The two explanations for intensifying Swiss bank secrecy in 1934 are not mutually exclusive. They both shed light on how bank secrecy had been viewed during the draft of the federal law passed in 1934. On one hand, the notion was clearly formulated in an article devoted solely to bank secrecy, in response to attacks from French Socialists; on the other hand, it included a criminal sanction due to German customs espionage.

The work of the Commission of Experts, which was made up of Socialist representatives and rural communities, studied the various articles of the draft legislation. The representatives of the banking sectors made no objection to formalizing bank secrecy. The National Bank was in favor of a provision that would help fight against bank espionage. The records of the debates, as well as of the commissions and of Parliament, reveal that the enshrinement of bank secrecy had not caused the slightest controversy.

The Socialists did not object to recognizing bank secrecy by law - a silence that contrasted heavily with their actions over the past 20 years. But they had understood that this law not only allowed foreign capitalists to keep quiet about their deposits, but it also helped political refugees or victims of political or racist persecution to protect their property. In any event, even if the left-wing votes were welcome in this debate, in accordance with the Swiss tradition of consensus, they were not indispensable in order for the law to be passed by majority in the two Chambers.

So although there was no cause and effect relationship between the persecution of German Jews and Swiss bank secrecy, they were the first to benefit from this law of far-reaching general intent. To achieve this result, and in such a way, it was necessary to be Swiss and possess two qualities: wisdom and slow-but-sure progress, applied to a system that favors sound and loyal resistance over time.

In 1934, the Swiss Federal Parliament explicitly introduced the notion of bank secrecy for the first time in a section of the law and created criminal sanctions for the violation thereof. There are two traditionally accepted interpretations of this event: Nazi espionage and pressure from the French Left.

The historian Peter Hug maintains that the origin of the Swiss secrecy is to be found in France. In 1932, the radical Herriot government was supported by the Socialist party. The international financial crisis made preparing the national budget a perilous exercise. Herriot had planned an austerity program that was difficult to defend before a left-wing parliament. That was when the Basler Handelbank affair broke out.

The president and vice-president of the commercial bank in Basle were arrested by the French police. In their trunks, the Parisian investigators found the list of 2,000 French clients who had confidentially deposited their holdings in Switzerland. They represented all of French high society: a few senators, a former minister, bishops, generals and manufacturers.

The Chamber of Deputies set the stage for a raging debate. The Socialist deputy Fabien Albertin denounced capitalism and tax deserters. As he had ties with the central customs office, he was able to obtain a copy of the list of the accused and revealed its contents in defiance of State secret. He assessed the amount of the French tax loss at 9 million francs and called for the government to organize a genuine tax extradition through agreements with the other countries. The Minister of Finance jumped at the opportunity and announced that he would negotiate with the Swiss government for legal authority over the accounts of French citizens. The Left supported the initiative and demanded an inventory of French taxpayer assets in order to avoid any tax desertion whatsoever. To no avail, the Right denounced a maneuver that aimed only to justify passing an austerity budget.

The debate was relayed in the French press. Le Figaro, representing the interests of the Right, waxed indignant over an anticonstitutional debate, in which the separation of powers and State secret had been flouted. What is more, this newspaper recalled that the deputies paid tax on only half of their premiums, while a small group of 8,600 taxpayers - downright "suckers" - paid half of the global tax.

As for the Communist paper L'Humanité, it denounced the "2,000 bourgeois compromised in a massive organized tax fraud scandal". A list of 150 names was published, while the newspaper Le Temps gave way to black humor: "Contraband is not something to be reprimanded. The government was wrong and whoever manages to wrong it is hailed by all".

The Handelsbank bankers were questioned and summoned to open their registers. They sought refuge behind the jurisprudence of the Federal Court that called upon bankers to retain absolute confidence on their clients' files. There were heavy threats. The Herriot government presented its budget that projected placing bank operations under tax authority surveillance: opening accounts, renting safes, all had to be declared by the banks to the tax administration. But on 18 December the Herriot government was brought down, the affair lost its political clout and became old news. All of the accused benefited from a dismissed case by reason of procedural flaw.

