Swiss Banking Secrecy
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Swiss Banking Secrecy | Frequently Asked Questions
1. What is banking secrecy?
Banking secrecy is the banker's professional obligation to keep the details of a client's financial and personal affairs strictly private. Secrecy is a matter of both contractual agreement and public duty. Under Swiss law, violating this professional obligation is subject to criminal prosecution.Other laws, such as those which protect privacy, safeguard secrecy as well.
2. Is banking secrecy absolute?
Swiss banking secrecy is in no way absolute. First, since banking secrecy derives from a contractual agreement between the bank and the customer, the customer can lift banking secrecy anytime he chooses with a valid waiver. In addition, a Swiss court can also waive banking secrecy by issuing a lifting order in a criminal, civil, or legal assistance proceeding. In particular, banking secrecy is lifted under the following Swiss laws and international treaties towhich Switzerland is a party: Multilateral Treaties: European Convention of April 20, 1959 on Legal Assistance in Criminal Matters; European Convention of November 8, 1990 on Money Laundering and Detection, Seizure and Confiscation of Gains Resulting from Criminal Activities; Bilateral Treaties with the U.S.: Treaty of May 25, 1973 between the United States of America and Switzerland on Mutual Assistance in Criminal Matters (similar treaties are in force with many other countries); Convention of October 2, 1996, between the United States of America and Switzerland for the Avoidance of Double Taxation With Respect to Taxes on Income in cases of tax fraud and the Mutual Agreement of January 23, 2003, regarding the Administration of Art. 26 of the Convention (Exchange of Information); National Law: Federal Act of March 20, 1981 on International Mutual Assistance in Criminal Matters; Criminal laws, in particular the pertinent provisions of the Swiss Criminal Code dealing with insider trading, money laundering, and criminal organizations (entered into force August 1,1990); Federal Statute concerning the Combat of Money Laundering in the Financial Sector
(MLS) of October 10, 1997; Divorce laws; Estate laws; Laws of debt collection and bankruptcy; Federal Decree of December 13, 1996 Concerning the Historical and Legal Investigation of the Fate of Assets Which Reached Switzerland as a Result of National Socialist Rule.
3. Does banking secrecy protect criminals?
No. Swiss banking secrecy is strict in safeguarding a customer's privacy but it is not intended to protect criminals. Banking secrecy is lifted in cases of Swiss criminal investigations. It may also be lifted in the course of providing international legal assistance in criminal matters, including foreign criminal investigations of money laundering and insider trading, in cases of tax fraud and in other cases indicated in the previous paragraph.Switzerland has a long tradition of granting legal assistance in criminal matters. For instance, in 1973 Switzerland took the lead as the first country in continental Europe to negotiate a treaty on mutual legal assistance with the United States. At the same time, this treaty was the first treaty which contained detailed provisions on fighting organized crime with all means available.
4. Does banking secrecy protect against tax fraud?
No. Under Swiss law, tax fraud is a serious crime punished with prison and a fine up to CHF 30’000. To enable an adequate exchange of information for the prevention of tax fraud ininternational matters, Switzerland entered into various international agreements. With respect to the United States, the Bilateral Convention of October 2, 1996 for the Avoidance of Double Taxation with Respect to Taxes on Income ("the Convention") applies. According to Art. 26(and Par. 10 of the Protocol), both countries provide such information to the competent authorities of the other country as is necessary for the prevention of tax fraud or the like in relation to the taxes which are the subject of the Convention, whereby "tax fraud" is defined as "fraudulent conduct that causes or is intended to cause an illegal and substantial reduction in the amount of tax paid to a contracting state". Switzerland and the United States recently explained the content of the respective article in the Convention by concluding the Mutual Agreement of January 23, 2003, regarding the Administration of Art. 26 of the Convention (Exchange of Information) and thus amending further definitions and illustrative descriptions.
5. What is a "numbered account?"
The famous "numbered account" is a normal account with an account holder and/or a beneficial owner, (hereafter collectively referred to as "account holder"), whose identity is known to the bank. There is no difference between an ordinary account and a numbered account with regard to the information that has to be provided in order to open such an account. There is no such thing as an "anonymous" account, i.e., an account where the bank has no knowledge of the identity of the account holder.
The only special feature of a numbered account is that the detailed data of the account holder are only accessible to selected bank officers. While many employees of a bank have access to customer data in general, such access is restricted for numbered accounts. In internal data bases, such accounts only show up with a number (hence the term) and no further information is provided to the employees of the bank. However, the full identity of the account holder is known to selected senior bank officers.
Again, the possibility of opening a numbered account is not unique to Switzerland. For instance, numbered accounts are also known in Austria and Luxembourg.
6. Are numbered accounts loopholes for criminals to hide illegally obtained funds?
No. In criminal investigations, numbered accounts are treated like any other bank account in Switzerland. Therefore the Swiss banks have all the necessary information with respect to the account holder and banks are required to provide such information in the course of legal assistance in the same manner as information on any other Swiss bank account.
