Swiss Bank Account

Despite a dearth of natural resources, Switzerland is one of the world's most advanced and prosperous nations. Per capita income is among the highest in the world, as are wages. Switzerland is a beautiful country without any raw materials. Its raw material is money, mostly foreign money from wherever it comes (flight capital from the developing countries; tax evasion money; corruption money, etc.).

Switzerland, the world's biggest offshore financial center, with $2 trillion in assets under management, is under pressure from both the EU and the United States to end bank secrecy as cash-strapped states seek to stop tax evasion. Swiss banks are believed to hold vast sums of money in accounts owned by Americans who have not disclosed their holdings to U.S. tax authorities. Bank secrecy has long held a certain charm. In fact, mystery writers have utilized the Swiss Bank as the central focus of intrigue. Where else would one think to store the secrets of the holy grail but in a Swiss bank account, as was the case in the novel the "Da Vinci Code". But events in recent years have chipped away at this polished veneer to reveal some rather unseemly criminal behavior.

Media reports indicate criminals attempt to launder illegal proceeds in Switzerland from a wide range of criminal activities conducted worldwide. These illegal activities include, but are not limited to, financial crimes, narcotics trafficking, arms trafficking, organized crime, terrorist financing and corruption. Although both Swiss and foreign individuals or entities launder money in Switzerland, foreign narcotics trafficking organizations, often based in Russia, the Balkans, Eastern Europe, South America and West Africa, dominate the narcotics-related money laundering operations in Switzerland.

As of 2013 there were 21 casinos in Switzerland. Every casino must obtain a concession from the Federal Council (highest authority of the executive branch) that needs to be renewed every 20 years. While generally well regulated, there are concerns about the use of casinos to launder money. One possible method involves the structuring of cash purchases of casino chips or tokens to avoid reporting requirements and subsequently redeeming the chips for checks drawn on, or wire transfers from, casino bank accounts. Corrupt casino employees also have facilitated drug money laundering activities.

Swiss and other European banks had played a critical role as financial intermediaries for the German government during World War II. Swiss banks in particular had also become fiduciaries during the 1930s for the assets of Jews from all over Europe. Ironically, the extensive bank secrecy laws that seemed ideally suited to protect individuals from coercive governmental takings before the war facilitated the confiscation of accounts after the war ended. Substantive research interest in Holocaust-Era Assets began in 1996 with various issues related to Swiss dormant bank accounts and gold looted by Nazi Germany. Within several years interests expanded to include, among other things, looted cultural property (including books, archives, manuscripts, and Jewish communal property), looted art works, unpaid and unclaimed insurance policies and issues surrounding slave and forced labor.

The Swiss Bank secrecy law is part of Article 47 of the comprehensive Swiss Bank Act of 1934. This Article apparently had some of its origins with the Nazis gaining power in Germany in 1933. The Nazis began issuing a series of laws designed to impose tight monetary controls. They were enacted with the idea of regaining value for the German mark. But the return to economic stability was made difficult by a massive flight of capital out of Germany. Many Germans, fearful of the Nazi regime, converted their savings into harder currencies on deposit in other countries. Many Germans deposited their funds in Swiss banks.

The Nazis, concerned with this flight of capital, enacted laws to reverse the flow of funds. Germans were forbidden to send money abroad or to hold funds in foreign accounts. Those who owned accounts abroad were required to disclose the accounts to the Nazis. To not make a report or not arrange for the repatriation of the funds subjected one to the death penalty. The Gestapo, was assigned the responsibility for seeking out and gaining possession of the funds and punishing the transgressors. Gestapo agents were sent to numerous countries, including Switzerland, with instructions to find German-owned bank accounts. The agents employed various means to obtain information from bank employees, including bribes and threats. Agents would sometimes attempt to make deposits to the credit of a suspected account holder. In the event that the deposits were accepted by the bank, the existence of the account was considered confirmed. Once an account was discovered, the Gestapo would instruct the owner to request the immediate withdrawal of the assets, to be returned to Germany.

The Swiss bankers announced that they would not longer accept withdrawal orders from German citizens unless the owner of the funds appeared in person and alone. In 1934, the Nazis tried and executed three German citizens for the crime of owning foreign bank accounts. The Swiss, realizing that bank information leaks could result in further execution, enacted Article 47, or the bank secrecy act. To some degree, the legislation merely provided the legal basis for what had formerly been general practice among Swiss banks. It was significant, however, in that the law provided severe criminal penalties for violators. The law also provided severe penalties for those compromising secrecy by negligence as well as for anybody attempting to induce others to break the confidentiality of customers' deposits.

Switzerland is a major international financial center. The country’s central geographic location, relative political, social, and monetary stability, the range and sophistication of financial services it provides, and its long tradition of bank secrecy not only contribute to Switzerland’s success as a major international financial center, but also continue to expose Switzerland to potential money laundering abuse.

