Bank secrecy

Last updated
Switzerland is known for its bank secrecy and strict bank-client confidentiality. Pictured: the Swiss Alps, the location of many underground storage bunkers for gold. Gornergrat in Wallis, Switzerland, 2012 August.jpg
Switzerland is known for its bank secrecy and strict bank–client confidentiality. Pictured: the Swiss Alps, the location of many underground storage bunkers for gold.

Banking secrecy, [1] [2] alternately known as financial privacy, banking discretion, or bank safety, [3] [4] is a conditional agreement between a bank and its clients that all foregoing activities remain secure, confidential, and private. [5] [6] While some banking institutions voluntarily impose banking secrecy institutionally, others operate in regions where the practice is legally mandated and protected (e.g. off-shore financial centers). Almost all banking secrecy standards prohibit the disclosure of client information to third parties without consent or an accepted criminal complaint. Additional privacy is provided to select clients via numbered bank accounts or underground bank vaults. Most often associated with banking in Switzerland, banking secrecy is prevalent in Luxembourg, Monaco, Hong Kong, Singapore, Ireland, Lebanon and the Cayman Islands, among other off-shore banking institutions.

Non-disclosure agreement contractual agreement not to disclose specified information

A non-disclosure agreement (NDA), also known as a confidentiality agreement (CA), confidential disclosure agreement (CDA), proprietary information agreement (PIA) or secrecy agreement (SA), is a legal contract between at least two parties that outlines confidential material, knowledge, or information that the parties wish to share with one another for certain purposes, but wish to restrict access to or by third parties. Doctor–patient confidentiality, attorney–client privilege, priest–penitent privilege, and bank–client confidentiality agreements are examples, often not enshrined in a written contract between the parties.

Economic security or financial security is the condition of having stable income or other resources to support a standard of living now and in the foreseeable future. It includes:

Confidentiality involves a set of rules or a promise usually executed through confidentiality agreements that limits access or places restrictions on certain types of information.

Contents

Otherwise known as bank–client confidentiality or banker–client privilege, [7] [8] the practice was started by Italian merchants during the 1600s near Northern Italy (a region that would become the Italian-speaking region of Switzerland). [9] Geneva bankers established secrecy socially and through civil law in the French-speaking region during the 1700s. Swiss banking secrecy was first codified with the Banking Act of 1934, thus making it a crime to disclose client information to third parties without their consent. The law, coupled with a stable Swiss currency and international neutrality, prompted large capital flight to private Swiss accounts. During the 1940s, numbered bank accounts were introduced creating an enduring principle of bank secrecy that continues to be considered one of the main aspects of private banking globally. Advances in financial cryptography (via public-key cryptography) could make it possible to use anonymous electronic money and anonymous digital bearer certificates for financial privacy and anonymous Internet banking, given enabling institutions and secure computer systems.

Italians nation and ethnic group native to Italy

The Italians are a Romance ethnic group and nation native to the Italian peninsula and its neighbouring insular territories. Most Italians share a common culture, history, ancestry or language. Legally, all Italian nationals are citizens of the Italian Republic, regardless of ancestry or nation of residence and may be distinguished from people of Italian descent without Italian citizenship and from ethnic Italians living in territories adjacent to the Italian Peninsula without Italian citizenship. The majority of Italian nationals are speakers of Italian, or a regional variety thereof. However, many of them also speak another regional or minority language native to Italy; although there is disagreement on the total number, according to UNESCO there are approximately 30 languages native to Italy.

Northern Italy geographic region of Italy

Northern Italy is a geographical region in the northern part of Italy. Non-administrative, it consists of eight administrative Regions in northern Italy: Aosta Valley, Piedmont, Liguria, Lombardy, Emilia-Romagna, Veneto, Friuli-Venezia Giulia and Trentino-Alto Adige/Südtirol. As of 2014, its population was 27,801,460. Rhaeto-Romance and Gallo-Italic languages are spoken in the region, as opposed to the Italo-Dalmatian languages spoken in the rest of Italy.

Swiss Italian

The Italian language in Switzerland or Swiss Italian is the variety of the Italian language taught in the Italian-speaking area of Switzerland. Lombard is spoken natively by about 350,000 people in the canton of Ticino and in the southern part of Graubünden, but is considered Italian for official purposes.

