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Bank client confidentiality
Home | Excerpts, from Switzerland Government Website | Excerpts collected from Private Websites Working on Switzerland banking system | ANOTHER PROGRAM FOR FAST-UNTO-DEATH | Representation 18-05-05 | Representation Dated 9th May 2005 | sp

Subjects
Bank client confidentiality
Legal basis
The Swiss banker’s professional duty of client confidentiality is rooted in
Article 47 of the Federal Law on Banks and Savings Banks, which came into force on 8 November 1934.  The article stipulates that anyone acting in his/her capacity as member of a banking body, as a bank employee, agent, liquidator or auditor, as an observer of the Swiss Federal Banking Commission (SFBC), or as a member of a body or an employee belonging to an accredited auditing institution, is not permitted to divulge information entrusted to him/her or of which he/she has been apprised because of his/her position.

Although the Federal Law refers to “banking secrecy”, it is important to note that this duty of discretion is not intended to protect the bank but the client.  In that sense, the terms “bank client confidentiality” or “financial privacy” are much more appropriate.

Swiss legislation also guarantees respect for privacy in other areas of professional activity, e.g. for doctors or lawyers.  It is a question of protecting personal privacy, a basic right established under the Swiss constitution (Art. 13).

Although a desire for privacy can play an important part in an investor’s decision to deposit his/her assets in a Swiss bank, it is not the sole factor in the decision.  One should not forget that Switzerland’s political and monetary stability, its excellent infrastructure and the professional know-how and experience of its bankers are also attractive factors.

Limits of Swiss bank client confidentiality

A banker’s obligation to respect his clients’ privacy is not absolute and no protection is afforded to criminals.  In particular, there is a duty to provide information under the following circumstances:

- civil proceedings (inheritance or divorce, for example);

- debt recovery and bankruptcies;

- criminal proceedings (money laundering, association with a criminal organisation, theft, tax fraud, blackmail, etc.).  If circumstantial evidence gives rise to a suspicion that the financial assets are the proceeds of a crime, then financial institutions have the right to inform the authorities without thereby breaching bank client confidentiality (Art. 30ter, Par. 2 of the Criminal Code); if the suspicion is well-founded, they must inform the Money Laundering Reporting Office (Money Laundering Act, Art. 9).

-International mutual legal assistance proceedings

Bank client confidentiality and the Swiss tax system

The Swiss tax system is based on the principle that the taxpayer bears sole responsibility for meeting his/her tax obligations via the income tax return.  As a result, the bank is under no obligation to provide information to the tax authorities in connection with tax proceedings or an appeal.  On the other hand, the bank must provide information or supply documents in a case of tax evasion or for an appeal if asked to do so by the client.

Withholding tax is an effective means of fighting tax evasion.  Most income from Swiss capital investments is subject to this 35% tax, deducted at source.  The existence of a withholding tax prompts the person receiving taxable gains to declare them as the law requires, given that investors domiciled in Switzerland and those with tax credits can demand a refund of the tax in full.  This also applies to creditors domiciled abroad, on condition that a double taxation treaty provides for full or partial relief.

Where tax fraud is involved, the offences are dealt with by ordinary criminal proceedings; a banker cannot therefore hide behind bank client confidentiality.  Tax fraud occurs when a taxpayer deliberately uses forged or falsified documents in order to deceive the tax authorities and obtain undue tax advantages.

International mutual assistance in criminal matters

Switzerland assists the authorities of foreign states in criminal matters in accordance with the 1983 Federal Law relating to International Mutual Assistance in Criminal Matters.  The arrangements allow assets to be frozen and if necessary handed over to the foreign authorities concerned.
International mutual assistance in criminal matters is based essentially on the principles of dual criminality, speciality and proportionality.
Under the dual criminality rule, Swiss courts do not use coercive measures – lifting the requirement of bank client confidentiality for example – unless the act being investigated by the court is punishable under the law of both the requesting state and Switzerland.  Under the speciality rule, information obtained through the mutual assistance arrangement can only be used for the purposes of the criminal proceedings for which the assistance is provided.  According to the proportionality rule, the measures sought in conducting the request for assistance must be proportionate to the crime, and discretion must be exercised if the proceedings may adversely affect the interests of persons not directly involved.

International mutual assistance in administrative matters

The Swiss Federal Banking Commission (SFBC) may communicate information not available to the public to the supervisory authorities in foreign countries.  However, the communication of such information is subject to three statutory conditions:

•The information given may not be used for a purpose other than the direct supervision of banks or other financial intermediaries who are subject to official authorisation.  No information may be passed on to tax authorities.
•The requesting foreign authority must itself be bound by official or professional confidentiality, and be the intended recipient of the information.

•The requesting authority may not give information to other authorities or to other public supervisory bodies without the prior agreement of the SFBC or without the general authorisation of an international treaty.  Information cannot be given to criminal authorities in foreign countries if there are no arrangements regarding mutual legal assistance in criminal matters between the states involved.  This policy is designed to prevent states from bypassing the rules governing mutual legal assistance in criminal matters.

If the information to be communicated to a foreign supervisory authority concerns specific clients, the Federal Act on Administrative Proceedings applies.  The client may challenge any decision of the SFBC by bringing an appeal under administrative law before the Swiss Federal Supreme Court.  Both the SFBC and the Swiss Federal Supreme Court must guarantee the client’s right to be heard and his/her right to examine the case file.

Consequences of violating bank client confidentiality

Any violation of bank client confidentiality, whether through negligence or intentionally, is punishable by a prison sentence (maximum 6 months) or by a fine of up to CHF 50,000 (CHF 30,000 in case of negligence).  Violating bank client confidentiality remains a punishable offence even after the relationship with the client has come to an end or the banker has ceased his/her professional activity (Art. 47, Federal Law on Banks and Savings Banks).

TRUTH SHALL PREVAILS