Thanks to movies and television shows, swiss banking has become virtually synonamous with secrecy and shady dealings.
But Switzerland’s prized financials sector — which employs over 6% of its population and provides over 10% of its economy — is facing international pressure to provide greater transparency in a bid to end tax evasion, money laundering and fraud.
It was only after raids from French authorities that the Swiss passed their first law on financial secrecy
In 1934, France, angered by the loss in revenue from offshore accounts, raided a Swiss bank's office in Paris and revealed the names of account holders.
To prevent such future occurences, Switzerland passed a law making such disclosures illegal, marking the beginning of modern Swiss banking secrecy.
The banking law of 1934 in essence allows someone to set up an account with minimal questions asked, as long as the bank is satisfied the money was not illegally obtained.
The law effectively protects clients' information from third parties — similar to how doctors or lawyers are legally required to protect their clients' information in most countries
Owing to Swiss neutrality, and the fact that no bank in the world would accept German currency, people once again turned to Swiss banks to protect their assets.
This included looted Nazi gold as well as life savings of victims of Nazi persecution (Swiss banks eventually set up a $1.25 billion compensation fund for Holocaust victims). Small boutique banks became multi-million and billion dollar establishments.
Their vaults, situated mainly in a single square in Zurich, were used to stash undeclared money and assets by everyone from wealthy businessmen trying to evade taxes, to corrupt world leaders like the Philippines' Ferdinand Marcos to Nigeria's Sani Abacha to hide illicitly-obtained stashes of cash.
But there was growing international pressure from countries who felt that Swiss accounts were being used to dodge taxes and launder money
The EU, frustrated by Switzerland shrugging its shoulders to the question of tax evasion by EU citizens, began pressuring it to relax its banking secrecy laws to curb evasion through an exchange of tax information, especially with other tax haven states: Luxembourg and Austria.
Bern resisted, and compromises were unacceptable to both the EU and the Swiss. Certain members of the Swiss parliament began a popular movement to make banking secrecy a fundamental right in the constitution. Things stayed (almost) status quo for a few years.
Raoul Weil was charged with helping 20,000 Americans conceal $20 billion to avoid taxation (the U.S. loses an estimated $100 billion a year because of tax havens).
Over the next year, the U.S. demanded that UBS release information on 52,000 accounts of American citizens. UBS handed over only 300 accounts, saying to do more would violate Swiss banking secrecy laws.
Swiss President and Finance Minister Hans-Rudolf Merz said it would share information only on the receipt of 'detailed requests on individual cases from other countries', The Wall Street Journal reports. A black market data industry sprang up.
The conciliatory tone was a result of the organisation for Economic Cooperation and Development (OECD)'s blacklisting of Switzerland as an uncooperative tax haven. It ultimately signed 18 treaties with its most important partners.
In late 2009, the Swiss government agreed to hand over information on 4,450 UBS accounts to the IRS, and pay a $780 million fine, in return for them dropping their demand for data on 52,000 accounts. But six months later, it withdrew this promise, claiming the Swiss courts had declared it unconstitutional.
The Swiss authorities continued to negotiate with their American counterparts.
At the same time, data breaches in the banks led to high-profile fines and a huge about of embarrassment
Credit Suisse and Julius Baer had to pay German authorities $200 million and $66 million respectively to settle investigations prompted after unknown thieves stolen hundreds of account details of clients with potentially undeclared holdings.
HSBC suffered a similiar fate, after information about more than 100,000 accounts was stolen by an IT employee and passed on to French investigators.
In the U.S. Justice Department and IRS's attempts to broaden the net to catch more errant Swiss banks, fell Wegelin and Co., Switzerland's oldest and biggest private bank, founded in 1741.
Wegelin was forced to sell all its non-US assets to fellow Swiss bank Raiffeisen in an attempt to protect its healthy European operations from the consequences of the U.S. tax evasion investigation.
Switzerland has finally given U.S. authorities data on bank employees who served American clients suspected of evading taxes. But there's a catch. The data is encrypted. 'We will only decode when we have found a solution with the United States on all the banks that are under discussion,' finance minister Eveline Widmer-Schlumpf told Swiss television, Reuters reports.
The data transfer came after U.S. authorities set a January 30 deadline for banks under investigation to deliver data on their U.S. offshore business or face prosecution.
Switzerland is walking a fine line between trying to defend its tradition of secrecy and appease foreign governments.
'It seems the U.S. is shooting at everything in sight and we don't know when it's going to stop. I think the chances of another bank being indicted are pretty big,' a Geneva private banker told Reuters.
'After all, why should the U.S. stop? Switzerland is small, it's an easy target, but a lot of money can be made out of it. When this whole thing started we didn't know how far the U.S. would go, but now we've found out.'
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