Swiss Drag Out Bank Secrecy Law Change Amid Growing International Pressure

May 10, 2022
A Swiss parliamentary committee has voted against changing the country’s notorious bank secrecy provisions, despite mounting pressure from international and US bodies.

A Swiss parliamentary committee has voted against changing the country’s notorious bank secrecy provisions, despite mounting pressure from international and US bodies.

Late last week (May 6), the Swiss parliamentary subcommittee on the economy and taxes said there is no need to change provisions of the country’s bank secrecy law, which make it a criminal offence to disclose information about bank clients.

The provision, entailed in Article 47 of the Banking Act, effectively hinders whistleblowers and members of the press from disclosing confidential information related to financial crime, even if that would be in the public interest, or else risk criminal prosecution.

The proposal came in response to the Suisse Secrets scandal, which revealed that Credit Suisse, Switzerland’s second-largest bank, helped criminals, dictators, intelligence officials, sanctioned parties and political actors to launder their money.

Friday’s discussion was looking at whether there is a need to table a proposal for the repeal of the article.

The subcommittee has now concluded there is no need to “intervene at the legislative level” as the practices of Swiss banks with regard to the prevention of money laundering and other economic crime activities “have developed considerably in recent years and that they correspond to international standards”.

They argued that changing the Banking Act as proposed could open the door to public accusations against individuals, stressing that so far no journalist has been prosecuted under the disputed article.

The subcommittee’s refusal means that the proposal cannot be fast-tracked but it has been reported that the parliament intends to discuss the matter at a later date.

All eyes on Switzerland

The decision comes amid mounting international pressure from officials in the United States and the United Nations (UN).

Irene Khan, the UN special rapporteur for freedom of opinion and expression, said Article 47 leads journalists to “self-censor”, which is “normally a problem in authoritarian states”.

Should Switzerland fail to act, Khan said she will bring the issue up with the UN’s human rights council in June.

At the same time, the Suisse Secrets investigation has brought the issue of Swiss financial secrecy to the front in the US as well.

Following Russia’s aggression against Ukraine, the Commission on Security and Cooperation in Europe, a US government agency also known as the Helsinki Commission, has started to look at Switzerland’s role in enabling Russian oligarchs to hide the proceeds of their crimes.

In March, the Swiss Bankers Association revealed that Switzerland holds more than $200bn in Russian wealth.

To date, the country has frozen $7bn of this amount.

In a hearing held on Thursday (May 5), the committee discussed how a “compromised” Switzerland affects US national security and whether the country should rethink its strategic bilateral relationship with the country.

The panellists included Magnitsky Act catalyst Bill Browder and the co-sponsor of the act, Roger Wicker (R-MS), as well as representatives of the group that uncovered the Suisse Secrets and from the Basel Institute.

“I would almost say it’s slightly insulting that they’ve only frozen $7bn. That would be 3.5 percent of the oligarch money,” Browden said, stressing that “basically every time there’s a major corruption scandal in a country, Switzerland always shows up”.

The 'draconian' bank secrecy law

Switzerland’s bank secrecy provisions date back almost 90 years to the Banking Act of 1934.

Despite scandals, the country has so far refused to change the law, instead it strengthened the provisions in 2008, when one of the employees of UBS bank shared the data with US authorities during the financial crisis. It then increased the potential jail term for disclosing data from six months to three years.

Although there have been unsuccessful attempts to bring so-called enablers, such as lawyers, into the scope of anti-money laundering (AML) regulations, Suisse Secrets’ contributor Miranda Patrucic noted there have also been initiatives to further obfuscate the identification of beneficial owners.

A recently introduced draft law, for instance, would enable bankers to set up trusts for their clients. This “basically means that the bank employees would act as nominees, which would basically increase the level of secrecy and even people inside the bank would not be able to know who the real client is”, she explained.

Lack of effective enforcement and flawed governance

The bank secrecy law, however, appears to be only one part of the problem.

As Browden pointed out, Swiss supervisory authorities are so unsuccessful that “there is either a criminality or a gross incompetence in law enforcement in Switzerland”.

In addition to the fruitless attempts to prosecute Russian oligarchs, there have been a number of high-profile cases where Swiss supervisory authorities have failed to go after corrupt suspects.

“The case was dropped against a Colombian businessman who was part of the Maduro regime. The case was dropped against Mubarak’s son. The case was dropped against King Juan Carlos of Spain. The case was dropped against Gadhafi’s son.”

“There is something seriously rotten in Switzerland,” Browden said.

Meanwhile, Patrucic argued Swiss banks contribute to the status quo via a number of governance flaws.

Swiss banks have a high reputation, not only because of the strict bank secrecy law but also because there are almost two sets of rules: there is a set of laws for the super rich and another one for the rest, Patrucic said.

“If you have $1m that you’re bringing to the bank, you’re going through an extensive due diligence process. If you are what is called an ultra-high net worth individual and you bring, let’s say $20m, basically the set of rules that applies to you is very different,” she explained.

Banks often have “a very toxic corporate culture”, where employees are incentivised “to look the other way”.

“If you don’t find something or if you don’t look and don’t find something, that’s good.”

"The whole system is based on plausible deniability," she stressed.

Finally, she noted that big banks are used to treating fines and penalties “as a cost of doing business”.

For example, “if you think about the $1.3bn penalty that was imposed on Credit Suisse, that was even tax deductible, which is completely counterintuitive in terms of a fine”, Patrucic noted.

Patrucic has not been the first one to raise that fines and penalties may not have the desired deterring effect on certain large companies. A similar concern has been raised by Margrethe Vestager, European Commission executive vice president for “A Europe Fit for the Digital Age”, in February. Speaking about Apple’s behaviour, she said that some US technology giants may prefer to pay a fine rather than comply with antitrust rules.

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