Foreign Bank Accounts as Instruments of Asset Protection in an Era of Geopolitical Uncertainty
Contemporary wealth preservation increasingly demands jurisdictional diversification as a response to risks that transcend conventional investment categories. The maintenance of financial assets within foreign banking institutions constitutes one element of such a strategy—a practice supported by both historical precedent and current international practice.
This Article examines the legal and practical dimensions of establishing foreign bank accounts by Polish tax residents, with particular attention to the protective function such arrangements may serve during periods of crisis. Part I surveys the historical justifications for jurisdictional diversification, drawing upon twentieth-century confiscation regimes and capital controls. Part II analyzes the jurisprudence of the Iran-United States Claims Tribunal as a lens through which to understand expropriation risk. Part III examines contemporary empirical evidence from the International Monetary Fund regarding capital control efficacy. Part IV addresses the legal foundations of asset protection across borders, while Part V offers practical guidance for Polish residents contemplating foreign account establishment.
I. Historical Foundations for Jurisdictional Diversification
A. Confiscation and Capital Controls in the Twentieth Century
The twentieth century furnished numerous instances in which assets situated exclusively within a single sovereign territory were subjected to confiscatory measures or disposal restrictions. These historical episodes illuminate the enduring rationale for geographic diversification of financial holdings.
Following the Bolshevik Revolution of 1917, nationalization decrees encompassed property located within Soviet territory. Foreign tribunals in the United Kingdom, France, Switzerland, and the United States, however, consistently declined to recognize the extraterritorial effect of such enactments, thereby permitting former owners to retain dominion over assets situated beyond Soviet borders. As Seidl-Hohenveldern observed in his seminal contribution to the Michigan Law Review, the territoriality principle governing confiscation represents a well-established norm of private international law, pursuant to which a state may effectively confiscate only property located within the boundaries of its jurisdiction.
An analogous pattern emerged during both World Wars. Exchange control regimes implemented by belligerent states—in the United Kingdom and Germany alike—resulted in the freezing of resident accounts and the curtailment of foreign transfer capabilities. Enterprises and natural persons who had previously deposited funds in neutral states, principally Switzerland, preserved their capacity to finance ongoing operations and execute international payments.
Archival research conducted by the Bank of England documents that during the period 1939–1945, international commerce between Allied and neutral states was conducted primarily through correspondent accounts and foreign exchange balances maintained in foreign financial institutions, as direct private transfers were subject to rationing and censorship.
B. Postwar Wealth Taxation and Capital Control Regimes
In the aftermath of both World Wars, numerous European states—including Germany, Austria, and France—imposed extraordinary wealth levies (Vermögensabgabe, prélèvement exceptionnel) designed to defray reconstruction costs. Analysis of capital flows from this period indicates that holders of substantial wealth responded to announcements of such impositions by transferring assets to jurisdictions offering more stable fiscal environments.
The Bretton Woods system (1944–1971) rested upon pervasive capital flow controls. Only following its collapse did a gradual process of capital account liberalization commence, reaching its apex during the 1990s. As a 2023 International Monetary Fund report observes, however, this liberalization coincided with an increased frequency of financial crises, prompting certain states to reintroduce capital controls.
C. The Asian Financial Crisis of 1997–1998
The Asian financial crisis provides an instructive example of divergent state responses to sudden capital flight. IMF data indicate that regional states adopted markedly different strategies: South Korea opted for liberalization of controls on nonresident capital inflows, while Malaysia and Thailand tightened controls on capital outflows by both residents and nonresidents.
The Malaysian experience proves particularly illuminating. Authorities implemented comprehensive restrictions in 1998 that, according to subsequent analyses, effectively eliminated the offshore ringgit market and contributed to accelerated economic recovery. Concurrently, investors who had previously diversified their assets geographically maintained financial liquidity and the capacity to discharge international obligations.
D. Contemporary Precedents: Cyprus (2013) and Iceland (2008)
The resolution of Bank of Cyprus and Laiki imposed a bail-in on uninsured deposits (exceeding €100,000), with a 47.5% conversion of the excess amount into equity at Bank of Cyprus; daily cash withdrawal limits initially set at €300; prohibition of foreign transfers absent central bank authorization; and restrictions on overseas card payments.