The debate did, however, have a strong impact on Swiss conscience. The increasingly flagrant State interference with the private sphere, as much in France as in Germany, put the country's editorial writers in a flutter. An ever widening gap was forming between this development and the liberal beliefs of the Swiss. Refusing to follow along the same downhill path, they came to a consensus on the necessity to defend bank secrecy and the economic interests of the country as a whole. A country of this size can only defend its independence by means of the law. With no convincing force to affront its powerful neighbors, the Swiss government had to be able to rely on a clear and indisputable law that would prohibit it from violating bank secrecy, even under the influence of pressure.

The first Swiss banking clients were the kings of France - who greatly appreciated the discretion of their money lenders. The Geneva bankers were actually Protestants, who were often of French origin and chased out following the Revocation of the Edict of Nantes by Louis XIV in 1685. Putting the persecution they suffered in France behind them, they continued to finance the King of France from Geneva. At the time there was no better borrower than the king, who had both the ability to pay back his loans and insatiable financing needs. Discretion was of utmost importance, for it could not be made known that the king borrowed from heretic Protestants.

One of the earliest pieces of legislation regulating bank secrecy dates back to this period. In 1713, the Great Council of Geneva (cantonal council) adopted banking regulations which stipulated the bankers' obligation to "keep a register of their clientele and their transactions. They are, however, prohibited from divulging this information to anyone other than the client concerned, except with the expressed agreement of the City Council".

Switzerland then became a political and financial asylum for those fleeing the political upheaval that would tear apart the continent ever since 1789. It provided a profitable safe haven for the funds of noblemen fleeing the Revolution, and the various governments that would follow during the nineteenth century. Napoleon himself was a regular client of one of our partner banks.

In 1934, the Swiss Federal Parliament explicitly introduced the notion of bank secrecy for the first time in a section of the law and created criminal sanctions. Why was this law created? The first and most common explanation is the one taken up by the Swiss Bankers Association, which considers the event to be a political act by the Federal Parliament to demonstrate its independence and its neutrality in the face of the threatening power of Nazi Germany.

In the wake of the 1931 financial crisis, the Weimar Republic introduced strict foreign exchange controls. Many cases of economic espionage led by the German tax and customs authorities were exposed in Switzerland, while the Swiss laws were not sufficient to fight effectively against such practices. In reality, while the German agents risked deportation, at the very most, the German clients who fell victim to violation of bank secrecy were harassed by the Nazi government and forced to empty their Swiss accounts to the profit of the Third Reich.

In early 1933, the Swiss government felt it necessary to incorporate criminal provisions in the legislative enactment it was working on. In that way, the justice system would have more dissuasive weapons to guard against foreign infiltration. The will grew even stronger when Hitler came to power in 1933, with his threatening attitude regarding his political opponents and the Jewish population. In June 1933, the German Nazi government created a series of laws that obliged German citizens to declare all foreign holdings. The penalty prescribed for failing to do so was death: Any German national who, intentionally or unintentionally, led by lowly selfishness or some other type of vile sentiment, has accumulated wealth or kept funds abroad will be punished by death. In July 1933, a law was passed on the confiscation of goods belonging to public or State enemies, so allowing the Nazis to seize all of the German Jews' assets.

The Gestapo was in charge of despoiling operations abroad. One of the procedures they used to determine whether a German had an account in a Swiss bank was the following: an SS agent in civilian dress would walk into a Swiss bank and give the teller a sum of money to deposit into the account of Mr. X, who the Gestapo believed had an account in Switzerland. If the banker agreed to make the deposit, there was proof that an account existed. In some cases, the mere look of discomfort on the teller's face was grounds enough for the secret agent. Then all the Gestapo in Germany had to do was exert major pressure on the presumed bank client to give instructions for the Swiss bank to repatriate the funds. (Note that with numbered accounts, neither tellers nor bank employees know the identity of the account holders, who are thus protected against this type of indiscretion.)