Switzerland

United States

Europe

Overseas territories

Mobster Al Capone was charged with and prosecuted for income tax evasion in the 1930s. Al Capone in 1930.jpg
Mobster Al Capone was charged with and prosecuted for income tax evasion in the 1930s.

Numbered bank accounts, used by Swiss banks and other offshore banks located in tax havens, have been accused by the international community of being a major instrument of the underground economy, facilitating tax evasion and money laundering. [10] After Al Capone's 1931 condemnation for tax evasion, according to journalist Lucy Komisar:

Numbered bank account

Numbered bank accounts are bank accounts where the identity of the holder is replaced with a multi-digit number known only to the client and select private bankers. Although these accounts do add another layer of banking secrecy, they are not completely anonymous as the name of the client is still recorded by the bank and subject to limited, warranted disclosure.

Al Capone American gangster and businessman

Alphonse Gabriel Capone, sometimes known by the nickname "Scarface", was an American gangster and businessman who attained notoriety during the Prohibition era as the co-founder and boss of the Chicago Outfit. His seven-year reign as crime boss ended when he was 33.

Lucy Komisar is a New York City-based investigative journalist.

mobster Meyer Lansky took money from New Orleans slot machines and shifted it to accounts overseas. The Swiss secrecy law two years later assured him of G-man-proof-banking. Later, he bought a Swiss bank and for years deposited his Havana casino take in Miami accounts, then wired the funds to Switzerland via a network of shell and holding companies and offshore accounts. [10]

Meyer Lansky American mob boss

Meyer Lansky, known as the "Mob's Accountant", was an American major organized crime figure who, along with his associate Charles "Lucky" Luciano, was instrumental in the development of the National Crime Syndicate in the United States.

G-Man (slang)

G-Man is an American slang term for special agents of the United States Government. It is specifically used as a term for a Federal Bureau of Investigation (FBI) agent.

A holding company is a company that owns other companies' outstanding stock. A holding company usually does not produce goods or services itself; rather, its purpose is to own shares of other companies to form a corporate group. Holding companies allow the reduction of risk for the owners and can allow the ownership and control of a number of different companies.

Economist and Nobel Prize laureate Joseph Stiglitz, told Komisar:

Nobel Prize Set of annual international awards, primarily 5 established in 1895 by Alfred Nobel

The Nobel Prize is a set of annual international awards bestowed in several categories by Swedish and Norwegian institutions in recognition of academic, cultural, or scientific advances.

Joseph Stiglitz American economist and professor, born 1943

Joseph Eugene Stiglitz is an American economist, public policy analyst, and a professor at Columbia University. He is a recipient of the Nobel Memorial Prize in Economic Sciences (2001) and the John Bates Clark Medal (1979). He is a former senior vice president and chief economist of the World Bank and is a former member and chairman of the Council of Economic Advisers. He is known for his support of Georgist public finance theory and for his critical view of the management of globalization, of laissez-faire economists, and of international institutions such as the International Monetary Fund and the World Bank.

You ask why, if there's an important role for a regulated banking system, do you allow a non-regulated banking system to continue? It's in the interest of some of the moneyed interests to allow this to occur. It's not an accident; it could have been shut down at any time. If you said the US, the UK, the major G7 banks will not deal with offshore bank centers that don't comply with G7 banks regulations, these banks could not exist. They only exist because they engage in transactions with standard banks. [10]

See also

Related Research Articles

Banking in the United States

Banking in the United States began in the late 1790s along with the country's founding and has developed into highly influential and complex system of banking and financial services. Anchored by New York City and Wall Street, it is centered on various financial services namely private banking, asset management, and deposit security.

Bank account collective name for all account types, credit institutions operates for their clients

A bank account is a financial account maintained by a bank for a customer. A bank account can be a deposit account, a credit card account, a current account, or any other type of account offered by a financial institution, and represents the funds that a customer has entrusted to the financial institution and from which the customer can make withdrawals. Alternatively, accounts may be loan accounts in which case the customer owes money to the financial institution.

Bank Secrecy Act 1970 act of the United States Congress

The Bank Secrecy Act of 1970 (BSA), also known as the Currency and Foreign Transactions Reporting Act, is a U.S. law requiring financial institutions in the United States to assist U.S. government agencies in detecting and preventing money laundering. Specifically, the act requires financial institutions to keep records of cash purchases of negotiable instruments, file reports if the daily aggregate exceeds $10,000, and report suspicious activity that may signify money laundering, tax evasion, or other criminal activities.

