Swiss Banks and Secrecy

The legendary secrecy of Swiss banks is coming under sustained attack, especially from the US. I read an article in the FT today, that some Swiss banks are imposing a complete ban on their senior executives travelling outside Switzerland for fear that they may be detained and questioned.

The US is mounting a sustained campaign against tax havens, as is Germany. The case against "Swiss bank secrecy" has been loudly made and is not worth repeating. What is however not heard amidst all this noise, is the case for secrecy. Let me make the case, including arguing against some of the myths about Swiss banks.

Firstly what novels and movies portray about the fabled numbered accounts is plainly wrong. You cannot open a numbered account without the same disclosures that you have to make when you open a normal account. Then only additional secrecy in a numbered account is that fewer bank employees know who the account holder is, since the account is referred to by a number. That's all.

A second common fallacy is that tyrants and despots loot their countries and stash their wealth away in Swiss banks. Cases such as Ferdinand Marcos, Mobutu Sese Seko and Sani Abacha, come to mind. Add to this criminals and money launderers. This may have been true in the past, but much has changed. Today the Swiss laws on Know Your Customer and the rules against money laundering are some of the strictest in the world. Treatment of assets by "politically exposed persons" is governed by strict laws in elaborate detail. Today, if a crook wanted to stash his money, Switzerland is not the country that would come to mind.

Thirdly Switzerland's secrecy laws do not apply to tax fraud. If a tax fraud is committed and proved, Swiss banks will disclose information. They are required to do so by Swiss law. Period. And the Swiss follow the law better than many other countries.

Its a common feeling that the success of the Swiss banking industry is due to the secrecy laws. This is largely a myth. Switzerland owes its success due to economic and political stability. Stability of laws. Absence of sudden controls on currencies. To well run banks, to a freely convertible currency that is not restricted. To geographical location. Less to banking secrecy.

What Swiss banks don't do is routinely provide every information regarding your account to the authorities as the banks in many other countries, including the US and Germany, do. This is what is behind the current spat. Swiss banks will not entertain fishing expeditions by the tax authorities. The US wants the banks in Switzerland to disclose any information they want on the bank accounts of US citizens. The Swiss say, show a tax fraud and we'll give you the information. But we are not going to just give you every information on every customer.

I think there is some reasonableness on the part of the Swiss banks. Why should your financial transactions be known to every authority. Privacy has been encroached in every sphere of our lives. Big Brother watches everywhere, even in the so called freest of countries. Anybody who has been at the receiving end of a tax dispute with any government knows how unreasonable tax authorities can be. They don't cover themselves with the glory of fair dealing.

In the end, political pressure will be brought on Switzerland and it may buckle. But that's a pity. Just imagine - the United States can detain a Swiss national employee of a Swiss bank, fully complying with the laws of his country, if he comes into the US, just because he hasn't acceded to a demand of the US government. Did I hear that freedom was a virtue in the US ?

For an excellent research report on Swiss Banking secrecy read Swiss Banking Secrecy: Origins, Significance, Myth by Robert U Vogler.