The kings of France found the perfect refuge for their wealth: a city-state nestled between the snow-capped Alps and the crystal clear waters of Lake Geneva. Catholic royalty flocked to Geneva in the 18th century in an attempt to conceal their dealings with Protestant bankers.
In 1713, Geneva authorities, renowned for their discretion, introduced rules prohibiting bankers from revealing details about their clients.
This centuries-old code of silence, which was later enshrined in law in Switzerland, received renewed attention this week after a Credit Suisse data leak revealed its clients were involved in torture, drug trafficking, money laundering, bribery and other serious crimes, suggesting widespread lapses in due diligence on the part of the bank.
The revelations sparked a national debate in Switzerland, even though the much-heralded “end of bank secrecy as we know it” was supposed to have taken place in 2014, when ministers from 50 countries and territories agreed to a global exchange of bank secrecy. information about their taxpayer financial information for the first time.
The ministerial meeting in Paris that year was considered monumental, not least because the enfant terrible from the bank had reluctantly agreed to join the club. Switzerland had promised to share customer bank account information with participating tax authorities around the world.
For a country that had criminalized the sharing of customer information with foreign countries for more than 80 years, adopting the so-called Common Reporting Standard (CRS) was an important step. This meant that Switzerland and the other signatories would exchange information on foreigners who held bank accounts in their country, as part of efforts to crack down on tax evasion and evasion.
However, even after Swiss CRS data began changing hands in 2018, critics argued that the country’s commitment to the system had created a “zebra strategy”.
On the one hand, Swiss banks could take “clean” money from customers in industrialized and developed countries, which were part of automatic information exchange agreements. But the door had not been closed to accepting funds from potentially dodgy clients in developing countries, where authorities charged with investigating tax evasion did not have automatic access to the secret Swiss accounts of their citizens.
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What is the leak of Swiss secrets?
Suisse secrets is a worldwide journalistic investigation into a data leak from the Swiss bank Credit Suisse. It includes more than 18,000 bank accounts that were leaked to Süddeutsche Zeitung by a whistleblower who said Swiss bank secrecy laws were “immoral”. The data, which represents only a portion of the bank’s 1.5 million private banking clients, is linked to more than 30,000 Credit Suisse clients. The leak includes personal, shared and corporate bank accounts – holding an average of 7.5 million Swiss francs (CHF). Nearly 200 accounts in the data are worth more than CHF 100 million, and more than a dozen are valued in the billions. While some accounts in the data were open as early as the 1940s, more than two-thirds have been opened since 2000. Many of them were still open in the past decade, and some remain open today.
The Guardian was among more than 48 media partners around the world, including journalists from Le Monde, NDR, the Miami Herald and the New York Times. They spent months using the data to investigate the bank, in a project coordinated by Süddeutsche Zeitung and the Organized Crime and Corruption Reporting Project (OCCRP). They uncovered evidence that Credit Suisse accounts had been used by clients involved in torture, drug trafficking, money laundering, bribery and other serious crimes, suggesting widespread breaches of due diligence form the bank. It is not illegal to have a Swiss account and the leak also contained data from legitimate customers who had done nothing wrong. In its response, Credit Suisse said it “strongly rejects the allegations and inferences regarding the bank’s alleged business practices.”
“Despite many claims to the contrary: bank secrecy is not dead,” said Dominik Gross, tax and financial analyst at Swiss global development think tank Alliance Sud.
More than 90 countries, including some of the least developed in the world, have not yet exchanged banking information with Switzerland.
Regarding these countries, “nothing has changed compared to the past”, said Sébastien Guex, banking expert and professor at the University of Lausanne. “Swiss bankers always help the wealthy in these countries to hide their assets from the tax authorities in their own country.”
Credit Suisse said it “strongly rejects the allegations and inferences about the bank’s alleged business practices” stemming from the Swiss Secrets leak of its data, stressing that it maintains “a strict policy of zero tolerance for against tax evasion and is fully committed to complying with global regulations”. tax transparency efforts,” including the CRS.
