Friday, August 29, 2008


“The scandal of secret swiss bank account” - so was the title of an article in the very honourable Time Magazine in March 1970. Since then the myth of the Swiss banking secrecy has never lost its attraction and topicality. After fighting Switzerland's banking secrecy laws for decades Europe is about to receive support from the United States. They are trying to ratchet up pressure against the system.

Around the Swiss banking secrecy entwine a lot of myths especially abroad but as well in Switzerland itself. Legends are often built of facts, half-truths and fictions which partly deviate from the truth. This article will give a general view over the content and scale of banking secrecy and the actual events.

Banking secrecy refers in Switzerland as well as in most of the other countries basically to the professional discretion of the banks, their representatives and their employees in the business affairs of their clients. It is regulated on the one hand under civil law, in particular from the contractual obligation of the banker to uphold the confidentiality of his clients' personal situation. Furthermore the client's privacy is also protected under the general provisions pertaining to protection of the individual as well as under data protection law. A banker who reveals the secrets of his client may face a jail sentence or be fined. But a series of legally defined limitations to banking secrecy exist. Exceptions to banking secrecy are provided for in civil law, debt collection and bankruptcy law, criminal law, administrative law and in cases of mutual assistance in legal matters.

But the last-mentioned case is seen by most of the other countries as performing only lip-service and as a thorn in their side. The crux of the matter is the principle of equivalence. That means that the duty to give evidence and information to foreign authorities must not go beyond the corresponding duty to the Swiss authorities. Since the domestic duty of evidence and information is highly constricted the principle of equivalence matters a lot. Art. 3 paragraph 3 IRSG (Swiss law with regard to the judicial assistance) regulates that no judicial assistance is to be given in case of an evasion of taxes. But the Swiss authorities have the right to obtain bank information in case of a tax fraud (tax evasion combined with falsification of documents). This relies on the fact that contrary to other laws (for example, German law) Swiss law does not prosecute a simple tax evasion. The taxpayer is given a leap of faith when they hand in tax documents. If tax evasion is revealed he just has to pay the taxes he “forgot” and will be fined.

This gives foreign taxpayer whose countries have a stricter law the opportunity to “park” amounts of money into trusts, offshore companies and bank accounts, protected by the bank secrecy. If this can be assessed as criminal support of tax evasion or even of tax fraud is judged controversial the last decades. New is the significance of the reproaches brought in action by the USA against the Swiss bank UBS. Nearly everybody heard the names Bradley Birkenfeld and Igor Olenicoff the last months. This hits the UBS in its current weak position and unhinges the bank secrecy system.

For years, the US Senate has been conducting its own detailed inquiries into the issue of tax evasion. Senators have summoned key representatives of the industry, including tax advisors, accountants, lawyers and bankers, to the Capitol in Washington for lengthy hearings. These hearings have produced reports, some of them hundreds of pages long, on the "tax shelter industry" and "its tools, methods of obfuscation and those pulling the strings." UBS was mentioned early in the Senate documents as an offender. With relish, the senators cited a letter written by an insider to UBS management. According to the letter, the bank offers "US taxpayers illegal tax evasion models," part of a system that costs American tax authorities "several hundred million dollars a year."

Three US authorities are now conducting investigations against the Swiss portfolio managers: tax investigators from the US Justice Department, the Securities and Exchange Commission (SEC), headed by Christopher Cox, and New York Attorney General Michael Garcia. All are now hunting down the Swiss.

Political conflict is also on the horizon. An aggressive bill to combat tax evasion, the "Stop Tax Haven Abuse Act," was introduced in the US Congress last year. The legislation provides for tough measures against 34 tax havens, including Liechtenstein, Luxembourg and Switzerland. The bill has stood little chance of becoming law until now. But that could quickly change after the presidential election in November. One of the bill's three sponsors is Senator Barack Obama, who is currently favored to win the White House.

But: generally Swiss bank secrecy is an expression of an historically developed state system which treats the citizen as sovereign and provides a direct insight into the financial circumstances of the tax payers only by probable cause. The state's interests are preserved by a withholding tax which punishes tax evasion without revealing the names of those involved. But the advantages are badly communicated and it is for sure that abuse has to be prevented.

Caterina Naegeli
Grossmuensterplatz 9,
CH-8001 Zurich, Switzerland