Introduction: Frank R. Suess, CEO & Chairman, BFI Consulting, started his career as a management consultant with Andersen Consulting in 1989. Before taking the lead at BFI Consulting in 1998, he held a senior management position with Price Waterhouse working as a strategic and operational management consultant to a number of international corporations. Mr. Suess is Swiss by background. However, he obtained part of his education in the United States. He has an MBA with Honors from the Haas School of Business, UC Berkeley, California, USA. And he holds a Bachelor´s Degree in Finance, magna cum laude, from Saint Mary´s College in Moraga, California, USA.
Daily Bell: Thank you for taking the time to share your views with our audience.
Frank Suess: It's a pleasure. Thank you for inviting me. The Daily Bell is an excellent publication that I read regularly.
Daily Bell: Each year Mercer Consulting releases it's widely published list of the greatest cities in the world to live. And, as in many years past, Zurich is ranked number one and Geneva number two. Could you give our readers a brief historical overview of what has enabled Switzerland, a country of only 7.5 million people, to develop economically into one of the greatest countries in the world in which to live?
Frank Suess: There are a lot of little pieces that make Switzerland a great place to live. It is safe and clean. The infrastructure is first-class. Things work in Switzerland. The children go to public school, which affords them an excellent education. Taxes are low, and the tax returns are only a few pages long and easily completed. There is rule of law in Switzerland, and the laws are pretty common sense.
Historically, these daily benefits are the result of a TRULY democratic and confederated (i.e. de-centralized) political system and a constitution that puts value on individual rights and freedom. It considers the value of diversity and privacy. It is really very similar to that of the United States.
However, contrary to the U.S., and unlike any other country in the world today, Switzerland has a DIRECT democracy. That, in my opinion, makes all the difference. Swiss citizens do not only elect political representatives into Parliament; they vote quarterly on specific and important questions. This, to some degree, keeps politicians in check. And, it gives the Swiss a feeling of ownership, belonging and personal responsibility – a rare trait in most countries today.
Switzerland actually started off as a rather poor country of farmers and mercenaries. For hundreds of years the Swiss people were suppressed by foreign aristocrats. Very early on, in 1291, similar to the Boston Tea Party, the Swiss revolted against the unfair taxation. The three first Cantons (Swiss "states") of Switzerland swore to stand together and defend their independence from then on. This was the first step toward today's Switzerland. Since then, even though Switzerland is today known for its neutrality, numerous wars were fought for Swiss independence. Then, in 1848, a further important step was made when the Swiss Constitution was enacted and Switzerland's national independence and its confederated structure were born.
To this day, the Cantons of Switzerland have a lot of independence with regard to their finances, educational system or the taxation of their residents. This ensures that problems are solved close to the base, by the people who know best. It instills a higher level of responsibility and accountability in the people.
Daily Bell: Things do appear to be changing. In March 2002 Switzerland voted to join the United Nations. Was this a good idea in your opinion?
Frank Suess: I don't think UN membership is a big problem for Switzerland. However, I did vote against it, since I don't see the benefits for my country. Unfortunately, after being rejected clearly in 1986, the Swiss accepted UN membership by a thin margin in 2002. 54% were in favour of joining. 12 Cantonal votes were also in favour, while 11 Cantonal votes were against joining.
Those in favour of joining the UN were of the opinion that since Switzerland already pays a lot of money to the UN, it should also be able to sit in the council and speak its word. However, since the vetoes of some nations undermine all the talking and pushing of the "lesser" members, it's questionable whether a membership will increase Swiss influence in international affairs. I doubt it.
Like anywhere else, some politicians in Switzerland love these kinds of memberships and the cocktail parties that come with it. At those parties, they tend to forget what the purpose of their role is. And, the further they move from the people they represent, the less they remember.
Daily Bell: Then in June 2005 the Swiss narrowly voted to join the European Union's passport-free zone, a move that caused many to feel that Switzerland was getting "just a little too close" to the European Union. Do you feel that Switzerland is being inched closer and closer towards the inevitable joining of the European union?
Frank Suess: No, I don't think so. Switzerland will not join the EU any time soon. The Swiss people have clearly voted against joining the EU on more than one occasion. Sure, there have always been some politicians, particularly socialists, who would love to be in the EU – and go to those cocktail parties too… However, you find far less Swiss citizens of that mindset.
I believe that time is working in favor of an independent Switzerland. An increasingly centralistic and dogmatic European "Union" is not appealing to Swiss citizens. As the current financial and economic problems go into the next round, many will notice the advantages of our independence and direct democracy. We will see much higher unemployment and, very possibly, social unrest in the countries of the EU. Why should we join them and pay for the mess they have created?
