Posted on: Sunday, May 13, 2001
Colorado exploring Swiss-style banking
Associated Press
DENVER — Swiss-style banking is coming to the Rocky Mountains in what its backers say could mark the start of a new growth sector within the nation's financial industry.
State regulators have approved plans for First Colorado Depository Corp., a banking business that's comparable to the privacy-focused "offshore" operations in place in Switzerland, the Bahamas and the Cayman Islands, among other places.
"We are on the verge of a revolution here," said Pierre Boisse, chairman and chief executive at First Colorado, which would be the first depository of its kind in the United States.
The business, known as a foreign capital depository, is expected to open by June, some two years after the Colorado Legislature passed a law that cleared the way. Montana has a similar law, but no depositories have opened for business.
"We're the guinea pig," Boisse said. "There is always a risk involved, but when you're talking about an industry that is $6.5 trillion and growing, you don't have to get to a large part of the market to do well."
First, Colorado will allow foreign residents and businesses to deposit money without the same regulatory scrutiny accorded to other banks. It will only accept deposits of $2 million or more, though state statutes require only a $200,000 minimum. Regulators have ruled that the business must have at least $4 million in capital to begin operating and must never have less than $2 million.
It cannot accept deposits from U.S. citizens or businesses, nor from corporations or partnerships involving U.S. citizens.
First Colorado will charge a management fee that varies depending on account size and investment objectives. President Bob Inman said the fees should typically range from 0.5 percent to 2 percent.
Inman said a custom portfolio will be designed for each client. Options include investing the money in real estate, private equity, stocks, bonds and other financial instruments, with all earnings going to the client.
The state also stands to make some money. Colorado law allows the state's revenue department to collect fees of 1.5 percent of First Colorado's annual deposits. The Legislature is considering a measure that would reduce the fees to 0.5 percent of annual deposits.
"That's still going to be a large number," said Richard Fulkerson, Colorado's banking commissioner.
Fulkerson hopes the business will generate revenue and prompt more foreign investments in Colorado. It may also boost the economy by promoting tourism and improving the state's reputation in international trade. However, Fulkerson said there are potential problems, too.
"The first drawback is that it's an entirely new entity — we have to ensure that we have an effective regulatory program in place," he said. "There's always the risk of illicit funds, but we have controls in place to prevent that."
State banking regulators approved First Colorado in January with several conditions aimed at discouraging deposits of illegal money. Among them is a requirement that the depository hire a regulator-approved compliance officer to review the source of money before a state charter is issued.
"The message is going to spread real quick to the crooks that we are not the place to come," Boisse said.
Federal law defines suspicious activity regarding foreign capital deposits and requires depositories to promptly file a report with the federal Department of the Treasury when it occurs.