In response to several scandals, Switzerland and Luxembourg have passed legislation aimed at preventing tax fraud and money laundering. In 1991 newly passed legislation in Switzerland limited bank secrecy, which heretofore allowed banks to refuse investigations by U.S. tax authorities and prohibited negligent and intention violations of confidence. In addition, the European Commission (EC) has drafted directives to oblige financial institutions to report suspicious deals to national authorities and to criminalize money-laundering activities related to drugs, terrorism, and other serious crimes.

In February 2009, the US Justice Department Tax Division shattered Swiss banking secrecy through a landmark deferred prosecution agreement with Swiss banking giant UBS AG. The agreement required UBS to pay $780 million to the United States and to produce more than 200 customer files for taxpayers with undeclared accounts. Using these files, the Tax Division and USAOs quickly began to prosecute tax evaders with undeclared accounts at UBS and other foreign banks.

The UBS deferred prosecution agreement set off a tidal wave of applications to the Offshore Voluntary Disclosure Initiative (OVDI) in its various forms, which was crafted in the wake of the UBS deferred prosecution agreement. The IRS s confirmed that by early 2013 more than 38,000 taxpayers had sought to avoid criminal prosecution by disclosing to the IRS all facts relating to their offshore bank accounts, including the bank, bankers, and other professionals who assisted them, and by paying back taxes, interest, and other penalties, typically between 12.5 percent and 27.5 percent of the highest aggregate balance in the undisclosed offshore bank accounts during the period covered by the voluntary disclosure. Payments to the United States under the OVDI then totalled more than $5.5 billion.

The revelations of aggressive facilitation of tax evasion by the Swiss banking titan, UBS, gave a public face to the longstanding suspicion that a major segment of the international banking community is fundamentally corrupt. Of course, no knows for sure how many banks have engaged in the types of practices for which UBS has been called to account.

On February 2, 2012, a grand jury sitting in the Southern District of New York indicted Wegelin & Co., Switzerland’s oldest bank, for conspiring with United States taxpayers to defraud the IRS, evade taxes, and file false returns from 2000 through 2011. The indictment alleged, among other things, that in 2008 and 2009, Wegelin opened and serviced dozens of new undeclared accounts for taxpayers in an effort to capture clients lost by UBS in the wake of widespread news reports of the Tax Division’s criminal investigation of UBS. Wegelin’s senior management affirmatively decided to capitalize on the business opportunity presented by UBS’s exit from the undeclared offshore banking business to increase Wegelin’s assets under management and the corresponding fees.

Under the direction of Wegelin’s senior management, certain Wegelin client advisers told taxpayers fleeing UBS that Wegelin would not disclose undeclared accounts to the IRS because the bank had a long tradition of secrecy. Some client advisers also persuaded taxpayers to transfer assets from UBS to Wegelin by emphasizing that, unlike UBS, Wegelin did not have offices in the United States and was therefore less vulnerable to United States law enforcement pressure than UBS. On January 3, 2013, Wegelin pled guilty before the Honorable Jed S. Rakoff to the conspiracy charge in the indictment. In its plea agreement, Wegelin agreed to pay $20 million in restitution to the IRS, a fine of $22.05 million, and civil forfeiture of $15.8 million.

In the wake of the Wegelin conviction, Swiss banks have largely stopped doing business with U.S. taxpayers, so much so that US citizens living in Switzerland find it extremely difficult to open a bank account or get a mortgage. The US Constitution permits, consistent with constitutional due process, the extraterritorial application of federal criminal law to non-citizens acting entirely abroad when the aim of that activity is to cause harm inside the United States or to U.S. citizens or interests.

The European Union called on Switzerland to agree to swift and unconditional negotiations on the introduction of an automatic exchange of banking information – doing away with banking secrecy to crack down on tax evasion by foreign asset holders. “It is widely accepted that the era of banking secrecy is over. Resisting the clear international trends for more transparency and information sharing is pointless,” EU tax commissioner Algirdas Semeta told journalists following talks with Swiss finance minister, Eveline Widmer-Schlumpf, in the Bern on 17 June 2013.

US investigators have demanded that a Swiss disclosure plan be in place by 01 July 2013. Swiss Finance Minister Eveline Widmer-Schlumpf warned lawmakers that if the country's secrecy laws are not relaxed to allow the banks to pass on the information, U.S. authorities are planning to bring criminal charges against them.

Swiss lawmakers balked at ending the country's long-time bank secrecy tradition so the financial institutions can tell U.S. authorities about suspected American tax evaders. The lower house of the Swiss parliament voted overwhelmingly on June 18, 2013 to not discuss a government proposal that would have given the Alpine country's 300 banks the right to talk to American investigators about the secret accounts of wealthy investors. The rejection sent the measure back to parliament's upper house for more discussion. The upper house approved the plan last week, but critics have called the end to strict bank secrecy a violation of Swiss sovereignty.