It’s a tradition that goes back to the earlier days of Swiss banking secrecy
GENEVA • Geneva’s private banks have a little known rule that’s rarely discussed with outsiders.
Wealth managers in Switzerland’s second-biggest banking centre privately discourage employees from living across the border in France.
In a city where more than 80,000 people known as frontaliers cross the border daily for work, firms such as Banque Pictet & Cie SA, Lombard Odier and Union Bancaire Privee (UBP) prefer their bankers avoid the commute.
They said it’s a question of supporting the local economy, but some point to a different reason — the worry that such trips could expose sensitive data to the curiosity of French tax authorities.
“Obviously, there are some security reasons,” Yves Mirabaud, chairman of the Association of Swiss Private Banks, said in an interview.
“When you cross the border every day, you can be put under some pressure.”
On top of that, he said, the banks prefer that employees spend their wages and pay taxes in Switzerland rather than abroad.
The rule pits the interest of employees seeking cheaper living conditions against a deep-seated culture of privacy at Geneva’s centuries-old private banks.
While secret Swiss accounts are a thing of the past after a US and European crackdown on tax evasion about a decade ago, cross-border commutes have come into focus again after a Paris court this year ordered UBS Group AG to pay a record fine for helping clients evade taxes.
The origin of the banker’s code is unclear. Mirabaud said it’s more a policy than a rule, and began to appear after the opening of markets in Europe made it easier to hire foreigners.
Others said the practice emerged after a data breach at HSBC Holdings plc’s Swiss unit a decade ago.
For Luc Thevenoz, director of the University of Geneva’s Centre for Banking and Finance Law, it’s a tradition that goes back to the earlier days of Swiss banking secrecy.
Employees can seek exemptions, but they’ll typically need management to sign off if they want to live across the border.
The banks stress that the preference to avoid cross-border commutes applies to employees throughout Switzerland, yet Geneva’s unique location right on the border with France makes it the place where the preferences on domicile are most strictly applied.
“This is a peculiarity of Geneva, given it’s a small territory surrounded by a large workforce in France,” Thevenoz said.
For many people working in Geneva, France offers cheaper housing and living expenses at the cost of a relatively short commute.
Condominiums in Geneva typically sell for about 12,800 Swiss francs (RM52,952) per sq m, compared to 4,500 francs for those in neighbouring regions of France, according to a recent study by real estate consulting firm Wuest Partner.
Yet, for the banks, those advantages are outweighed by the risk should employees take client data on their mobile phone or a laptop across the border.
It’s easy to see why. France began scrutinising the Swiss private banking unit of HSBC after Herve Falciani, a former information technology worker at the firm, stole client account details from the Geneva office in 2008 and passed them to the French government.
HSBC later agreed to pay about €300 million (RM1.4 billion) to settle a criminal investigation by the French government into allegations it helped clients evade taxes.
This year, UBS was ordered to pay US$5 billion (RM20.9 billion) in a similar case that dragged on for eight years.
Both cases were part of a French crackdown on tax fraud operated via Switzerland that’s also seen the conviction of a former minister.
Keeping data safe and within Switzerland’s jurisdiction is a priority for clients, bankers and authorities, according to Gina Le Provost, who runs recruitment firm AP Executive in Geneva.
For the most part, banks in the city will look to employ Swiss nationals first, rather than relocate foreigners, she said.
“In a country that’s dealing with confidential information, it is always the best alternative to ensure the private banker is living in the country where the money is booked,” said Le Provost.
Swiss banks attracted more than US$2 trillion to cross-border accounts during an era of undeclared money.
While Switzerland has sought to shed its image as a tax haven, privacy remains a strong selling point of Swiss institutions.
Pictet, Geneva’s largest private bank with 496 billion Swiss francs of client assets, expects employees who work in Switzerland to reside in Switzerland and pay their taxes there, according to spokesman Simon Roth.
At UBP, policies don’t specifically bar Geneva employees from living abroad, though spokesman Bernard Schuster said there is a preference that people live in Switzerland.
Lombard Odier, which had client assets of 259 billion francs at the end of December, has a similar policy.
HSBC doesn’t have a policy on where bankers live though it does prefer senior managers at the Swiss wealth management unit to also be based there, according to a person familiar with the matter.
For Sebastien Mena, a senior lecturer in management at Cass Business School in London, the rule is more about Swiss banking culture and its continued emphasis on secrecy, which are still selling points.
“High net worth wealth clients are still probably looking for some degree of discretion and that’s what banks in Geneva have managed to do quite well,” said Mena. — Bloomberg