These restrictions remained in force for nearly two years, with all remaining controls removed by early April 2015. Enterprises and natural persons maintaining accounts in institutions outside Cyprus preserved complete financial liquidity and the ability to satisfy obligations to foreign counterparties.
The Icelandic case (2008–2016) demonstrates that capital controls introduced during crisis conditions may persist considerably longer than initially anticipated. Icelandic restrictions remained operative for over eight years—substantially longer than in any other contemporary instance. As Baldursson and Portes have observed, the extension of controls proved necessary due to unresolved claims of creditors of failed banks. For investors who had not previously diversified their assets geographically, this entailed the freezing of funds in Icelandic krónur for years.
II. The Iran-United States Claims Tribunal: Doctrinal Lessons from Expropriation
The Islamic Revolution in Iran (1979) and the ensuing expropriations of American enterprises constitute one of the most extensively documented sources of learning regarding asset protection mechanisms in crisis situations. The Iran-United States Claims Tribunal, established in 1981 at The Hague, adjudicated hundreds of disputes concerning expropriations and generated substantial jurisprudence on asset protection.
A. De Facto Expropriation and the Significance of Asset Control
The Tribunal repeatedly held that expropriation does not require a formal governmental decree. In Starrett Housing Corp. v. Iran, the Tribunal determined that “a deprivation or taking of property may occur under international law through interference by a state in the use of that property or with the enjoyment of its benefits, even where legal title to the property is not affected.” This holding establishes that the factual loss of control over assets—regardless of juridical form—may constitute a compensable taking.
From an asset protection perspective, the critical inference is that assets situated beyond the jurisdiction of the expropriating state remained beyond the reach of that state’s actions. American enterprises maintaining bank accounts and liquid assets outside Iran preserved access to such assets even following complete loss of control over property located within Iranian territory.
B. Bank Accounts as Objects of Expropriation
The Tribunal’s jurisprudence provides particularly salient guidance regarding bank accounts. In American Bell International, Inc. v. Iran, the dispute concerned a bank account from which funds could be withdrawn only with the consent of a representative of an Iranian state entity.[^5] Following the Revolution, this representative refused to sign documents permitting account closure and demanded transfer of funds to an account under exclusive governmental control.
The Tribunal held that this constituted an expropriation, as the owner had not voluntarily consented to the transfer of funds. Significantly, the Tribunal emphasized that “a compensable taking or appropriation under any law, international or municipal law, is inescapable unless there is an express justification for the seizure.”
The Tribunal simultaneously indicated that bank nationalization per se does not constitute expropriation of deposited funds—as nationalization merely changes institutional ownership rather than obligations to depositors. Accordingly, funds in accounts at nationalized banks theoretically remain the property of depositors, though practical access may be substantially impaired.
C. Loss of Enterprise Control
In matters involving loss of enterprise control, the Tribunal developed a standard pursuant to which expropriation occurs when the owner loses the ability to participate in management, receive financial information, and obtain dividends. In Tippetts v. TAMS-AFFA Consulting Engineers of Iran, the Tribunal found expropriation notwithstanding the absence of a formal decree, predicated upon the factual loss of control by American shareholders.
Conversely, in Foremost Tehran, Inc. v. Iran, the Tribunal declined to find expropriation despite the expulsion of foreign personnel, absence of dividends, and removal of representatives from the board of directors—because the claimant continued attempting to participate in management through minority directors.[^7] This decision illustrates the Tribunal’s focus on the actual impact of state action upon proprietary rights rather than mere formal declarations.
D. Practical Implications for Geographic Diversification
The Tribunal’s experience confirms the fundamental importance of geographic asset diversification. Enterprises and natural persons who deposited a portion of their funds outside Iran prior to the Revolution retained access thereto and could employ such funds to continue operations or satisfy current needs. Assets remaining within Iranian territory—regardless of juridical form—were encompassed by expropriatory measures.
Significantly, proceedings before the Tribunal extended over years, and obtaining compensation required costly arbitral proceedings. Even with favorable outcomes, recovery of the full value of lost assets proved rare. Geographic diversification thus constitutes not merely protection against asset loss, but also a means of avoiding protracted and expensive compensation proceedings.