Irrespective of the above, culturally, historically, economically, Switzerland is part of Europe. It sits right smack in the center of it. Therefore, Switzerland cannot and should not avoid solid and active relationships with its neighbors. The Swiss have therefore decided to regulate their dealings with the EU on the basis of bilateral agreements. These agreements are working pretty well for the most part. In terms of free movement of persons between the countries, we are encountering some difficulties. However, the bilateral path is a good one. If need be, some of the agreements may need to be terminated or re-negotiated over time.
Daily Bell: The highly popular Swiss entrepreneur turned politician, Christoph Blocher, was the head of the Swiss People's Party (SVP) until his controversial ousting from the seven-member Swiss Federal Council in December 2007. He stood for smaller government, for a free-market economy and was ardently opposed to Switzerland joining the European Union. We quite admire him here at the Bell and feel that Switzerland needs more Christoph Blochers to stand up and remind the Swiss of the principles upon which its greatness has been built. What do you think about the current state of Swiss politics and the direction it appears to be headed?
Frank Suess: In general, the political system in Switzerland works well. The way it is set up, it tends to readjust itself over and over again to the requirements and challenges of time. However, success and prosperity tend to foster complacency and self-indulgence. Swiss politicians should not forget that the quality of life we enjoy today did not come for free. And, their job is to first and foremost defend our country's interests.
In their somewhat neurotic desire to "be friends with everyone", our politicians appear a little too quick at giving away the competitive advantages that have made Switzerland strong. That is a concern.
For instance, the Swiss educational system has been a huge factor in the success of our economy. It is a big part of the "Made in Switzerland" brand recognition. Over the past decade, as part of a general trend toward harmonizing and standardizing literally everything, the Swiss educational system has been adjusted increasingly toward a variety of international standards. Adjusting our standards to the standards of countries with lower standards will obviously not increase the quality of our schools. This is leading to a slow depreciation of the quality of our schooling. This needs to be stopped.
Daily Bell: Lately a lot of people have been talking about the Roman Polanski affair and how "un-Swiss" it was for the country to arrest him. Especially considering that he was granted the right to buy property in the fashionable ski resort area Gstaad. Why do you think the Swiss got involved in this otherwise "American" and French issue?
That said, I need to mention that I am the father of three beautiful children. My oldest daughter is 15, only a little older than the girl that this man supposedly raped. I am disturbed by the fact that as a result of Mr. Polanski's prominence his arrest is given so much attention in the media, and that so much sympathy for HIM appears to exist, particularly in the leftist "circles of media and art," circles that generally cry wolf over much lesser deeds.
Assuming that the allegations against Mr. Polanski are true – which from the little I know appears to be the case – I really don't care about what happens to him. I don't mind if he rots in jail, as long as the legal proceedings are implemented diligently and in accordance with Swiss law. Whether this is the case here, I really don't know. The crime happened more than thirty years ago. In America, as in Switzerland, no statute of limitation exists for child molesting.
However, as you rightfully point out, Polanski has been a regular visitor to Switzerland for many years. He's been traveling all over Europe and all over the world. This raises questions? Wasn't there a search warrant out there for all these years? Is it that difficult to arrest someone like him? It would appear that with all his fame and public appearances, he should have been behind bars a long time ago.
Why wasn't he arrested earlier? Why now? Why here? Are Swiss politicians rubbing shoulders with the US in order to improve the relationship that has been tested lately? Or is this coincidental? I really can't say. Admittedly, these questions do raise more questions and give the whole affair a bad smack.
Daily Bell: Ironically, wasn't it Christoph Blocher's replacement on the Swiss Federal Council, Eveline Widmer-Schlumpf, that led the surprise arrest of Roman Polanski? Do you think Christoph Blocher supporters are surprised by her involvement in this? After all, didn't she double-deal Blocher the same way she led the back-alley arrest on Roman Polanski?
Frank Suess: Mrs. Widmer-Schlumpf's election to the Federal Council was a treacherous maneuver orchestrated largely by leftist representatives in the Swiss Parliament. Despite her then still being a member of Christoph Blocher's conservative party, the Swiss People's Party (SVP), she went along with that maneuver. In so doing, she teamed up with the socialists and prioritized her personal political career over her other principles and values, over her loyalty to the party and over the interests of her voters.