Banking in Switzerland Foreign-friendly bank regulations

Banking in Switzerland began in the early 18th century through Switzerland's merchant trade and has, over the centuries, grown into a complex, regulated, and international industry. Along with the Swiss Alps, Swiss chocolate, watchmaking and mountaineering, banking is seen as emblematic of Switzerland. Switzerland has a long, kindred history of banking secrecy and client confidentiality reaching back to the early 1700s. Started as a way to protect wealthy European banking interests, Swiss banking secrecy was codified in 1934 with the passage of the landmark federal law, the Federal Act on Banks and Savings Banks.

An offshore bank is a bank regulated under international banking license, which usually prohibits the bank from establishing any business activities in the jurisdiction of establishment. Due to less regulation and transparency, accounts with offshore banks were often used to hide undeclared income. Since the 1980s, jurisdictions that provide financial services to nonresidents on a big scale, can be referred to as offshore financial centres. Since OFCs often also levy little or no tax corporate and/or personal income and offer, they are often referred to as tax havens.

Julius Bär Group AG, known alternatively as Julius Baer Group Ltd., is a Swiss multinational private bank founded and based in Switzerland. Headquartered in Zürich, it is one of the oldest and largest Swiss banking institutions usually noted among fellow banks UBS and Credit Suisse.

Private banking is banking, investment and other financial services provided by banks to high-net-worth individuals (HNWIs) with high levels of income or sizable assets.

Offshore investment is the keeping of money in a jurisdiction other than one's country of residence. Offshore jurisdictions are a commonly accepted means of reducing the taxes levied in most countries to both large and small-scale investors alike. Poorly regulated offshore domiciles have served historically as havens for tax evasion, money laundering, or to conceal or protect illegally acquired money from law enforcement in the investor's country. However, the modern, well-regulated offshore centres allow legitimate investors to take advantage of higher rates of return or lower rates of tax on that return offered by operating via such domiciles. The advantage to offshore investment is that such operations are both legal and less costly than those offered in the investor's country - or "onshore". Locations favored by investors for low rates of tax are known as offshore financial centers or (sometimes) tax havens.

Bradley Charles Birkenfeld is an American private banker, convicted felon, and whistleblower. During the mid- to late-2000s, he made a series of disclosures about UBS Group AG clients, in violation of Swiss banking secrecy laws, to the U.S. government alleging possible tax evasion. Known as the 2007 "Birkenfeld Disclosure", the U.S. Department of Justice (DOJ) announced it had reached a deferred prosecution agreement with UBS that resulted in a US$780 million fine and the release of previously privileged information on American tax evaders.

UBS Swiss bank

UBS Group AG is a Swiss multinational investment bank and financial services company founded and based in Switzerland. Co-headquartered in the cities of Zürich and Basel, it maintains a presence in all major financial centers as the largest Swiss banking institution in the world. UBS client services are known for their strict bank–client confidentiality and culture of banking secrecy. The bank's large positions in the Americas, EMEA, and Asia Pacific markets make it a global systemically important financial institution.

International Consortium of Investigative Journalists International network of investigative reporters

The International Consortium of Investigative Journalists (ICIJ) is an independent Washington D.C.-based international network. Launched in 1997 by the Center for Public Integrity, ICIJ was spun off in February 2017 into a fully independent organisation which includes more than 200 investigative journalists and 100 media organizations in over 70 countries who work together on "issues such as "cross-border crime, corruption, and the accountability of power." The ICIJ has exposed smuggling and tax evasion by multinational tobacco companies (2000), "by organized crime syndicates; investigated private military cartels, asbestos companies, and climate change lobbyists; and broke new ground by publicizing details of Iraq and Afghanistan war contracts."

Rudolf Elmer is a Swiss private banker, whistleblower, and activist. He worked as a banker at Julius Bär from the 1980s to his dismissal in 2002. At the time of his leaving, he was head of the bank's Caribbean operations for eight years. After initial, unsuccessful attempts to disclose client information in 2005, he was arrested by Zürich authorities and held for 30 days.

