Federal Act on Banks and Savings Banks
The Federal Act on Banks and Savings Banks (colloquially known as the Banking Law of 1934) is the law that governs the regulation of banks in Switzerland. It created the current regime of bank secrecy that Swiss banks are famous for. Under the Law, it is a criminal act for a bank to reveal the name of an account holder. The law helped establish Switzerland as the premier tax haven for foreigners, with Swiss banks accounting for approximately US$2.1 trillion in offshore assets, 27% of the world's total. Since then, Swiss banks have acquired a reputation because of their numbered bank accounts, which critics such as ATTAC NGO alleged facilitate tax evasion, money laundering and more generally the underground economy.
Under the Law, privacy is statutorily enforced, with the law strictly limiting any information shared with third parties, including tax authorities, foreign governments or even Swiss authorities, except when requested by a Swiss judge's subpoena. However banking is not strictly anonymous since under Law all Swiss bank accounts, including numbered bank accounts, are linked to an identified individual. The Law only permits a bank to share information with others in cases of severe criminal acts, such as identifying a terrorist's bank account or tax fraud, but not simple non-reporting of taxable income (called tax evasion in Switzerland).
International pressure on Switzerland forced it to amend the law and negotiate tax treaties with dozens of countries, including Germany, the United Kingdom and the United States, which permit Swiss banks to release information about account holders.
History of the law
The law was passed by the Swiss Federal Assembly in 1934 in the volatile climate of pre-World War II Europe, after Adolf Hitler and his Nazi Party established a dictatorship in Germany. Bank secrecy provisions found in Article 47(b) were added before passage of the bill due to Nazi authorities' attempts to investigate the assets of Jews and "enemies of the state" held in Switzerland. Secrecy laws allowed Jews and others to escape from Nazi Germany without losing everything. Having moved assets to Switzerland, Swiss authorities were not allowed to answer German questions about who had what where. Even employees of German banks in Switzerland were not allowed to answer questions from their employer in Germany. The value of this discretion became even greater as the whole of continental Europe was occupied. Bank secrecy therefore was, and remains, a protection of the individual against the power of the state.
Unfortunately for the Jews, this "protection" turned out to be largely theoretical. As recent research on the Holocaust shows — including Switzerland's own Bergier Commission (2002) — Swiss banks not only helped the Nazis to transfer large amounts of Jewish assets to Nazi accounts under duress, but also stonewalled demands for information on millions of accounts after World War II, destroyed more than 2.7 million account records, and "disappeared" at least $100 billion (in 2015 values) of Jewish wealth.
Bank secrecy was codified in Switzerland by the Federal Act on Banks and Savings Banks following a public scandal in France, when MP Fabien Alberty denounced tax evasion by eminent French personalities, including politicians, judges, industrialists, church dignitaries and directors of newspapers, who were hiding their money in Switzerland. He called these men of "a particularly ticklish patriotism", who "probably are unaware that the money they deposit abroad is lent by Switzerland to Germany". The Peugeot brothers and François Coty, of the famous perfume family, were on his list.
After the revelations of whistleblower Bradley Birkenfeld in 2007, UBS—which was then the largest bank in the world—was caught red-handed by the United States government offering tax evasion strategies, sending undercover bankers with encrypted computers to the United States. After it was caught due to the information provided by Birkenfeld, a former UBS private banker, UBS paid a $780 million penalty and handed over hundreds of client files to American authorities. In 2010, the Swiss and the United States governments negotiated an agreement allowing Swiss bank UBS to transmit to the US authorities information concerning 4,450 American clients of UBS suspected of tax evasion. That agreement was ratified by the Swiss parliament, despite some resistance due both to opposition in principle and to political maneuvering related to other proposals, such as the taxation of executive bonuses.
In the aftermath of the UBS and Julius Baer cases, some wealthy clients who continue to use offshore accounts are turning to private banks in Singapore and Hong Kong. In addition to the local Singapore or Hong Kong banks, offices have been opened in those localities by a number of Swiss private banks. The move to Singapore and Hong Kong is an alternative to the banking secrecy that Swiss banks have come under attack for. Singapore has bank secrecy provisions comparable to those in Switzerland. Although Hong Kong does not have the same bank privacy laws, it offers flexibility in the creation of opaque companies that can serve as tax conduits.
Under pressure from the G20 and the OECD, the Swiss government announced in March 2009 that it will abolish the distinction between tax fraud and tax evasion in dealings with foreign clients. The distinction remains valid for domestic clients. Any bank employee violating a client's privacy could be punished quite severely by law. After signing 12 new double taxation treaties in accordance with the international standard set by the OECD, Switzerland was removed from the grey list of non-compliant tax jurisdictions.
The law was amended in 2009 in the wake of the UBS tax evasion scandal. Switzerland and its banks came under pressure from the United States government and Western European governments who were concerned with tax evasion by their citizens using Swiss numbered accounts. Switzerland had been put on the OECD's "grey list" of tax havens that refused to cooperate with foreign tax authorities in April 2009.
In April 2013, French Minister Jérôme Cahuzac was forced to resign when the Geneva public prosecutor, acting quickly on a French request related to tax fraud, found evidence of undeclared Swiss accounts.
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