I guess you could very well call this a "back-alley" maneuver. However, I am not sure that we can peg the arrest of Roman Polanski – whether it was "right or wrong" – on her alone. She signed off on the arrest. But from what I understand, once the request for arresting Polanski landed on her desk, she legally had no choice but to approve it.
Daily Bell: Many people, both here in Switzerland and abroad, are somewhat concerned about the future of the Swiss private banking industry. In particular, the attack by US authorities on UBS has caused some to predict the END of Swiss private banking – at least when it comes to providing services to Americans. Why do you disagree with this assumption and how do banks such as UBS, Credit Suisse and Julius Baer differ from traditional Swiss private banks?
Frank Suess: In Switzerland, we have a saying: "The soup is not eaten as hot as it is cooked". There has been a lot of noise on this subject lately. But, predicting the end of Swiss private banking based on recent events is complete nonsense. This kind of viewpoint is possibly the envious wish of a few and probably the result of the ignorance of many who do not understand the true nature and foundation of the success of Swiss private banking.
The success of private banking in Switzerland was not based on the mere invention of banking secrecy. Banking secrecy is only one feature of many that has enticed investors worldwide to place MORE THAN ONE THIRD of the world's private deposits and managed accounts with Swiss banks. If banking secrecy was the only reason, then countries like Austria, Luxembourg or Singapore, who have banking secrecy regulations that are comparable to those of Switzerland, should be far more competitive and up to the level of Switzerland. However, they don't even come close. For instance, Singapore banks hold a total of approximately US$ 400 Billion worth of foreign assets. Switzerland holds a total of more than US$ 2 TRILLION.
This reality has little to do with such aspects of tax planning or banking secrecy. It is much more predominantly based on the fundamental need of international investors to place their assets in a jurisdiction where you have the highest probability of finding fiscal and monetary stability, political continuity, a long tradition of TRUE democracy, institutional safety and, quite simply, the rule of law.
Indeed, the recent developments around the UBS case have weakened Swiss banking secrecy standards for foreign (non-Swiss) accountholders. Switzerland is currently re-negotiating a host of double taxation treaties. The new treaty with America has already been signed.
The US treaty, which will be employed as a point of reference for other treaties, continues to respect Swiss banking secrecy law. Furthermore, it does not allow for so-called fishing expeditions. Any information exchange request from the US must be submitted to the Swiss authorities on a specific name and bank basis. However, contrary to the prior treaty with the US, the new one supports information exchange in the case of tax evasion, not only tax fraud (forgery of documents for the purpose of evading taxes).
It is noteworthy that Americans can still legally deposit and have their assets managed in Switzerland. There are financial institutions that will accept American clients. And there are advisors and bankers that understand the American rules sufficiently to provide them with solid and compliant solutions that continue to protect their wealth and privacy. This applies to investors from any other country as well. Switzerland continues to be the best choice for affluent investors seeking to internationally diversify and protect their wealth outside of the boundaries of their country.
This said, banks like UBS, Credit Suisse or Julius Baer have heavily engaged their business models in America. This has exposed them to the litigious nature of American law. They are not comparable to more traditional private banks and should not be used by Americans at all.
Daily Bell: Is the Swiss private banking industry in the business of providing advice and structures to American citizens, or citizens of any country for that matter, on how to evade taxes?
Frank Suess: Some are. Just like anywhere else, there are good and bad advisors, good and bad bankers in Switzerland.
Advisors and bankers like those at UBS, by not considering the tax rules that their clients are subject to in their home countries, have done those clients a bad service. And, they have done Switzerland a bad service.
At BFI, we have always focused on providing our clients with investment strategies and structures that will afford them the benefits of privacy, asset protection and tax efficiency, while still retaining compliance with the rules of their country. Simply hiding your assets and hoping that nobody will find out is not a valid approach to wealth management. And, quite frankly, you shouldn't pay any advisor who provides you with that kind of planning.
Daily Bell: Tell us about the new Qualified Intermediary (QI) deal the US is pushing on Swiss banks. Will there be a re-thinking and subsequent re-shaping of the Swiss banking industry and its continued co-operation with the US?
Frank Suess: They are not shoving or pushing it on Swiss banks only. Most banks today, around the world, have so-called QI status and are now trying to swallow the ever-increasing requirements that go along with being a Qualified Intermediary.
Banks around the globe, toward the end of the 90's, agreed to sign the Qualified Intermediary Agreement (QIA) with the American IRS in order to continue having access to US securities. In other words, in order for banks to trade and carry US securities (bonds, stocks, T-Bills etc.) in their books, they signed the QIA.
