Swiss Miss: The Future of Banking Secrecy Laws in Light of Recent Changes in the Swiss System and International Attitudes

Author:Robert S. Ladd
Position:J.D. Candidate, May 2011.
Pages:539-561
Swiss Miss: The Future of Banking Secrecy Laws in Light
of Recent Changes in the Swiss System and International
Attitudes
Robert S. Ladd
I. INTRODUCTION ......................................................................................... 540
II. THE HISTORY AND ORIGINS OF SWISS BANKING LAW ............................. 541
A. Threats of Seizure by France‘s Herriot Government ..................... 541
B. Economic Espionage by Nazi Germany ........................................... 542
C. The Historical Tradition of Swiss Neutrality ................................. 543
III. SWISS BANKING BEFORE 2009 .............................................................. 543
A. Social Motivations for Swiss Banking Secrecy ............................... 543
B. Economic Motivations for Swiss Banking Secrecy ......................... 545
IV. COMMITMENTS TO CHANGES IN SWISS LAW AND THE 2009
PROSECUTIONS ............................................................................................. 546
A. Switzerland‘s Modifications to Its Banking Secrecy Policies ......... 546
B. International Agreements Creating Pressure on Tax Havens ...... 548
C. Switzerland Assists the United States in Prosecuting U.S. Tax
Evaders .............................................................................................. 550
D. International Repercussions of the United States‘ Tax Evasion
Prosecutions ...................................................................................... 550
V. THE FUTURE OF BANKING SECRECY ....................................................... 551
VI. THE CONSEQUENCES OF THE PROBABLE DEMISE OF BANKING
SECRECY: WILL ITS LASTING EFFECT BE POSITIVE OR NEGATIVE? ............ 553
A. Future Effects on State Sovereignty in Light of Tax Haven
Reform ............................................................................................... 554
B. Economic Protectionism and the Role of the Global Economic
Crisis on Tax Haven Reform ............................................................ 556
C. The True Nature of Tax Havens and Their Role in Preventing
Taxation Monopolies ......................................................................... 558
VII. CONCLUSION......................................................................................... 560
J.D. Candidate, May 2011.
540 TRANSNATIONAL LAW & CONTEMPORARY PROBLEMS [Vol. 20:539
I. INTRODUCTION
For decades, Switzerland has been one of the world‘s s taunchest
advocates of the right to privacy in the area of banking secrecy. The Swiss
government has long maintaine d a policy of professional banking secrecy and
has imposed strict penalties on those who violated that confident iality.
1
As a
result, the Swiss governme nt has historically refused to assist the
governments and tax authorities of other nations in prosecu ting individual s
under suspicion of hiding their taxable wealth in Swiss numbered bank
accounts.
2
This policy of sovereign secrecy is changing. On August 20, 2009, the
Swiss government cooperated with the U.S. government in the indictment o f
two Swiss citizens for their roles in assisting Americans in transferring funds
into Swiss banks to avoid detection and taxation by U.S. authorities.
3
The
Swiss government‘s suppo rt in these recent prosecutions indicates a
significant shift in Switzerland‘s official policy toward banking secrecy.
The Swi ss g overnment‘s a ssistance, combined with an increased
international effort to shut down tax havens worldwide, is a harbinger of
significant changes in the treatment of international banking secrecy laws in
tax havens. Swiss banks are renowned worldwide for their traditions of
financial protectionism and confidentiality, and other tax havens often mimic
the Swiss system. Therefore, any po licy shift by Switzerland leading away
from their traditional ideals will have a wide-reaching impact on
international financial sys tems, most notably on other tax havens. In light of
both the unified international moveme nt toward the remo val of banking
secrecy and the major tax havens‘ reluctant acquiescence to international
proposals, the policy shift toward more open banking procedures will likely
1
SWISS FEDERAL BANKING ACT OF 1934, Nov. 8, 1934, art. 47 [hereinafter Swiss Federal Banking
Act of 1934], available at http://www.swiss-banking-
law.com/en/files/KPMG_Swiss_Federal_Act_on_Banks_and_Savings_Banks.pdf (stating that the
penalty imposed for such violations is a maximum of six months in prison or a fine not exceeding
250,000 francs (approximately $250,000 U.S. today)).
2
See Alison Langley, Swiss Won‟t Yield on Secrecy, Stalling Bank Plan, N.Y. TIMES, Dec. 4, 2002,
available at http://www.nytimes.com/2002/12/04/business/swiss-won-t-yield-on-secrecy-stalling-
bank-plan.html (describing Switzerland‘s intractability in refusing to engage in international
cooperation to pursue tax evaders); see also Swiss Federal Banking Act of 1934, supra note 1
(describing the criminal penalties imposed for violations of banking secrecy); EMBASSY OF SWITZ.
IN THE UNITED STATES OF AMERICA, PROTECTION OF PRIVACY IN FINANCIAL MATTERS,
http://www.eda.admin.ch/etc/medialib/downloads/edactr/usa/embwas/waecfi/WASFAQ.Par.0021.
File.tmp/4.3 Swiss Banking Secrecy.pdf (last visited Feb. 1, 2011) [hereinafter SWISS BANKING
SECRECY FAQ]; Opening a Bank Account, SWISSBANKING: SWISS BANKERS ASSN,
http://www.swissbanking.org/en/home/faq-kontoeroeffnung.htm (last visited Feb. 1, 2011)
(stating that accounts in Swiss banks can take the form of ―numbered accounts‖ and that this
form of recordkeeping attaches a number or code, rather than an individual‘s name, to the
account for the purpose of conducting transactions).
3
Jeremy Pelofsky, Two Charged in Swiss Banking Tax Evasion Scheme, REUTERS, Aug. 20,
2009, available at http://www.reuters.com/article/topNews/idUSN2052384420090820.

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