When three Germans were put to death in 1934 for having an account in Switzerland, the Swiss authorities were convinced of the necessity for a strict law on bank secrecy to protect Swiss bank clients by the criminal code. With the threat of imprisonment for any banker who violated bank secrecy, the Swiss government imposed a blocking mechanism against its fascist neighbors' laws of extraterritorial pretense. This protected the clients and the Swiss bankers, since no authority could henceforth constrain them by law to commit a crime.

The tenacious Nazis nevertheless continued to conduct banking espionage on Swiss territory. The most resounding case was in March 1935, with the kidnapping of Berthold Jacob, a German Jewish refugee. Mr. Jacob was kidnapped in Basle by a German agent and taken to Germany. Swiss public opinion was outraged by such violation of Swiss sovereignty. The government finally managed to get Berthold Jacob released, but this event made the Swiss people and authorities acutely aware of the necessity for a law on espionage. A section was added to the criminal code in 1937 and served as an effective complement to the provisions on bank secrecy.

Until 1934, bank secrecy was regulated solely by civil law. A client could lodge a complaint for damages against any bank that neglected its duty of confidence. The cantonal civil rights unified in 1907 by the Swiss civil code and the 1911 labor code provided sufficient guaranties for aggrieved clients to enforce their rights. On the other hand, there was no criminal provision; there was no threat of imprisonment for the banker at fault.

Swiss jurisprudence at the turn of the century would confirm this duty of confidence on several occasions. In 1930, the federal court, the Supreme Court of Switzerland, recalled that "the banker's confidence constitutes an implicit contractual duty". This affirmation was further developed in 1932 in the case of Charpiot versus the Caisse d'épargne de Bassecourt (Bassecourt savings bank): "Bank secrecy is nothing other than the right of each bank client to demand the strictest confidence from the bank in the business affairs with which it is entrusted; it is equally, and conversely, the bank's duty to keep completely quiet about these affairs. For the banker in particular, this duty is independent of the legal relationship between the banker and his or her client. Whether there is a written contract or not, violation of bank secrecy constitutes a wrongful act according to articles 41 et seq. of the labor code".

Jurisprudence and the various provisions of the civil code and the labor code provided a legal framework consistent with bank secrecy. And yet only an explicitly formulated law could impart to this system the strength required to survive the calamity of the twentieth century. The Wall Street crash of 1929 and the depression it inflicted upon Europe in the early thirties created extremely strained international relations. In the face of rising fascism and popular fronts, a legal recognition of bank secrecy was the only way for the Swiss government to openly declare its liberal beliefs and its refusal to interfere in the private affairs of its citizens. This was accomplished by means of the Banking Act passed in 1934.

Swiss bank secrecy has protected funds deposited in Swiss banks for over 300 years.

Genevan bankers were the French king's bankers, and the first known text on bank secrecy dates back to 1713. Louis XVI even had a Swiss banker, Jacques Necker, as director general of French finances.

Until 1934, bank secrecy was covered by various provisions in the Swiss civil code and the labor code. Federal court jurisprudence fixed bank secrecy firmly in actual practice, so that a client who fell victim to violation of bank secrecy could henceforth obtain damages from the bank.

The federal law on banking passed in 1934 clearly stated that bank secrecy fell within the criminal domain. A banker who infringed bank secrecy was henceforth punishable by imprisonment, thus reinforcing the depositor's protection of the private sphere.

There are two reasons why this protection was reinforced:

Nazi spies
The 1931 crisis led to intensified foreign exchange control in Germany. Hitler promulgated a law whereby any German with foreign capital was to be punished by death, and the Gestapo began espionage on Swiss banks. When three Germans were put to death, the Swiss government was convinced of the necessity to reinforce bank secrecy.
 

Pressure from the French
In 1932, the Basler Handelsbank affair revealed that over 2,000 members of the French elite had accounts in Switzerland. French Leftists took advantage of this to denounce the austerity program of the Herriot government. It called for legal authority over French accounts in Switzerland, but to no avail.

