Switzerland: The Grandfather of Banking Secrecy
Over the course of the past few years, we have all heard sometime that Switzerland is the country which is the go to destination for the rich to stash their money without anyone knowing. Its banking systems have been veiled in rumour and secrecy, since it is out of reach for the common man to open a bank account in the banks that house billions of dollars in money and assets for the world’s uber-wealthy.
The French writer and historian Voltaire, once remarked that if one sees a Swiss banker jump from the roof of a building, one should make sure to follow him, for there must be a guaranteed chance of profit within it. Such a reputation around the country’s banking system has not been established recently, with the banking codes of the country having been laid down centuries before, which only reinforces the fact that the Swiss do not like to share their money, chocolate and privacy.
The governance protocols for the Swiss Banking systems were first established in the 18th century, where the Grand Council of Geneva in the year 1713 decided to establish a code of secrecy that would only allow the provision of information to the person that possessed a bank account with the bank, and no one else. Such a rule was criticized, since it was seen as an attempt for the country to conceal tax filings, and therefore, provide the rich with a chance to evade taxes on the exorbitant amount of money that they made.
Most of the money received by Switzerland which allowed it to begin its banking systems came from the French monarchs that wanted to ensure that their money stashes stayed safe in the wake of the French Revolution. Furthermore, the banks even started to insure deposits in case of any losses faced by the bank, and when the Congress of Vienna successfully established Switzerland as a neutral country, there was a huge influx of capital within its economy.
The banking systems of the country became a safe haven for the aristocrats of Britain, Spain and France. Once the Swiss Federation was officially formed and founded in 1848, the state contributed to the political stability that was critical for banking safety. Additionally, due to being a landlocked country with an abundance of mountain valleys, it was easy for banks to drill underground vaults and storages that housed the gold and diamonds it received.
These were the events that solidified the country as the world’s capital for banking. Its banking laws, coupled with its geopolitical identity provided the perfect haven for aristocrats to seek the aid of the country’s banking system to protect their riches.
Over the course of the next few decades, the Swiss banks were used for some extremely damning reasons. After the onset of World War 1, when European nations began to increase taxes to fight the war, people fled to Switzerland to protect their assets. Despite of the disclosure of client information being a punishable civil offence in the country for centuries, the Swiss Federal Assembly in 1934 made it a criminal offence. Talk about keeping secrets for a living.
After the onset of World War 2, the country also collaborated with Nazi Germany for storing their gold and cash balances in underground vaults, and also for the provision of transferring assets from the Jewish population to the state of Nazi Germany. On the other hand, it also maintained balances for the Jewish population of Nazi Germany after the passing of its Banking Law in 1934, to protect the “enemies of the state.”
Then over the course of the next few decades, the banks (UBS and Credit Suisse being the most prominent Swiss banks) were fined hundreds of millions of dollars for dealing with Nazi Germany, but however, could not be strongarmed into revealing client information, which they maintained over those very decades.
Then comes the onset of the Financial Crisis of 2008. After an international multi state investigation about the country’s role in the provision of tax evasion in the USA, UBS entered into a deal with the Department of Justice, which led to the initiation of the Birkenfeld Disclosure, which lead to the disclosure of information of more than 4,000 clients. The Birkenfeld Disclosure was named after Bradley Charles Birkenfled, who was an American private banker turned whistle-blower. He was responsible for the reporting of disclosures about the AG clients of the UBS Group, in violation of the Swiss Banking laws, about tax evasion in the US.
Then over the course of the next few years, the country entered into deals that allowed for the disclosure of client information, but only to a certain extent that was in accordance with their Banking Law of 1934, ensuring that any such deals that they entered into did not override their most important legal provisions that allowed the country to become the centre of banking system of the world.
Such events included the adoption of the International Convention on the Automatic exchange of Banking Information in 2017, which provided information of clients, which encompassed their name, address, tax number, domicile, date of birth and account number, but only for the purpose of tax auditing. They did still not provide information regarding the amount of money deposited by clients, and even any other assets like art held by their clients. This measure ensured that they stayed true to their Banking Law of 1934, allowing the country to still be the epicentre for aristocrats to come and stash their money.
This history of the country’s banking system just prove one thing: There will always be somewhere in the world that would allow the rich to stay rich, because the only thing that the rich fear other than someone being even richer than them, is the fact of losing their fortune. As a result, there will always be a need to stash money, be it Switzerland or somewhere else. However, The Swiss Banking System will always remain the “grandfather of banking secrecy”, and shall always be more infamous than famous.