June 15, 2020

Bribery and kickbacks are illegal in many countries, including the US, UK and Israel. But anyone with investments in Switzerland may not know they were affected and may even be due a fee refund, which can be substantial.

This refers to hidden “retrocession fees” or “portfolio maintenance commission” which had the effect of reducing return rates with little or no detailed explanation.

Here is an example:

• Annual return, say:  5%
• Undisclosed “Portfolio maintenance commission”: 2%
• Disclosed return to the investor: 3%
• Disclosed bank fee: 1%
• Net disclosed return: 2% (less than half the 5%)

In other words, the bank or financial institution may have received not only a disclosed fee appearing on your bank statement, but also a hidden fee from the fund or similar where they invested your money. The refund due may be as much as $25,000-75,000 per million dollars.

However, you won’t get a refund of any hidden fees if you don’t apply soon. There are time limits and action may be needed now to stop the clock.

You don’t need many details to start the process, mainly the name and address of the bank and a copy of the passport of the family member that held the account.

How did all this happen?

Background

For many years, it was very common that people from all over the world invested assets in Switzerland. The bank secrecy, the stable Swiss Franc and the international infrastructure of Swiss banks spoke for themselves. Unfortunately, it was also common for Swiss banks and asset managers to collect commission, called retrocession fees, of 0.5 – 2% of the invested amount, from product providers for the brokerage of funds, structured products, bonds, etc. This commission was received without the clients’ consent and independent of the performance of the financial products.

This lucrative business model helped the Swiss banks to enjoy billions of dollars of retrocession fees that are due to the investors and can therefore be claimed back. According to a study, around USD 4 billion  of retrocessions were apparently collected by the banking institutions in 2012 alone.

Court Judgments:

The Swiss Federal Court ruled in 2006 and 2012 that investors are entitled to retrocession fees and that Swiss banks and asset managers have to hand over them over to their customers (judgments BGE 132 III 460 ff, BGE 4A_127 / 2012 and 4A_141 / 2012). This obligation also applies if the commissions have flowed within different entities of a bank to avoid conflict of interest.

In 2017, a further decision by the Swiss Federal Court (judgment of June 16, 2017, Az. 4 A 508/2016) set the statutory limitation period at ten years. Since then, customers have been able to effect claims for the past ten years. An existing business relationship with a Swiss bank is not necessary for this, but also not a hindrance.

Claim Process:

It is thought that many investors using Switzerland were affected by the unlawful retention of retrocessions. However, the federal banks do not return the kick-back commissions to their customers pro-actively, it is up to each customer to make a claim. Unfortunately, the claim process may not be simple. People affected report lack of feedback from their bank even after multiple inquiries. Others were apparently brushed off as the banks referred to waivers that were often not legally valid but enough to scare investors away. In later years, usually after 2013, the small print was tightened up at many institutions, so a detailed review year by year is needed.

Consider using experienced professionals who specialize in this area to make and pursue your claim.

The years 2010 to 2013 are particularly interesting, as a number of Swiss institutions apparently received then large amounts of retrocessions, for which there are no or insufficient waivers. Accordingly, any claim should be lodged as soon as possible. The Swiss statute of limitations is ten years unless a claim is made for a refund and to stop the clock.

Comments:

This retrocession recovery process is available for people and entities around the world who invested via Switzerland.

In Israel, it is permissible to hold accounts in Switzerland, provided tax due is paid on any income or gains arising. Some did so under an amnesty program. New immigrants (Olim) and senior returning residents (resident abroad ten years) may not owe any Israeli tax on overseas income or gains for ten years.

There are generally no KYC (know Your Customer) procedures when claiming such a refund.

So if your Swiss investment return seems low, check out your fee refund rights soon.

As always, consult experienced advisors in each country at an early stage in specific cases.

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The writer is a certified public accountant and tax specialist at Harris Consulting & Tax Ltd

(c) June 15, 2020