In 1984, the people of Switzerland once again elected by overwhelming majority, with over 73% of voters in favor of maintaining bank secrecy.

A number replaces your name on all documents in connection with your account. The numbered account is part of the bank's internal measures to limit the risks of bank secrecy violation.

This procedure helps to further safeguard your confidentiality.

Only a few people at the bank know your identity. The other employees have no way of knowing who an account belongs to based on a number.

Your bank transfers are marked: "Bank X for the account of a client".

Numbered accounts are not anonymous: the bank always knows your identity.

Numbered accounts are subject to the same laws as other bank accounts:

Bank secrecy will be lifted in the event of a serious crime such as drug trafficking.

The numbered account offers additional protection for private matters such as inheritance or divorce, for it is up to the plaintiff to identify the bank in which the funds are deposited before the courts can pursue the case. The practice is rendered even more difficult with pseudonym accounts.

Certain precautions of the part of the user are required to ensure optimal confidentiality. Your numbered account is above all an investment account.

The mythical Swiss numbered account, the ultimate symbol of wealth, personal achievement and privacy.

True Swiss numbered account - use a number instead of your name or in certain cases a pseudonym such as Octopussy or Cello

Extensive investment services to invest your money and watch it grow

Personal, long-term relationship with your personal Swiss banker

Can be opened in the name of an offshore company or private foundation

Branches all over Switzerland

Several precautions have to be taken in order for the Chinese Wall to remain effective. As such, there are particular restrictions to this type of account.

Incoming and outgoing movements are kept to a strict minimum. No checkbook is issued and there is no correspondence with the account holder. Teller transactions are impossible. Withdrawals or payments are made essentially through the account manager or by credit card. Transfers from people other than the client are subject to special caution. For by automatically accepting the transfer, the bank would implicitly confirm that the account existed. Before accepting the sum, the account manager asks the client's opinion on the risks that accepting the transfer would entail. If the client refuses the transfer, the bank replies that it does not have an account in this person's name.

The numbered account is part of the bank's internal measures to limit the risks of bank secrecy violation. The management of a normal account entails risks of information leakage that certain clients are not ready to assume. A bank order passes through many hands before it is fully processed. The documents contain both the name and number of the client, and sometimes even the client's address.

All of the people who have access to these documents are obviously subject to bank secrecy. Nevertheless, there is a risk, and one that is not insignificant, of certain less scrupulous employees tempted by the price of this information on the blackmail market. How much is information about a politician's Swiss bank account or the extent of a celebrity's fortune actually worth?

The numbered account was introduced in Switzerland to avoid these very types of temptation. The account holder's name is separated from the account number. The client's banker knows his or her name and address. Once the account is opened, the banker places all the documents that contain the client's name and address in a safe. Only a handful of people have access to these documents, according to a very strict procedure: the bank manager and the appointed authorities can only request certain files designated by their number. They must record this operation in a register by indicating the file number consulted and then by signing. They can request only one file at a time.

Swiss banks do not maintain databases containing the information that could match up the client's name with the corresponding account number for numbered accounts. The only means of accessing this information is by verifying the contents of the safe. And belief us, they are very well guarded indeed.

By means of this Chinese Wall operation, the majority of the employees work on accounts without knowing who the holders are. The less the secret is shared, the less risk there is of it leaking out!

Swiss bank secrecy is not lifted for tax evasion, even upon the request of a foreign government.

The failure to report or underestimation of income or assets on a tax return are not considered a crime in Switzerland.

The Swiss are unique in that they attach greater importance to the respect of private life than they do to taxation. Banks do not have the right to inform the Swiss tax authorities. They have even less right to inform foreign tax authorities.

As Switzerland does not consider tax evasion to be a crime, it does not comply with any requests for judicial cooperation (also known as mutual assistance) from other governments.

A clear distinction must be made between tax evasion and tax fraud. Tax fraud (falsified documents, sharp practice) is considered a crime in Switzerland as well. In this case, bank secrecy can be lifted by a judge with jurisdiction and judicial cooperation can be granted.

