percent of their assets at their
highest value over the last six years.

When the effects of slumping markets and the
penalties are taken into account, the measures would leave high net
worth individuals (HNWIs) with a fraction of their former wealth,
with declines as sharp as 70 percent from their peak. But the
alternative is going to jail.

Harsh requirements

“It is quite penal,” said James
Sellon, whose Maseco Financial wealth advisory business specialises
in serving expatriate US clients.

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“If you consider how much portfolios have
declined in the last couple of years, in some cases they might be
left with only 30 percent net, net.”

“Part of the prospective legislation states
that private bankers or advisers – if they had knowledge of this
money going to other jurisdictions or into insurance-based
contracts – could be held liable for money laundering charges.

“The result is private bankers and clients are
taking good quality legal and tax advice on the best way to
disclose these assets.”

As well as the obvious opportunities the
changes have presented for accounting and law companies, small
wealth management businesses are springing up to fill the grey area
between the US and Swiss regulatory systems.

These new companies claim they are well
positioned to deal with the new layers of legal complexity being
created by an increasing emphasis from the US on prosecuting wealth
managers and their clients.

Maseco, run by former Citi private bankers
James Sellon and Joshua Matthews, is understood to be looking at
ways of offering Swiss banks the capability to outsource the legal
liability linked to US clients, while maintaining custody and the
client relationship themselves.

One way the business could do this would be to
act as an external asset manager using an existing wealth manager’s

The private bank would maintain custody of the
assets and remain in charge of the relationship, while Maseco could
look after the regulatory structure and oversight, through a
business model that was compliant with Swiss and US

Maseco is already registered as a financial
adviser with the Securities and Exchange Commission (SEC) in the US
and the Financial Services Authority in the UK.

But private bankers in Switzerland seemed
resigned to the fact they would lose their Swiss clients, and many,
including UBS, Credit Suisse and Mirabaud have started to “fire”

PBI understands that private banks with more
than 14 US clients would have to register with the SEC in the US
under new regulations, which is seen as too expensive and onerous
to be practical, particularly for the smaller Swiss players.

A source in Switzerland said there was little
point in finding stop-gap solutions which simply tided US clients
over for another six to 12 months.

“You can carry this up to a point, but at some
stage it gets very serious,” Joseph Field, attorney at law at US
law firm Withers Bergman, told PBI.

“They can get rid of their US clients because
of pressure from the authorities this year, but what about next
year, when it’s their European neighbours applying the same
pressure? Do they get rid of their European clients too?”

He also dismissed as “nonsense” the idea that
Swiss private banks would look at further ways of holding on to US

“They have to confront the issue,” he

“If they [Swiss banks] get an all clear from
the authorities then they are fine, but if they don’t then they’re
still on the hook as far as I can see.

“My serious impression is you are adding an
extra layer of risk and are you really solving anything?”

He added: “I think the atmosphere is such that
the government will go ahead with its agenda and someone who is
seeing this kind of thing as a panacea, or a shield to protect them
against this… I think it is nonsense.”

Kaiser Ritter Partner Group, a
Liechtenstein-based private banking and fiduciary business, is
offering a similar service to US citizens who want to declare their
assets, though not in partnership with a private bank.

It has an arrangement with the IRS, which
includes a contact desk at the government agency to process
voluntary disclosures of untaxed assets, and has applied for an
investment adviser permit with the SEC.

“Every bank, every lawyer and every asset
manager now has to get to grips with the issue very quickly if they
want to avoid falling foul of the law themselves,” said Kaiser
Ritter CEO Fritz Kaiser.

The 23 September deadline is seen by the
industry as the last chance for clients to come forward
voluntarily. Previously, an unofficial system was used for US
citizens, but since the government discovered the extent of the
offshore arrangements being used by private banks it has hardened
its stance.

There remains uncertainty over how the run-up
to the voluntary disclosure deadline will pan out. In particular,
question marks remain over Switzerland’s concessions on bank
secrecy, which its government had previously agreed to.

The Ticinese League, a regional conservative
party from the Italian-speaking part of Switzerland, has launched a
petition which could trigger a national referendum to prevent
concessions on secrecy.

The party needs 100,000 signatories to force a
vote, according to Swiss constitutional rules.

“I think some of it is predictable and some is
not,” said Field.“There will be people prosecuted; I think they
[the government] have a few lined up, and if they don’t come
forward they will grab them.

“The really interesting thing is what will
happen in the duel between UBS and the US and that will depend on
how the Swiss voters decide if there is a referendum.

“If it goes ahead and they reject the changes,
that will harden positions in a lot of areas.”

William Cain