Banking in Switzerland

Banking in Switzerland
dates to the early eighteenth century through Switzerland's merchant trade and has, over the centuries, grown into a complex, regulated, and international industry. Banking is seen as emblematic of Switzerland, along with the Swiss Alps, Swiss chocolate, watchmaking and mountaineering. Switzerland has a long, kindred history of banking secrecy and client confidentiality reaching back to the early 1700s. Starting as a way to protect wealthy European banking interests, Swiss banking secrecy was codified in 1934 with the passage of the landmark federal law, the Federal Act on Banks and Savings Banks. These laws, which were used to protect assets of persons being persecuted by Nazi authorities, have also been used by people and institutions seeking to illegally evade taxes, hide assets, or generally commit financial crime.
Controversial protection of foreign accounts and assets during World War II sparked a series of proposed financial regulations seeking to temper bank secrecy to little success. Switzerland has been one of the largest offshore financial centers and tax havens in the world since the mid-20th century. Despite an international push to meaningfully roll back banking secrecy laws in the country, Swiss social and political forces have minimized and reverted much of proposed roll backs. Although disclosing criminal activities by banks, who do not enjoy a good reputation even in Switzerland, is generally well seen by the Swiss public, disclosing client information has been considered a criminal offence since the early 1900s. Employees working in Switzerland and abroad at Swiss banks "have long adhered to an unwritten code similar to that observed by doctors or priests".^[1] Since 1934, banking secrecy laws have been violated by four people: Christoph Meili (1997), Bradley Birkenfeld (2007), Rudolf Elmer (2011), and Hervé Falciani (2014).

History

Bank secrecy in the Swiss region can be traced^[2] to the Great Council of Geneva which outlawed the disclosure of information about the European upper class in 1713.^[2] As a way of avoiding the Protestant banking system, Catholic French Kings deposited their holdings in Geneva accounts.^[2] During the 1780s, Swiss bank accounts began insuring deposits which contributed to their reputation for financial security.^[2] In 1815, the Congress of Vienna formally established Switzerland's international neutrality which led to a large capital influx.^[2] The wealthy, landlocked Switzerland saw banking secrecy as a way to build an empire similar to that of France, Spain, and the United Kingdom.^[2] Swiss historian Sébastian Guex notes in The Origins of Secret Swiss Bank Accounts: This is what the Swiss bourgeoisie are thinking: 'That's our future. We will play on the contradictions between the European powers and, protected by the shield of our neutrality, our arm will be industry and finance
After a small scale civil war in the 1840s between the Swiss cantons, the Swiss Federation was founded in 1848.^[2] The formation of the state, through a direct democracy, contributed to the political stability needed for banking secrecy.^[2] The mountainous terrain of Switzerland provided a natural environment to excavate underground vaults for storage of gold and diamonds.^[2] During the 1910s, Swiss bankers traveled to France to advertise its banking secrecy during World War I.^[2] The war's contribution to political and economic instability, sparked a rapid capital movement into Switzerland.^[2] As European countries began to increase taxes to finance the war, wealthy clients moved their holdings into Swiss accounts to avoid taxation.^[2] The French banked in Geneva, the Italians in Lugano, and the Germans in Zurich.^[2] While disclosing client information was a civil offence in Switzerland for centuries, the Swiss Federal Assembly made it a federal criminal offence in 1934 with the passage of the landmark legislation, the Federal Act on Banks and Savings Banks.^[2] Colloquially known as the Banking Law of 1934 or the Swiss Banking Law of 1934, it codified banking secrecy.^[4] The Federal Assembly enacted the law to quell controversy over the alleged tax evasion of wealthy French businessmen, military generals, and Catholic bishops.^[5] An additional provision, Article 47(b), was drafted before its ratification to protect Jewish assets from the Nazi party.