The Swiss have a special relationship with taxes. In reality, the Confederation of Swiss cantons was created in 1291 as a result of the refusal to pay the exorbitant taxes demanded by the Emperor of Habsburg. The origins of the English parliament and American Independence also lie to some extent in the British authorities' greed for taxes.

Another original feature is that in Switzerland, taxes are voted by the people. This means that the federal and cantonal governments do not hold the same inordinate powers as other States have vested themselves with regard to taxes. The Swiss feel that it is up to the taxpayer to assume his or her responsibilities: the system is founded on the declaratory principle of the taxpayer.

This system is not as strange as it may seem, since Interpol (International Criminal Police Organization) treats cases in the same way and intervenes only in those that involve fraud.

Moreover, the principle of legal equality reinforces the Swiss position. A law cannot be less favorable to a foreigner than it is to a national, unless expressly mentioned otherwise. No tax authority in any canton has the right to demand information from a bank in Switzerland, so how could it be accepted that the French tax authorities, for example, expect to obtain information from a Swiss bank?

The distinction between tax evasion and tax fraud has direct consequences in terms of judicial cooperation, since Switzerland only grants judicial cooperation for criminal matters when the foreign proceedings apply to an offense that is also deemed criminal in Switzerland (principle of double jeopardy). Such is the case with tax fraud. The bank secrecy is lifted and the investigation can be carried through to completion. However, Swiss law does not authorize extradition for tax purposes.

On the the other hand, tax evasion constitutes an administrative offense with no criminal repercussions. Switzerland's refusal to grant judicial cooperation for tax evasion is the result of particularities of the Swiss legal system. In accordance with the principle of non-discrimination, foreign nationals are treated in the same way as Swiss nationals and benefit from the distinction established by Swiss law.

Swiss bank secrecy is regulated by both civil law (including the Banking Act) and criminal law. Violation of the secrecy can thus be subject to double punishment:

Fine and imprisonment for the banker pursuant to the Banking Act and the criminal code.

Damages for the client pursuant to the duty of care

Economic or tax espionage on behalf of the authorities of a third country is also punishable by criminal law.

Swiss bank secrecy prohibits Swiss banks from revealing the existence of your account or disclosing information about it without your consent.

What does bank secrecy cover?
Bank secrecy covers all your business relations with the bank.

It is not limited in time. Bank secrecy protects all contacts with a view to opening an account, even if the account is never actually opened. Similarly, bank secrecy remains in effect once your account is closed.

It concerns all the people who work for the bank or are in contact with it.

What are the consequences for a banker who violates bank secrecy?
Violation of bank secrecy is punishable by imprisonment of the banker, fine and payment of damages.

What are the limits of bank secrecy?
Exceptions to bank secrecy are strictly regulated by law. They concern:

Criminal matters such as drug trafficking or gun smuggling. Thus, bank secrecy is not an obstacle in the fight against serious crime. The majority of cases for which bank secrecy is lifted fall under this category.

Private matters such as inheritance and divorce. In practice, however, bank secrecy is rarely lifted in such cases.

Swiss bank secrecy prohibits Swiss banks from revealing the existence of your account or disclosing information about it without your consent.

What does bank secrecy cover?
Bank secrecy covers all your business relations with the bank.

It is not limited in time. Bank secrecy protects all contacts with a view to opening an account, even if the account is never actually opened. Similarly, bank secrecy remains in effect once your account is closed.

It concerns all the people who work for the bank or are in contact with it.

What are the consequences for a banker who violates bank secrecy?
Violation of bank secrecy is punishable by imprisonment of the banker, fine and payment of damages.

Any violation of professional secrecy in the banking industry - whether intentional or not - is punishable by criminal law. Consequently, a Swiss banker who divulges information about a client without his or her consent can incur up to six months in prison and a fine of up to 50,000 Swiss francs, since double punishment is applicable.