Tax haven reputation
Despite CRS membership, the landlocked Alpine country’s financial system is the third most secretive in the world after the Cayman Islands and the United States, according to the Tax Justice Network, and accounts for $21 billion in lost tax revenue for the countries. foreigners each year.
Almost half of the 7.9 billion Swiss francs (£6.3 billion) of assets under management in the country belong to foreign clients. He helped build an industry that accounts for 10% of Swiss GDP and a similar proportion of Swiss jobs. And while Switzerland is home to around 243 banks, Credit Suisse and arch-rival UBS together account for around half of the country’s banking assets.
While the Swiss tradition of banking secrecy dates back to the 1700s, its benefits became more apparent at the turn of the 20th century, when Swiss lenders became a magnet for elites eager to hide their increasingly mobile wealth in a politically neutral state.
Its reputation as a tax haven also grew, as wealthy families scrambled to find a place to hide their wealth amid the introduction of inheritance tax in countries like France in 1901. Lenders jumped on the occasion, distributing brochures, advertising in local newspapers and deploying bankers across France to attract new clients.
But amid growing anger over lost tax revenue and capital flight, France launched a police raid on Swiss bankers in Paris in 1932. The operation revealed the names of hundreds of wealthy French clients with secret accounts in Switzerland, including bishops, generals and former ministers. The Swiss banking community, in turn, was furious and pressed for retaliation.
In 1934, politicians agreed to enshrine banking secrecy – the “duty of absolute silence” – in law – making it a crime for anyone to share their customers’ banking information, especially with foreign authorities.
Controversially, the law, combined with Switzerland’s political neutrality, made the country a haven for Nazi officials. Swiss bankers collaborated strongly with Adolf Hitler and his regime, offering financial credit and helping fleeing Nazis hide their post-World War II loot.
Scandalous exploits revealed
Until this week, opposition to bank secrecy in Switzerland was relatively moderate. When the Socialist Party held a referendum in the mid-1980s that would have replaced secrecy laws and required banks to cooperate with foreign authorities investigating tax evaders, the government opposed the proposal. It was criticized as an invasion of citizens’ privacy and a threat to the country’s banking system and economy, and was decisively rejected.
But elsewhere, global regulators grew increasingly frustrated with their inability to penetrate the Swiss banking system to investigate global fraud and tax evasion.
In the early 2000s, Swiss banks were aggressively marketing their services to wealthy clients who wanted to dodge national tax authorities – this time in the United States. The details emerged after UBS banker Bradley Birkenfeld shared information with US authorities in 2007 showing how the bank helped thousands of wealthy Americans avoid paying taxes by hiding billions of dollars in secret accounts. .
Revelations from a subsequent Senate investigation outraged US authorities, who fined UBS and Credit Suisse for their role in aiding US tax evasion and pressured Switzerland to unilaterally release information on US taxpayer accounts from 2014.
That same year, Switzerland joined the NCD alongside 50 other countries and jurisdictions.
Impact of bank secrecy on the world’s poor
In this context, the Swiss banking industry claims that its secrecy laws are a thing of the past. “There is no more customer privacy in Swiss banks for customers abroad,” the Swiss Bankers Association (SBA) said, adding that the automatic exchange of bank information has “become the norm. – both for banks and for bank customers”.
“Swiss banks have done their homework and implemented all international regulations. We are transparent, there is nothing to hide in Switzerland.”
But the revelations of Swiss secrets suggest that skeletons remain in the vaults of Swiss banks. Campaigners remain concerned about the “weak” powers of the national regulator and how criminals and tax evaders from developing countries appear to continue to gain access to the Swiss financial system.
Swiss anti-corruption watchdog Public Eye said organizations such as the SBA play down “the detrimental impact of this hugely successful business model of the Swiss financial industry, especially for poorer countries”.
Those concerns were echoed by Nobel laureate and economist Joseph Stiglitz, who said the revelations had rightly brought the country’s secrecy laws back into the spotlight. “Surely Switzerland must know the deterrent effect of its legislation: almost surely it was the intention, in order to preserve its economic models as long as possible, to take a small share of the ill-gotten gains of others, in exchange for provide a safe and secret place to hoard and store the geld,” he said.