7. Does banking secrecy protect money laundering?
No. Banking secrecy is no impediment to combating money laundering. Art. 47(4) of the Swiss Banking Act explicitly outlines the legal obligations of bank officers to testify before Swiss courts. With no exception, the Swiss criminal procedural laws require bankers to testify and provide information to the competent Swiss authorities in case of a criminal investigation.Switzerland is strongly committed to fighting organized crime and related money laundering operations. Financing illegal drug dealing and acting as an intermediary have been criminal offences since 1975. The scope of application of these criminal sanctions was significantly enhanced when in 1990 the Parliament amended the Swiss Penal Code and passed explicit provisions against money laundering (Art. 305bis and 305ter PC). Art. 305bis PC provides for imprisonment of up to five years and fines of up to CHF 1’000’000 if an individual obstructs the investigation of the origin, discovery or confiscation of funds he or she knows or should have known result from criminal activities. The provisions have inspired the legislative work of many other countries around the world. On the international level, Switzerland is a party to the European Convention on Money Laundering and is actively participating in various task forces.Moreover, Switzerland was a founding member of the Financial Task Force on Money Laundering (FATF) and chaired it from its inception until 1992. Today, the FATF comprises 30 countries, including the United States, the United Kingdom, Canada, Germany, France, Italy, Luxembourg, Japan, Hong Kong, and Singapore, as well as a delegation from the Commission of the European Union.In 1992, the Swiss Federal Banking Commission (the government agency responsible for banking supervision) also adopted detailed guidelines that specifically address the money laundering problem.In 1997, the protection already granted by the Swiss Criminal Code was significantly expanded by the Federal Statute concerning the Combat of Money Laundering in the Financial Sector(MLS) of October 10, 1997. The statute governs the combating of money laundering in the sense of Art. 305bis PC and the diligence to be exercised in financial transactions. Financial intermediaries, e.g. banks, fund managers, insurance entities, security dealers and casinos, have to follow several duties of diligence. The financial intermediary has to identify the contractual partner and the beneficiary, to clarify the origin of the money, to keep records for at least tenyears after the termination of the business relationship, and to notify the money laundering reporting office in case of suspicion.In July 2003, the Ordinance of the Federal Banking Commission on money laundering entered into force. The ordinance contains further duties of diligence, such as the systematic recording of business relations and the supervision of transactions with computer assistance.
8. What are the due diligence standards for Swiss Banks in accepting funds?
Based on the provisions of the Swiss Criminal Code discussed above, in 2003 the Swiss banks and the Swiss Bankers Association agreed to a revised code of conduct regarding the exercise of due diligence in accepting funds (The first version of this code dates back to 1977 and 1992 respectively). This private agreement obliges the banks:· to verify the identity of their customers and, in cases of doubt, to obtain from the customer a declaration setting forth the identity of the beneficial owner of assets deposited with the bank· not to provide any active assistance in the flight of capital· not to provide any active assistance for tax evasion or similar acts by delivering incomplete or misleading information These obligations apply to numbered accounts as well.To ensure compliance with these rules, fines of up to 10 million Swiss francs (approx. $8million) are imposed on the bank in case of violation of these rules. The code of conduct agreed to by the Swiss banks was a landmark when adopted in 1977. It continues to be highly respected around the world and was used as a model regulation for the recommendations of both the Basel Committee for Banking Supervision and those of the Financial Action Task Force on Money Laundering (FATF). The latter recommendations in turn served as a model for the money laundering directive of the European Union.
9. What does banking secrecy protect?
Banking secrecy protects the individual privacy of the customer, not the bank. The customer has control over whether or not his or her account information should be kept confidential and can waive that right if he or she so chooses. The range of information covered by banking secrecy is broad. It covers all activities that involve banking and, in particular, information on customers and third parties. Under the banking secrecy rules, for instance, a bank is not allowed to certify that somebody has or has not been a customer of the bank.
10. Why does Switzerland have banking secrecy?
In Switzerland, banking secrecy legislation was designed to preserve the confidentiality and privacy of bank customers and to help people who were persecuted for racial, political, or religious reasons.
The right to privacy is a fundamental concept that is protected by all democratic countries.Under Swiss legislation, a bank customer is entitled to such privacy as regards his or her relationship with a bank. Today similar legislation on banking secrecy has been enacted in many other countries with a developed banking and financial system.
Banking secrecy is not unique to Switzerland. The idea of confidentiality in financial affairs was incorporated into ancient law. Since the mid-19th century, virtually all the governments of Western Europe have had banking secrecy laws.
The fact that banking secrecy in Switzerland is enforced by criminal prosecution is not unique either. Many countries, such as Austria, Denmark, Finland, France, Luxembourg, Mexico, The Netherlands, Norway, Portugal, and Sweden, also provide for criminal sanctions for breaching the obligation of confidentiality.
