Category Archives: History

Are Swiss Banks Private like in the Movies?

Swiss bank have for a long time been iconic for big wealth and pseudonymous for privacy. Popular movies have long depicted Swiss numbered bank accounts as being no questions asked lock boxes to store your ill gotten gains but Swiss banking has changed.

Remember the days of those James Bond villains carrying the steel briefcase with a telephone in it ready to receive the wire for that big extortion? At one point in history, Switzerland had one the most developed and secretive banking sectors of the world. It’s wasn’t by any means unsupervised but was infamously secretive. During World War 2 Swiss banks were known to carry accounts for both sides of the conflict, to everyone from victims of war to high ranking official and pillagers alike. Parts of high French society were exposed to have made large deposits to evade French taxes when Swiss banks were actively financing the Germans. In 1934 the Swiss government restructured regulation on banking through the Federal Act on Banks and Savings Banks granting account holders privacy from all non-Swiss third parties. Individual accounts were, and still are identified by number and every number corresponds with another number to identify the client. It’s a form of natural encryption which is the basis of many important digital currencies today (encrypted digitally of course). This form of encryption, is only as private as its intermediary settling the transaction which until the 1990s was the bank itself.

Banking in Switzerland today is supervised by the Swiss Financial Market Supervisory Authority (FINMA). Over the last decade due to overwhelming political pressure from many G20 nations, repeals to an important law that was granting much of the privacy were discussed. In 2009, Swiss authorities indicated that changes were to be made to a certain portion of the act, where banks would only reveal private information in cases of serious crimes, tax evasion not being one of them. In 2013, authorities further indicated that they were going to align with standard G20 banking practices but no material change has been made since.

The loophole mentioned by many G20 economic pundits relies on the fact that in Switzerland the act of not reporting earned income is considered tax evasion and not tax fraud. Authorities simply don’t view tax evasion as a serious enough offence to breech privacy. From a Swiss stand point, its makes economic sense because they are earning domestic deposits while reducing a foreign countries tax base. Switzerland is definitely the rich guy on the block.

Since 2009, there have been many lawsuits directed toward Swiss banks (such as UBS for $780M) but an increase of political pressure has been applied on Swiss banking authorities and privacy has been breached. Foreign governments have been successful in lobbying Swiss banking authorities to reveal information making other banking jurisdictions more attractive. With the current global climate, these havens will move around. Switzerland has comparatively vast political clout.

You’re better off going to Switzerland to ski because now a days, if you are looking to hide ill gotten gain, Switzerland is not at the top of your list.

This nostalgic subject brings up an interesting topic in economics and it’s the role of privacy within our transaction system and our world. What amount of privacy is acceptable and in what circumstances? What is money laundering if not hiding wealth accumulated from what would be considered shady activities. I think that with evolution of our financial system and communication, these subjects are going to become increasingly important as mining your data is progressing in use and effectiveness. How private should your money be?