The Swiss public attorney automatically begins prosecution as soon as an offense is made known. This situation therefore differs from the violation of professional secrecy by a lawyer or doctor, for in such a case it is up to the aggrieved person to take legal action.

In addition to the criminal sentence, the aggrieved client can take civil action and sue the bank for damages.

All of this to say that the banks take every necessary precaution to avoid violating bank secrecy and that this type of affair is practically non-existant in Switzerland.

The Swiss financial hub is one of the largest in the world. It is sometimes accused of harboring dirty money due to its bank secrecy, although these accusations are founded on mere generalizations.

What is money laundering?
Money laundering is a process whereby the origin of funds generated by illegal means is concealed (gun smuggling, drug trafficking, etc.).

The Swiss stance with regard to money laundering
The fight against money laundering is a priority for Switzerland. The Swiss authorities have been actively involved in the fight against money laundering for a number of years now, with the full support of the Swiss banks. In reality, it is not at all in the Swiss banks' interest to accept criminal funds: they do not need to take these kinds of risks to be profitable.

Tools for fighting against money laundering
Switzerland has implemented preventive and repressive steps against money laundering in the form of modern and comprehensive tools that activate effective procedures both within the bank itself and on an international level.

Bank secrecy does not protect crime money.

Obligation to inform: if the bank has the slightest suspicion about a transaction, it is under obligation to inform the Federal Reporting Office for Money Laundering without delay.

Lifting of bank secrecy: A Swiss judge can order the lifting of bank secrecy at any moment and seize the unlawful holdings if there is proof that the account is a criminal matter according to Swiss law.

Note:Tax evasion (failure to declare income) is nothing at all like money laundering.

What is money laundering?

Money laundering is a process whereby the origin of funds generated by illegal means is concealed (drug trafficking, gun smuggling, corruption, etc.). The objective of the operation, which usually takes places in several stages, consists in making the capital and assets that are illegally gained seem as though they are derived from a legitimate source, and inserting them into economic circulation. Money laundering is not a new phenomenon: it's as old as crime itself. Criminals have always endeavored to conceal the origin of illegally generated funds in order to erase all trace of their wrongdoings. Nevertheless, the forms and dimensions of this type of crime have evolved in recent years. Since the seventies, the escalation of the drug market and globalization of organized crime have led to a collective raised awareness with regard to the problem of money laundering.

Due to its stability, the quality of services offered and its bank secrecy, the Swiss financial hub, like other foreign financial market places, was used by criminals who wished to shield money generated by their illegal activities.

The banks are not the only pawn used to conceal the criminal origin of capital assets. Since all bank transactions can be reconstituted and the criminal judge can conduct investigations on them, they are not particularly suited for money laundering. That is why money launders tend to operate through fictive companies, casinos, restaurants, jewelry stores, car dealers and art agents, as well as import-export operations.

Since the early eighties, Swiss authorities and banks have reacted to the danger that abuse of the financial market by criminal organizations embodies. The national and international instruments that have been developed over the years have thus modernized the repressive measures derived from ordinary criminal law and have created a new relationship between the authorities and those involved in the financial sector. They are currently committed to actively joining forces in the fight against money laundering.

Swiss anti-money laundering procedure

A Swiss examining magistrate has the right to conduct a search of a bank within the context of a criminal case. The search must be justified by accurate and objectively founded evidence (i.e. there has to be proof) and it must be conducted with precision.

If the public attorney fears that the investigation could lead the suspect to withdraw his or her holdings, the examining magistrate can conduct a surprise search or order the bank to freeze the suspect's accounts. Only Swiss magistrates and, in the case of an administrative inquiry, certain Swiss federal civil servants can question a banker.

During the interrogation, the banker is asked whether the person in question, accused or not, has an account, a safe or power of attorney with the establishment. In practice, the judges send out a circular to all the banks in the country, asking them whether a given person has an account with them. Once the accounts are located, the judge can then have them frozen by criminal court order.