Initially, the agreement required them to divulge the identity of their American clients or, without divulging the identity, to withhold taxes on US sourced income from the accounts of so called ‘U.S. Persons', a term legally defined in the US tax code and in the QIA. On an annual basis, they've had their books audited by IRS accredited auditors.
Over the years, the requirements and related administrative burden have been raised increasingly. This is leading more and more banks to question the need to hold U.S. securities altogether. In the so-called "Green Book" for 2010, which present IRS proposals for the upcoming year's budget, goes yet a little further. If the IRS gets its way, the QIA will be expanded to a point where I expect a lot of banks to sell their US securities or even terminate the QIA altogether. This could ultimately result in a backlash that will hurt America's stock markets and its economy the most.
Daily Bell: Swiss banking secrecy is protected in the Constitution. What would be required to change this? Leftists are pushing for this to be changed. Based on the upsetting pattern of socialist-inspired victories on a number of fronts within Switzerland over the past 10-plus years, why are you confident this will not occur?
Frank Suess: A change would require a vote by the People. As Swiss citizens, we have to vote every three months on pending initiatives, referendums and other public matters. Eliminating Swiss banking secrecy will not happen. The Swiss understand that banking secrecy is not merely a matter of tax but one of fundamental rights of personal privacy and property.
Daily Bell: Switzerland's recent decision to provide the names of 4,500 wealthy American clients to US authorities seems to run contrary to Swiss banking secrecy. However there were reportedly 50,000 American clients banking with UBS. Why were the 4,500 singled out and disclosed to US authorities and not the others?
Frank Suess: These were the accounts that appear to have the potential of involving tax fraud. As discussed earlier, holding a Swiss bank account per se is not illegal, not even according to American laws.
Daily Bell: What is your current view of the US dollar? Where does it go from here?
Frank Suess: In the short-term, the dollar looks a little oversold and may give us a bit of a bounce shortly. This would, in particular, be the case if we see another deflationary bout in financial markets. Similar to last fall, I would then expect the dollar to rise at least temporarily as a result of relative scarcity.
However, medium- to long-term, I don't think the US dollar will be able to defend its status as the world's number one reserve and trade currency. Based on the incredible levels of public debt in America, a continued depreciation of the US dollar seems very probable. In fact, for me, it is absolutely conceivable that at some point a currency reform to the US dollar could become necessary.
At this point, the method of such a reform is an open question. A lot of rumors, ranging from unilateral devaluation to a US bank holiday to an internationally concerted approach, leave much room for speculation. The mere fact that these rumors are becoming omnipresent gives reason for concern.
Daily Bell: How about the euro? Is this any better than the US dollar?
Frank Suess: Is one fiat currency better than another? …
It's all relative. Once gold backing was abolished, the value and strength of any fiat money could only be measured in relation to that of other fiat currencies.
I think I would currently favor holding euros over US dollars. That is not because I consider the euro "better" than the US dollar. But, I think it is currently "less bad". That, as in any competition, is all it takes. Even though "Euroland" has a lot of economic and socio-political issues to deal with, the level of public and private debt in America exceeds that of Europe by a big margin.
Daily Bell: How about the Swiss franc? Now that it is no longer officially backed by gold, subsequent to the poor decision of Swiss leaders to join the IMF in 1992 (for more on this read Ferdinand Lips' Gold Wars: The Battle Against Sound Money As Seen From A Swiss Perspective), why would anyone want to own Swiss francs – especially considering the SNB's public statements supporting an inflationary monetary policy?
Frank Suess: I think I would answer this question similar to the one before: The Swiss franc is a lot "less bad" than the euro or the US dollar. The SNB has periodically devalued the Swiss franc in the interest of exports. The Swiss franc to this day still holds its safe haven character, which tends to press it up in times of crisis. That characteristic is very interesting and appealing to investors looking for safety. But, it can be a curse in times of recession.
The Swiss franc is possibly the most reliable fiat currency for wealth preservation. While constitutional gold backing no longer exists, the gold-backing of the Swiss franc at today's gold price, is still very high. Furthermore, look at the fundamental economic strength of Switzerland. For instance, with unemployment currently at only 4.9% it is a rare exception.
Daily Bell: How about gold? Are you a believer in gold as a store of wealth? Do you consider it money? Isn't it the only real option out there today for protection against a fiat-money race to the bottom?
