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SWISS SECRECY: NOT A LEGEND

Swiss banking is often identified in America with banking secrecy. Popular media stories have created two contradictory pictures: that Swiss secrecy hinders law enforcement officers from prosecuting criminals, while others claim that Swiss secrecy does not exist anymore and is as full of holes as a Swiss cheese. Neither is true.

The basic position in Swiss civil law is that the information concerning a customer and the customer's financial dealings is protected as part of the individual's legal right to privacy. In Switzerland, this has been made part of Article 28 of the Swiss Civil Code, and not only protects the information, but makes the person violating the secrecy liable to pay damages to the customer. In addition, the banking law makes it a criminal offense in Switzerland for a banker to divulge information about a customer in violation of the law, punishable by fine or imprisonment. Both the bank and the bank employee may be subject to various penalties if a violation occurs.

A bank can only disclose information when authorized to do so under existing statutory provisions or by a Swiss court order, which must be founded on law. Secrecy is interpreted so broadly that it is illegal for a bank to say whether or not a person is a customer, since if the bank failed to do so it would be implying that the person was a customer.

The right of secrecy is a right belonging to the customer, not the bank. It is the customer's privacy that is protected by law. The customer can waive the secrecy, but the bank cannot. For example, the customer may waive secrecy and ask the bank to give a credit reference to a specific creditor. But such a waiver is only valid if the customer acts voluntarily and not under duress. Therefore, waivers that were signed pursuant to foreign court orders compelling a customer to sign a waiver may well be invalid. A financial institution cannot ask the government for an order waiving secrecy. Only the customer can waive the secrecy.

Contrary to an opinion current in America, Swiss secrecy is not absolute. It can be overridden by statutory provisions which compel the giving of information.

Such rules requiring disclosure of information -- usually with a limited scope -- can be found in Swiss inheritance law (you really wouldn't want your legitimate heir going into the insurance company with your death certificate to be told they can't tell him anything), in enforcement of judgments from creditors, in bankruptcy or in divorce.

The most widely known limitation on secrecy is in treaties concerning Swiss cooperation in foreign criminal matters.

In a criminal investigation conducted in Switzerland, of a Swiss crime committed by a Swiss citizen, secrecy can be lifted by court order. The treaties extend this possibility to foreign crimes by foreign citizens in foreign investigations, but only in the limited circumstances spelled out in the treaties. Before a foreign legal assistance request for Swiss financial records can be honored the following conditions must be met:

  1. Compulsory disclosure is only possible if the offense that is being prosecuted is punishable as a criminal offense in both countries (the requesting state and Switzerland).
  2. In tax cases assistance is available to foreign prosecutors only if the investigated violation of foreign tax laws would be qualified under Swiss law as a tax fraud and not merely as tax evasion. Tax evasion is simply the failure to declare income or assets for taxation. Tax fraud is distinguished by the fact that "fraudulent conduct" is involved. Normally "fraudulent conduct" can only be assumed if forged documents are used.

    There is a special provision of the Swiss-United States Treaty on Mutual Assistance in Criminal Matters that provides Swiss legal assistance to U. S. prosecutors even in tax evasion cases if they are conducting an investigation against an organized crime group.

  3. As a general rule, the information obtained in Switzerland through a legal assistance procedure may not be used for investigative purposes nor be introduced into evidence in the requesting state in any proceeding relating to an offense other than the offense for which assistance has been granted. It must be emphasized that foreign authorities or foreign courts cannot directly ask a Swiss financial institution for information. Even in cases in which legal assistance can be granted and therefore secrecy is lifted, only a Swiss court order - which in these cases is based upon a foreign request for legal assistance - can validly lift secrecy.

Considering this, it can be said that secrecy is strict and is only put aside in case clearly defined by Swiss law and pursuant to Swiss rules. Secrecy is, however, not absolute and does therefore not protect criminals.

Switzerland has long served as a magnet for the money of wealthy foreigners who perceive the world as buffeted by over-taxation, over-regulation and political turmoil. They are attracted, of course, by the confidentiality and discretion that have been a hallmark of Swiss bankers since the French Revolution, when they offered financial refuge to French aristocrats. In 1934 secrecy was enshrined into law.