III. Empirical Evidence: IMF Research on Capital Control Efficacy
A 2023 IMF Working Paper analyzing sixty-three crisis episodes across twenty-seven states during 1995–2017 yields significant empirical findings.
First, states with preexisting capital restrictions experienced lesser capital outflows during crises than states with open capital accounts. This differential persisted even after controlling for generally lower capital flow levels characteristic of such states.
Second, controls introduced in response to an ongoing crisis proved considerably less effective than restrictions existing prior to the crisis. IMF researchers suggest this may result from implementing controls too late or from circumvention possibilities.
Third, introduction of outflow controls was associated with short-term deterioration in sovereign debt ratings. This relationship lost statistical significance, however, after approximately five quarters—suggesting investor willingness to “forgive” over time.
Fourth, significant regional variations were observed: in Asian states, resident capital outflows declined during crises by nearly fifty percent, partially offsetting decreased foreign capital inflows. In Latin America, by contrast, resident capital outflows remained a source of pressure even during crises—which researchers attribute to the historically greater crisis frequency in the region and the consequent propensity to place savings in foreign “safe havens.”
IV. Legal Foundations of Cross-Border Asset Protection
A. The Territoriality Principle in International Law
The protective function of foreign bank accounts rests fundamentally upon the territoriality principle governing sovereign acts. Pursuant to this principle, confirmed in the jurisprudence of multiple jurisdictions, confiscation or nationalization may effectively encompass only property situated within the territory of the state issuing the relevant legal act.
Courts of third states—including American, British, Swiss, and German tribunals—consistently decline to recognize the extraterritorial effect of confiscatory acts. Consequently, even in cases of formal deprivation of ownership by the home state, funds accumulated in a foreign account remain at the holder’s disposal, provided the account itself is not subjected to separate legal measures by the state in which it is maintained.
B. Protection Under Investment Treaties
An additional layer of protection is afforded by bilateral investment treaties (BITs) and multilateral investment agreements. Poland is party to several dozen such treaties, which guarantee foreign investors protection against expropriation without full compensation, freedom to transfer investment-related funds, and access to international investment arbitration.
Poland has historically concluded a large network of BITs with expropriation clauses, transfer-of-funds guarantees, and ISDS provisions. Depositing assets through an entity domiciled in a treaty-protected state may provide access to these protective mechanisms.
V. Practical Considerations for Polish Tax Residents
A. Jurisdictional Selection Criteria
In selecting a jurisdiction for a foreign bank account, the following criteria merit consideration:
Legal and Political Stability. Preference should be accorded to states with established rule-of-law traditions, independent judiciaries, and predictable tax systems. In European practice, this principally encompasses Switzerland, Liechtenstein, Luxembourg, and Austria. Swiss accounts remain particularly attractive given Switzerland’s centuries-long tradition of neutrality and financial system stability. Liechtenstein offers a comparable level of security through its close integration with the Swiss financial system.
Deposit Guarantee System Membership. Accounts in EU/EEA states are covered by guarantees up to €100,000 per depositor per institution pursuant to Directive 2014/49/EU. Switzerland maintains a separate guarantee system (esisuisse) with a limit of CHF 100,000.
Historical Resistance to Capital Control Implementation. IMF data indicate that states recognized as “safe havens” (Germany, Japan, Switzerland, the United States) did not impose capital outflow controls even during severe financial crises, including the 2008–2009 global financial crisis.
Nonresident Banking Services Availability. Not all banking institutions offer accounts to persons not resident in a given state; documentary requirements and minimum balances vary considerably. Private banking services typically provide broader access to foreign accounts combined with comprehensive wealth management support.
B. Reporting Obligations of Polish Tax Residents
Establishing and maintaining a foreign bank account as a Polish tax resident entails specified informational obligations:
NBP Reporting. Residents are obligated to report holdings of accounts in foreign institutions where aggregate fund value exceeds specified thresholds, pursuant to foreign exchange law requirements.
Interest Income Reporting. Interest from foreign deposits is subject to Polish taxation at a rate of nineteen percent (capital gains tax). For states participating in automatic tax information exchange (CRS), Polish tax authorities receive data regarding balances and income.
