Some facts about Swiss banking secrecy

When Swiss banking is mentioned in the U.S., it is usually identified with banking secrecy. Stories in popular media (i.e., movies, television and books) have created two contradictory pictures: One is that Swiss banking secrecy hinders law enforcement officers from prosecuting criminals, while the second is that Swiss banking secrecy does not exist anymore. Neither of which is true.

The basic position in Swiss civil law is that the information regarding a customer and the customer’s financial dealings is protected as part of the individual’s legal right to privacy. This has been made part of Article 28 of the Swiss Civil Code, and it not only protects the information, but makes the individual who violates the secrecy liable to pay damages to the customer. Additionally, in Switzerland it is a criminal offense for a banker to divulge information about a customer in violation of the law, punishable by fine or imprisonment. If such a violation occurs, both the bank and the bank employee may be subject to various penalties.

A bank can only disclose information when allowed to do so under existing statutory provisions or by a Swiss court order, which must be founded on law. Secrecy is interpreted so broadly that it is illegal for a bank to say whether or not a person is a customer, since if the bank failed to do so it would be implying that the person was a customer.

The right to secrecy is a right that belongs to the customer and not to the bank. It is the customer’s privacy that is protected by law. The bank’s customer can waive the secrecy, but the bank cannot. For instance, the customer may waive secrecy and request that the bank give a credit reference to a specific creditor. But such a waiver is valid only if the customer acts voluntarily and not under duress. Therefore, waivers that were signed pursuant to foreign court orders which compelled a customer to sign a waiver may be invalid. A financial institution cannot ask the government for an order waiving secrecy, only the customer can.

Contrary to popularly held belief in the U.S., Swiss secrecy is not absolute. Secrecy can be overridden by statutory provisions which compel the release of information. Such rules requiring disclosure of information, usually with a limited scope, can be found in Swiss inheritance law ,in enforcing judgments from creditors, and in bankruptcy or in divorce.

The most widely known limitation on secrecy is in treaties concerning Swiss cooperation in foreign criminal matters. Secrecy can be lifted by court order in a criminal investigation conducted in Switzerland of a Swiss crime committed by a Swiss citizen,. Treaties extend this possibility to foreign crimes by foreign citizens in foreign investigations, but only in the circumstances spelled out in the treaties. Before a foreign legal assistance request for Swiss financial records can be honored the following conditions must be met:

Compulsory disclosure is possible only if the offense being prosecuted is punishable as a criminal offense in both countries (the requesting state and Switzerland).

In tax cases, assistance is available to foreign prosecutors only if the investigated violation of foreign tax laws would qualify under Swiss law as tax fraud and not merely as tax evasion. Tax evasion is simply the failure to declare income or assets for taxation, while tax fraud is distinguished by the fact that “fraudulent conduct” is involved. Normally “fraudulent conduct” can only be assumed if forged documents are used.

There is a special provision of the Swiss-United States Treaty on Mutual Assistance in Criminal Matters providing Swiss legal assistance to U.S. prosecutors even in tax evasion cases if they are conducting an investigation against an organized crime group.

As a general rule, information obtained in Switzerland through a legal assistance procedure may not be used for investigative purposes nor be introduced into evidence in the requesting country in any proceeding relating to an offense other than the offense for which assistance has been granted. It must be emphasized that foreign authorities or foreign courts cannot directly ask a Swiss bank for information. Even in cases in which legal assistance can be granted and therefore secrecy is lifted, only a Swiss court order which, in these cases is based upon a foreign request for legal assistance, can lift secrecy.

Considering all of this, it can be said that secrecy is strict and is put aside only in cases clearly defined by Swiss law and pursuant to Swiss rules. However, secrecy is not absolute nor does it protect criminals.

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