Hervé Falciani Italo-French whistleblower

Hervé Daniel Marcel Falciani is a French-Italian systems engineer and whistleblower who is credited with "the biggest banking leak in history." In 2008, Falciani began collaborating with numerous European nations by providing allegedly illegal stolen information relating to more than 130,000 suspected tax evaders with Swiss bank accounts – specifically those with accounts in HSBC's Swiss subsidiary HSBC Private Bank.

Federal Act on Banks and Savings Banks

The Federal Act on Banks and Savings Banks is a Swiss federal law and act-of-parliament that operates as the supreme law governing banking in Switzerland. Although the federal law has only been amended seven times, it has been revised multiple times to limit and expand its banking secrecy provisions since its ratification. The banking secrecy provisions in the Federal Act are additionally enforced through multiple civil codes in the federal Swiss Civil Code and locally through cantonal law. In December 2017, the Swiss parliament launched a standing initiative and expressed an interest in formally embedding banking secrecy within the Swiss Federal Constitution rendering it a federally-protected constitutional right.

UBS tax evasion controversies

The Swiss investment bank and financial services company, UBS Group AG, has been at the center of numerous tax evasion and avoidance investigations undertaken by U.S., French, German, Israeli, and Belgian tax authorities as a consequence of their strict banking secrecy practices.

The Common Reporting Standard (CRS) is an information standard for the Automatic Exchange Of Information (AEOI) regarding bank accounts on a global level, between tax authorities, which the Organisation for Economic Co-operation and Development (OECD) developed in 2014.

Swiss Leaks

Swiss Leaks is the name of a journalistic investigation, released in February 2015, of a giant tax evasion scheme allegedly operated with the knowledge and encouragement of the British multinational bank HSBC via its Swiss subsidiary, HSBC Private Bank (Suisse). Triggered by leaked information from French computer analyst Hervé Falciani on accounts held by over 100,000 clients and 20,000 offshore companies with HSBC in Geneva, the disclosed information has been called "the biggest leak in Swiss banking history".

In 2010, the United States implemented the Foreign Account Tax Compliance Act; the law required financial firms around the world to report accounts held by US citizens to the Internal Revenue Service. The US on the other hand refused the Common Reporting Standard set up by the Organisation for Economic Co-operation and Development, alongside Vanuatu and Bahrain.

The Republic of Panama is one of the oldest and best-known tax havens in the Caribbean, as well as one of the most established in the region. Panama has had a reputation for tax avoidance since the early 20th century, and Panama has been cited repeatedly in recent years as a jurisdiction which does not cooperate with international tax transparency initiatives.

References

  1. O'Donnell, John (January 30, 2018). "Global study names Switzerland as capital of bank secrecy". Reuters. Retrieved June 4, 2016.
  2. Gibson, Stuart (April 5, 2017). "Swiss Bank Secrecy---Their Lips Say Yes, But Their Eyes Say No". Forbes. Retrieved June 1, 2018.
  3. Guex (2000), p. 240
  4. Bloomberg Surveillance (January 24, 2018). "Tidjane Thiam Says Markets and Volatility Are Going Up" . Retrieved January 24, 2018.
  5. "Black's Law Dictionary: Bank Secrecy". The Law Dictionary. December 12, 2012. Retrieved June 1, 2018. The bank’s promise to keep financial affairs and dealings of the customer confidential. This doesn’t apply to credit information that is shared freely. Certain information mst also be made available due to antiterrorist legislation.
  6. Staff, Investopedia (November 17, 2008). "Financial Privacy". Investopedia. Retrieved June 16, 2018. It also prohibits the sharing of client information to affiliates of the institution as well. For example: A customer holds a checking account at a bank. The bank has an investment division as well as an insurance division. The bank may give information to the client about the other needs served by their external divisions, but not vice versa.
  7. Thomasson, Emma (April 18, 2013). "Special Report: The battle for the Swiss soul". Reuters. Retrieved May 19, 2018.
  8. Schütz, Dirk (2000). The Fall of UBS: The Forces that Brought Down Switzerland's Biggest Bank. Pyramid Media Group. ISBN   9780944188200.
  9. Guex (2000), p. 237
  10. 1 2 3 Komisar, Lucy (April 4, 2003). "Offshore Banking: The Secret Threat to America". www.thekomisarscoop.com. Retrieved May 18, 2018.

Bibliography