Swiss Banking Secrecy

In this article, you will learn more about the legal meaning of Swiss Banking Secrecy.

It must be stated that there are many misconceptions on the issue. In 1988, Werner de Capitani, legal counsel for a Swiss bank, wrote:

For a Swiss bank lawyer, there is hardly a more frustrating topic to write about than bank secrecy. It seems impossible to dispel misconceptions about banking secrecy and its constant and unavoidable companion, the totally inaccessible anonymous numbered account. Even sophisticated people tend to believe the dramatic depictions of crime novelists […]. [1]

What about you, our learners – did you encounter ‘the totally inaccessible anonymous numbered account’ in the illustrations that you looked at in Step 1.12?

So, what then is banking secrecy from a legal point of view? Its basis is the individual right to privacy, in this case, the right of the client of a bank. Note that this concerns only natural persons, not companies. The Swiss Banking Association explains on its website: ‘Bank-client confidentiality […] is comparable to the professional duty of confidentiality and as such, equivalent to that of doctors or lawyers.’

Confidentiality provisions can be found in the Swiss banking and stock exchange legislation. In practice, there are two aspects of banking secrecy, one concerning the banking business itself and the other concerning taxation. First, the Swiss Banking Act contains a provision on secrecy. It obliges the bank to keep confidential information about the dealings of individuals with the bank as well as about the existence of an account, about the client, and about this person’s transactions. Banks must not pass on such information to other individuals.

Second, banking secrecy also means that, in principle, Cantonal authorities (and only those) cannot obtain information about persons subject to income tax from the bank. Under Swiss law, breaching bank secrecy is a criminal offense. However, there are certain situations when banking secrecy is lifted. These include, for example, the case of criminal proceedings against a person for tax fraud, ie the case where the taxpayer submits false, forged, or inaccurate documents to the tax authorities (though not in the case of tax evasion which does not involve such practices).

Against this background, we can conclude that ‘the totally inaccessible anonymous numbered account’ is indeed a myth, as stated by Mr de Capitani.

Finally, a last but important element: if the Cantons cannot obtain information from the banks for income tax purposes, how then to make sure that people in Switzerland nevertheless state their income in the tax return, in line with their legal obligations? Here, a system of withholding taxes provides for a powerful incentive. In practice, this means that for example, a bank deducts the tax from the interest that it pays to its clients. Subsequently, the clients will get the withheld tax back if they declare the income in their tax returns. Note that, in order to protect Swiss Banking Secrecy, this same system was also included in a bilateral agreement concluded between Switzerland and the European Union in 2004, concerning the Taxation of Savings in cross-border situations (eg of savings an EU citizen derived from money in a Swiss bank account).

At the time when this agreement was concluded, some Member States in the EU had similar rules as Switzerland. In their relations with the other EU Member States, they were granted similar regimes like that of Switzerland. In contrast, the other EU Member States followed a different route, namely that of the automatic exchange of information. As a next step in our course, we will turn to this different approach and we will learn how it eventually also found its way into Switzerland.

At the end of this step, you may wish to reflect on what you think about (Swiss) Banking Secrecy against the background of the above information.

Further reading

For legal details on Swiss Banking Secrecy, consult the unofficial English translation of the relevant provision Swiss Banking Act, Art. 47.

Two examples of articles written, some time ago, on the limits of Swiss Banking Secrecy:

• Maurice Aubert, ‘The limits of Swiss Banking Secrecy under Domestic and International Law’, Berkeley Journal of International Law: International Tax and Business Law 2 (1984) 273.
• Olivier Dunant & Michele Wassmer, ‘Swiss Banking Secrecy: Its limits under Swiss and International Law’, Case Western Reserve of International Law 20 (1988) 541.

References

[1] Werner de Capitani, ‘Banking Secrecy Today’, International Law Journal / University of Pennsylvanie Journal of International Business Law 10 (1988), Article 2.