Introduction
When we think about Swiss bank accounts, Swiss banking secrecy laws come to mind. Not to mention, corrupt politicians hiding a vast amount of money, while drug lords laundering dirty ill-gotten gains to avoid paying tax. However, the reality is quite different from the myth.
When one wants to open a Swiss bank account, all identities must be verified by the banks, otherwise, they won’t accept the business if they feel it is related to illegal activities[cm_simple_footnote id=”1″]. Approximately, five percent of all new applications are turned down, besides that, a variety of other checks are carried out, such as verifying the source of the funds placed in the bank and the beneficiary of the funds, must all be identified as well[cm_simple_footnote id=”1″]. However, that doesn’t mean there isn’t secrecy. Furthermore, Swiss bankers are only allowed to reveal information under the following circumstances:
– Civil proceedings (such as inheritance or divorce)
– Debt recovery and bankruptcies
– Criminal proceedings (money laundering,
association with a criminal organization, theft, tax fraud, blackmail,
etc.)
– International mutual legal assistance proceedings[cm_simple_footnote id=”2″]
Otherwise, bankers risk facing prison time by law[cm_simple_footnote id=”1″]. This also applies to the so-called secret numbered accounts in Swiss banks, which are also not totally secret.
The aim of this research
The aim is to highlight the main historical turning points of the Swiss banking secrecy laws.
Historical turning points in Swiss banking secrecy laws
Swiss banks have been around since the 13th century when the first Jewish and Lombardian money exchangers arrived from around Europe[cm_simple_footnote id=”3″]. Over the next three centuries, the Swiss began trading wealth with their European neighbours, as it depended very much on foreign merchants and financial specialists to get its banking industry off the ground[cm_simple_footnote id=”3″].
But by the 18th century, wealth was flourishing in Switzerland, and the countries’ first Swiss banking secrecy laws were introduced.
The beginning of the banking secrecy in Geneva
In 1713, The Great Council of Geneva adopts the first provision of the banking regulations[cm_simple_footnote id=”4″]. This regulation stipulated that the banks were banned from revealing client information, which essentially became the foundations of the Swiss banking secrecy laws.
Furthermore, these regulations meant that bankers had to keep the register of their clients and their transactions private from everyone, except the clients themselves[cm_simple_footnote id=”4″]. Only consent from the Geneva City Council allowed them to reveal client information[cm_simple_footnote id=”5″].
The Swiss banking secrecy act of 1934
Until the turn of the century, provisions of the Swiss civil code and labor code provided a legal framework that supported bank secrecy. By the early 1930s reeling from World War 1 and the Great Depression that followed, German and the French governments went in search of tax funds that were allegedly hidden in Swiss bank accounts.
In 1932 however, the French authorities decided to raid the Paris offices of Swiss bank Basler Handelsbank, to search for clients and their accounts, which may be avoiding taxes in France[cm_simple_footnote id=”6″]. The authorities uncovered assets in somewhere of the region of 1 billion French francs (approx.448 billion francs in 2020[cm_simple_footnote id=”7″]) along with the names of approximately 2000 account holders[cm_simple_footnote id=”6″],[cm_simple_footnote id=”8″]. Germany also passed a law, which prohibited keeping foreign capital in Swiss banks illegal, and punishable by death. These acts by France and Germany were perceived as threats and aggression on the Swiss economy.
To further strengthen Swiss banking secrecy, Switzerland passed article 47 of the Federal Law on Banks and Savings Banks, which came into effect on November 8, 1934[cm_simple_footnote id=”9″]. The new federal law stated, that, it was a criminal offense to divulge bank client information and was punishable by imprisonment if that information would be revealed by the banker.
1946 Allied-Swiss Washington Accord
The 1946 Allied-Swiss Washington Accord was held by the United States, United Kingdom, and France. Switzerland was invited to discuss issues as a result of the Paris agreement. Under the Washington Agreement, Swiss negotiators agreed to transfer approximately 250 million Swiss francs ($58.1 million) of gold into the Tripartite Gold Commission’s (TGC) monetary gold pool, “In return, the Allied Governments agreed to waive in their name and in the name of their banks of issue all claims against the Swiss Government and the Swiss National Bank in connection with gold acquired during the war from Germany by Switzerland”[cm_simple_footnote id=”10″].
Moreover, this payment ensured that the Swiss banking secrecy laws would remain intact. They did not need to divulge information on anyone else, besides assets owned by German nationals who enjoyed full rights of German citizenship under Reich law at any time since September 1, 1939, and who at any time since that date had been in the territory then under the control of the Reich Government[cm_simple_footnote id=”10″].
The vote for maintaining Swiss banking secrecy
The Swiss people rejected the amendment of the Swiss banking secrecy laws in 1984, by 73% against (1,257,914 to 464,764) of changing the law[cm_simple_footnote id=”11″],[cm_simple_footnote id=”12″].
An initiative by the Socialist Party was launched to open records to the authorities investigating a suspected tax-dodgers, although tax evasion at that time in Switzerland was not a crime[cm_simple_footnote id=”12″]. It would have also waived the secrecy law to permit wider cooperation by the Swiss authorities with foreign governments seeking to track tax and currency-law evaders suspected of hiding funds in Switzerland[cm_simple_footnote id=”12″].
Implementation of the Automatic Exchange of Information (AEOI)
On the 1st of January 2017, the Swiss government agreed to the automatic exchange of banking information (AEOI) with foreign countries[cm_simple_footnote id=”13″],[cm_simple_footnote id=”14″]. It began collecting data on fraudulent accounts, ready to be passed over to foreign governments from 2018.
Moreover, this standard is meant to stop wealthy foreigners from hiding undeclared money in Switzerland and ensure that tax law is being followed worldwide. It did not change anything for account holders that are following the tax laws of Switzerland and their home country.
The AEOI is an international standard that governs how tax authorities in over 100 participating countries[cm_simple_footnote id=”15″] to exchange data relating to the bank and safekeeping accounts of taxpayers. The goal is to make tax evasion impossible.
The end of Swiss banking secrecy in 2018
The Swiss bank secrecy ended on the 5th of October 2018, when the Swiss tax agency, the Federal Tax Administration (FTA) officially started exchanging bank account data with tax authorities in other countries for the first time[cm_simple_footnote id=”16″].
The Swiss authorities began sharing details on over 2 million accounts [cm_simple_footnote id=”17″]. This meant the end of the Swiss bank secrecy, as individuals could no longer hide dubious funds in Swiss banks as their details would be shared with governments at home.
However, Swiss banking secrecy still exists for Swiss citizens for domestic accounts, as the government does not have the authority to see into an individual account[cm_simple_footnote id=”18″]. So nothing changes domestically, only for foreign account holders.
Summary
The Swiss banking secrecy laws for over three centuries protected the banking clients and their transactions, by keeping them private from everyone, except the clients themselves. Furthermore, throughout the 20th century, the secrecy laws were tested by foreign governments on several occasions, but, Switzerland was able to keep them at bay. In turn, it had to strengthen the Swiss banking secrecy with several new laws to preserve it.
However, by the 21st century, great pressure was placed on the Swiss government by foreign authorities to start revealing foreign clients with bank accounts that may be hiding undeclared money. By early 2017, it had agreed to the automatic exchange of banking information (AEOI) with foreign countries and began collecting data on foreign clients. Moreover, by the beginning of October 2018, the Swiss bank secrecy ended, as it began sharing details on over 2 million accounts owned by foreign clients.
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