Frank Suess: Contrary to fiat currencies, gold is a limited resource that cannot be created out of thin air or at a central banker's whim. Gold has historically been a store of wealth. And yes, I believe that it will fulfill that role once again in the period ahead. In view of the easy money policies and huge liquidity that central bankers are pumping into financial markets, more deflationary and inflationary turmoil can be expected ahead. It is a prudent decision to keep some physical precious metals, particularly gold, in a safe place.
Daily Bell: Why is it often easier and less costly for foreigners to exchange devaluing fiat currency for gold in Switzerland than in their own countries?
Frank Suess: The buying, selling and storing of gold has a long tradition in Switzerland. A very active market and a variety of first-class services exist. We offer our clients access to a service that allows for storage of gold, silver, platinum and palladium at a safe vault in Zurich.
Pricing is very competitive for two main reasons: First, the relatively small country of Switzerland has 4 or 5 big refineries. Secondly, Swiss banks are very used to dealing with both precious metals as well as international currencies. They offer these services at very competitive rates. In most other countries, banks are not interested in the precious metals business and leave that to a much less efficient and more fragmented market of intermediaries.
Daily Bell: Tell us a bit about BFI Consulting and the private solutions you offer to your international base of high net worth clients.
Frank Suess: BFI provides an interesting mix of wealth management services for international investors in search of secure, confidential and legally compliant strategies beyond the borders of their home countries. Our activities and services are largely driven by our big picture and our somewhat conservative viewpoints.
We offer wealth management solutions that are primarily geared toward solid wealth preservation – protecting our clients from the consequences of decades of easy money policies and all that comes with it, ranging from potentially disastrous deflationary / inflationary developments ahead to the regulatory complexities growing around us.
As a result, our services include portfolio management, international bank accounts, tax and estate planning or so called private placement life insurance solutions (PPLI), all depending on any given client's needs and objectives. Lately, we have had a lot of clients with interest in physical storage of gold and other precious metals in Switzerland, as well as a growing number of investors asking for help in acquiring Swiss annuities.
Adequately employed and structured, these services can offer excellent wealth preservation and asset protection vehicles.
Daily Bell: You write a periodic report entitled, "Mountain Vision." How do our readers gain access this publication? What does it cost?
Frank Suess: The Mountain Vision Newsletter is a weekly e-mail update that we send out for free. It was launched originally as an ongoing form of communication with our clients, keeping them up to date on what we were thinking. Now, it has grown into a much bigger subscribers' base.
Daily Bell: Thank you for sharing your views with our readers.
Thanks to Frank Suess for this great interview. The really big point that Frank Suess makes here in our opinion is that the demise of Swiss private banking is being overstated. The figures he mentions are truly startling. If it is true (we have no reason to doubt him) that up to one third of the world's wealth is under control of the Swiss private banking system, we would have to say that this is strong testimony to the success of the Swiss system. It may even explain the energy with which the Swiss have been targeted of late – given that the larger Western economy is under extreme stress.
So many things in this world are not quite as they seem. A tiny country of six million controls a third of the world's wealth while a superpower with a virtual monopoly on weapons of mass destruction and the world's reserve currency is increasingly seen as a sick man within the larger global economy.
While in the short term, the ability to project force and intimidate people is enough to prop up the power of a nation-state, in the long-term only economic power matters.
The Swiss, with their long-standing reverence for culture, tradition and the sanctity of asset-backed money (even if they gave up theirs reluctantly at the beginning of the 2000s) present the world's nervous owners of wealth with an attractive destination. America, with its militarism, its tremendous debt, its ongoing socialization, likely presents the wealthy with a specter of impending chaos.
Thus we see that good things can come in small packages and that a warlike nation of 300 million cannot currently compete in terms of attracting assets with a tiny country of six million. The power of a good idea – reliable private banking – seems to have proved more successful than America's vast projection of power.
We would tend to believe that one of the reasons that the Swiss are being pounded on by America and the EU is just for that reason. The Germans are having trouble attracting and retaining assets because of their high tax base. The same goes for France, Spain, etc. America's regulatory and fiscal regime is rapidly joining Europe's when it comes to this sort of issue.
We would have to point out here that the Swiss by and large understand how important their successful culture is to their wellbeing. The attempts of their largest banks to join the Western world when it comes to leverage and reckless use of fiat money has now come to tears. It is a "lesson learned" we think for the Swiss.
The rest of the world? … For now they will blunder on with the failed fiat-money approach that gives the Swiss an opening to provide a better business model. All the intimidation in the world will not make a bad idea out of a good one. And the Swiss have had a good idea for several centuries now. It will persist – and even find a home elsewhere if needs be.