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(Bloomberg View) -- The revelations about offshore accounts contained in the so-called Panama Papers are sensational, but they are unlikely to put an end to these tax havens favored by the world's rich and powerful.

Rather, the disclosures are a reminder that these shelters have been around for close to a century, and have proved remarkably resilient even as they periodically aroused public outrage and calls for reform. In fact, an earlier scandal may have laid the foundation for the tax havens that are now under scrutiny.

Switzerland has become shorthand for hidden money, and with good reason: The country has long sought to attract foreign capital to its banking system by offering a mixture of secrecy, preferential tax treatment and creative corporate structures.

The process began before World War I, when the Swiss canton of Zug amended its laws to make it easy for foreigners to establish corporations and holding companies. Zug, which may be home to as many as 29,000 such companies today, helped begin this tradition of courting foreign capital. (The canton made headlines in 2001, when President Bill Clinton pardoned Marc Rich, a convicted U.S. tax evader who had sought refuge in Zug). The bankers and lawyers of Zurich -- and to a lesser extent, Basel -- played a part, too, helping manage these companies and the money they brought to the region.

In the 1920s, Switzerland became a favored destination for cash that needed to escape the prying eyes of government authorities. This stoked immense resentment against Swiss bankers, not least because they steadfastly refused to cooperate with any country hoping to track down tax evaders.  

The Swiss government itself endorsed the stonewalling approach. The Federal Council minutes of 1924 note that the Committee of the Swiss Bankers’ Association had opted to reject "any measure combating this evasion.”

But up to this point, Swiss secrecy was a matter of custom, not law. That would soon change. In 1934, Switzerland made secrecy a state policy. In the usual telling of this story, this decision was a response to the Nazis coming to power in Germany in 1933, and Swiss secrecy was a humanitarian gesture aimed at protecting Jewish assets from the German government.

This narrative, however, is bosh. As the historian Sébastien Guex has shown, Swiss secrecy was largely driven by a reaction to a little-known scandal with similarities to today’s Panama Papers contretemps.

The story begins in 1932, when the French government struggled to balance the budget as the country was mired against the Great Depression. A left-leaning coalition government, aware that many of France’s wealthiest citizens had been avoiding taxes by moving money to Switzerland, undertook an investigation.

On Oct. 26, local authorities raided the Paris offices of the Commercial Bank of Basel, seizing notebooks that contained the names of 2,000 elite French citizens who had been using Swiss banks to shield their income from the tax man. Wealthy industrialists such as the Peugeot brothers, prominent politicians and many others found themselves in the public eye.  Secrets had been spilled, and many of those who hadn’t been identified pulled their money from Switzerland.

The French government sought to intimidate Switzerland into handing over more information; it even arrested officials connected to the bank. This wasn’t a minor affair: Guex estimates that the French government had lost upward of 2 billion francs in tax revenue thanks to these evasions. And so they continued to target the Swiss banks.

The Swiss fought back. A government official wrote that “it would in no way be in our interest to grant French agents judicial cooperation which might have very unfavorable repercussions on the substantial business accruing to our banks from foreign deposits.”

In truth, the banks already were in deep trouble, and not just because of skittish depositors. The Great Depression had crippled the financial system, prompting many Swiss to push for greater oversight, much as other countries began doing at this time.

But this carried great risks: Oversight meant that federal officials might get access to details about depositors that could then become public, driving away yet more foreigners eager to stash their money in secret accounts.

And so the two sides reached an agreement. The Swiss banks submitted to greater federal oversight under the terms of the Banking Act of 1934. But Article 47 of this legislation made divulging the identity of bank customers to foreign governments a crime punishable by imprisonment and hefty fines. It demanded “absolute silence” of any and all Swiss custodians of cash. 

It worked. Foreign funds flowed back into Switzerland and its banking system. In the process, the Swiss created a template that other countries could emulate if they, too, wished to attract foreign capital. 

And so was born the offshore tax shelter. In the postwar era, a host of other countries around the world took the Swiss model to heart: Beirut, the Bahamas, Uruguay, Lichtenstein, and last but not least, Panama.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

To contact the author of this story: Stephen Mihm at smihm1@bloomberg.net.

To contact the editor responsible for this story: Max Berley at mberley@bloomberg.net.

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