Anti-Money Laundering Compliance. Foreign banks will require documentation concerning the source of funds and purpose of account establishment; Polish regulations impose separate obligations for transfers exceeding specified thresholds. Thorough familiarity with AML procedures is essential for proper documentation preparation.
It bears emphasis that maintaining a foreign bank account is entirely lawful and does not per se constitute tax avoidance, provided the resident fulfills all reporting and declaratory obligations.
VI. Strategic Integration and Limitations
A. Complementarity with Other Asset Protection Instruments
A foreign bank account represents one element of a comprehensive asset protection strategy that may be supplemented by fiduciary structures (trusts, private foundations) providing legal separation of assets from the settlor—in the Polish legal system, a family foundation (fundacja rodzinna) may serve this function; holding companies in jurisdictions offering favorable conditions for investment activity, such as Cyprus; real property in stable jurisdictions as assets more difficult to confiscate than financial instruments; and investment-linked life insurance policies (private placement life insurance) offering creditor protection in certain jurisdictions.
B. Limitations of Foreign Bank Accounts as Protective Instruments
Awareness of the limitations of foreign bank accounts as asset protection instruments is essential. Funds remain exposed to currency risk where the account is denominated in a currency other than that of the holder’s obligations. In cases of international sanctions imposed on the holder’s state of origin, foreign banks may be compelled to freeze accounts. Bank accounts do not protect against private law claims (divorce, tort liability) where the creditor obtains an enforcement title recognized in the state of account maintenance—in such instances, account attachment pursuant to enforcement procedures remains possible. Finally, costs of maintaining a foreign account (maintenance fees, transfers, currency conversion) may be substantial at lower balances.
C. The Imperative of Anticipatory Action
IMF research unequivocally indicates that capital controls existing prior to a crisis are considerably more effective in limiting capital outflows than controls introduced in response to an ongoing crisis. Analogously, from an investor’s perspective, geographic asset diversification undertaken before a crisis situation arises proves incomparably more effective than attempts to transfer funds once a crisis has commenced.
This is analytically sound and is well supported by both IMF findings and historical practice in Argentina, Cyprus, Iceland, and Greece, where transfer restrictions were imposed rapidly once crises crystallized.
Conclusion
Historical experience—from post-revolutionary confiscations through extraordinary wealth levies to contemporary banking crises—combined with recent IMF empirical research, confirms that geographic diversification of financial assets constitutes a rational element of risk management. Maintaining a portion of funds in a foreign bank account in a stable jurisdiction ensures continuity of access to funds in the event of domestic capital restrictions; protects against the extraterritorial effect of potential confiscations or extraordinary fiscal impositions; facilitates international payments during crisis situations; and may provide a basis for access to treaty protection in the case of foreign investments.
The timing of action, however, proves critical. IMF research unequivocally demonstrates that protective measures—from the state’s perspective, capital controls; from the investor’s perspective, diversification—are effective primarily when they exist prior to the onset of crisis.
For Polish tax residents, the optimal solution is establishing an account with a banking institution within the EU or in Switzerland, combining service accessibility, legal security, and reasonable transaction costs. Such decisions should be preceded by analysis of individual financial and tax circumstances, ideally with the assistance of counsel specializing in international wealth planning.
Founder and Managing Partner of Skarbiec Law Firm, recognized by Dziennik Gazeta Prawna as one of the best tax advisory firms in Poland (2023, 2024). Legal advisor with 19 years of experience, serving Forbes-listed entrepreneurs and innovative start-ups. One of the most frequently quoted experts on commercial and tax law in the Polish media, regularly publishing in Rzeczpospolita, Gazeta Wyborcza, and Dziennik Gazeta Prawna. Author of the publication “AI Decoding Satoshi Nakamoto. Artificial Intelligence on the Trail of Bitcoin’s Creator” and co-author of the award-winning book “Bezpieczeństwo współczesnej firmy” (Security of a Modern Company). LinkedIn profile: 18 500 followers, 4 million views per year. Awards: 4-time winner of the European Medal, Golden Statuette of the Polish Business Leader, title of “International Tax Planning Law Firm of the Year in Poland.” He specializes in strategic legal consulting, tax planning, and crisis management for business.
