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banking secrecy weathers storms

Customers' secrets are still safe in Swiss banks' vaults

(Keystone)

Banking secrecy is, by definition, shrouded in mystery. It is also coming under attack from all sides.

Even though parliament has refused to enshrine it in the constitution, this typical Swiss arrangement benefits a large proportion of the Swiss population.

One of the myths surrounding banking secrecy that still circulates today is that it was reinforced by the Swiss government to protect the money deposited in Switzerland by Jewish victims of the Nazis.

However, this story was concocted in the 1960s by Swiss banks to justify morally banking secrecy against attacks from the United States.

Discretion has been customary at Swiss banks for several centuries, but it was at the turn of the 20th century, when the tax system was growing in neighbouring countries, that Swiss banking secrecy really gained in importance.

It became the cornerstone of the mechanism responsible for

harvesting foreign funds in search of tax shelter – a channelling of money that irritated, and still irritates, European governments.

Reinforced

In 1932 the French police conducted a search of the Parisian premises of the Basler Handelsbank [Basel commercial bank] and took lists containing the names of thousands of clients.

In response, the Swiss government decided in 1934 to reinforce its banking secrecy, and from then on violation became an offence.

Banking secrecy is defined as the professional obligation of discretion which bank employees must guarantee their clients. It does not

protect the bank but rather the client, who is the only party able to renounce it.

"Financial confidentiality is an essential corollary to freedom," said the Swiss Bankers Association. "It's a fundamental part of democracy and an ethical and moral necessity to guarantee the protection of the private sphere."

Written into banking law and liable to criminal proceedings if violated, banking secrecy is now part of the country's brand image and contributes to its financial place in the world.

Banking secrecy has adapted over the years and is not absolute. Cases involving civil rights or criminal investigations are granted

exemptions. In an investigation into money laundering, for example, the judge could demand secrecy be wavered.

In recent years attacks against banking secrecy have multiplied, with this pressure obviously based on economic interests.

On the one hand, governments want to be able to collect high taxes without seeing their wealthy taxpayers run abroad; on the other, foreign financial institutions are eyeing up the fortune generated by Swiss banks.

Tax evasion

Criticism of banking secrecy concerns tax evasion in particular. Unlike most countries, Switzerland

doesn't consider this a crime and banks are not obliged to reply to demands for information concerning their clients' accounts – a piece of legislation decried by many foreign governments.

If the Swiss economy benefits today from a unique situation with the lowest real interest rates in the world, it owes it to its banking secrecy.

Protection of privacy, along with security, performance and service, make up the four pillars of the Swiss financial world.

The disappearance of banking secrecy would have a negative effect on Switzerland.

Moreover, the population seems to

understand this.

According to a recent poll for the Swiss Bankers Association, 80 per cent of Swiss – up two percentage points on the previous year – are in favour of maintaining professional secrecy for banking.

Banking secrecy will not however be enshrined in the federal constitution.

Parliamentarians backtracked in 2006 when they rejected a proposal on the topic from the far-right in addition to four initiatives from cantons Geneva, Ticino, Basel Country and Aargau.

What is true however is that following the conclusion of the second package of bilateral accords

with the European Union, Switzerland has succeeded in preserving its banking secrecy for the time being.

swissinfo, Luigino Canal

In brief

The proposal to enshrine banking secrecy in the constitution came about when Switzerland was facing European Union pressure to disclose the identities of EU residents' with assets in Swiss banks.

Since then, the EU and non-member Switzerland have signed a bilateral treaty which allows tax to be deducted from savings' interest without violating customer confidentiality rules.

Taxation continues to be a bone of contention between Bern and Brussels – the latest dispute concerns low levels of corporation tax in certain Swiss cantons.

end of infobox

Key facts

Swiss banks have appeared in many Hollywood films, most recently in The Bourne Identity and The Da Vinci Code, usually in a negative light.
In practice however no private numbered bank account is completely anonymous as they have been obliged to be be linked to an identified individual under Swiss banking law for more than 20 years.
This law only permits a bank to share information with others on a judge's orders in cases of severe criminal acts, such as identifying a terrorist's bank account.
Any bank employee violating a client's privacy is liable to serious punishment.

end of infobox


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