Measures used to combat money laundering at an international level

Switzerland collaborates in the fight against organized crime on several fronts:

International judicial cooperation
Switzerland has ratified several other bilateral and multilateral international agreements through which it is committed to providing judicial cooperation - also referred to as mutual assistance - in criminal matters. The most significant agreement was constituted by the European Convention on Mutual Assistance in Criminal Matters on 20 April 1957. In accordance with the "Federal Act on international mutual assistance in criminal matters" (1983), Switzerland grants international judicial cooperation in criminal matters. In such procedures, capital assets can be frozen and, if need be, released to the foreign authorities. Judicial cooperation is granted when the crime under prosecution is also punishable in Switzerland and the foreign authority guarantees that it will not use the information issued from Switzerland for any purpose other than the investigation.

Interpol
Switzerland is a member of the International Criminal Police Organization and thus participates in the exchange of information between police authorities.

Basle Committee on Banking Supervision
Switzerland played an active part in concluding the Declaration of the Basle Calmat on Banking Supervision, which, in 1988, established the first international code of conduct for banks, with an aim to prevent any abuse of the banking industry for money laundering purposes.

Financial Action Task Force on Money Laundering (FATF)
Switzerland is also a member of the FATF, an intergovernmental body that was set up in 1989 at the G7 economic summit in Paris and is open to most members of the OECD. Its purpose is to develop and promote strategies to combat laundering of the proceeds of criminal activities. To this end, in 1990 it implemented 40 recommendations that all the countries are encouraged to adopt. These recommendations form the internationally recognized standard of measures that a country must take to fight effectively against money laundering. They concern the countries' legal and financial systems, as well international cooperation. An active participant since the FATF was founded, Switzerland has integrated these recommendations into its system of law (criminal code, Money Laundering Act). Many of the FATF recommendations were drawn from the standards put in place by the Code of Conduct on due diligence between the Swiss Bankers Association and the Swiss banks. Member countries of the FATF have accepted the discipline of being subjected to multilateral surveillance.
On the occasion of its most recent study (February 1998), the Swiss anti-laundering provision was judged conform with FATF Recommendations. The efforts of the banks were thus confirmed and acknowledged.

Strasbourg Convention
In 1993, Switzerland also ratified the "Council of Europe Convention no. 141 on Laundering, Search, Seizure and Confiscation of the Proceeds from Crime". The Strasbourg Convention, just like the Federal Act on International Mutual Assistance in Criminal Matters, allows Switzerland to cooperate effectively on an international level for the fight against cross-border criminality and the financial tools it employs.
Measures used for the fight against money laundering

Switzerland has one of the tightest provisions in Europe as regards the fight against money laundering.

The Swiss criminal code punishes any offense committed within the context of organized crime (money laundering, corruption, fraud, drug trafficking, gun smuggling, etc.). In the course of legal proceedings, a Swiss judge can order the banks to lift bank secrecy in order to obtain information on certain accounts. Thus, bank secrecy is not an obstacle in the fight against organized crime.

To fight the abuse of the financial market place for money laundering of criminal funds, the Swiss criminal code has been revised and improved on several occasions. On 1 August 1990, Articles 305a and 305b of the criminal code entered in force.

Article 305a takes punitive action against money laundering, which is defined as any act of hindrance to the identification, search or confiscation of capital assets of criminal origin. Money laundering is punished, regardless of where the major offense took place.

Article 305b punishes the lack of vigilance in financial transactions, particularly the failure to verify the beneficial owner. Professional financial intermediaries are bound by what is referred to as the Know your customer principle, and are required without fail to identify the true owner of the funds, who is known as the beneficial owner. Negligent identification of the contracting partner or establishing of the beneficial owner is punishable.

Article 305b was substantiated by a second paragraph, which entered into effect on 1 August 1994 and granted bankers and financial operators the right to transmit to the authorities any supporting information or evidence on assets that are suspected to be of criminal origin. In exercising this right, the banker no longer risks facing the consequences of violating his or her duty of confidence, at least on a criminal basis. The new 1998 Money Laundering Act transforms this right to communication into an obligation.

At the same time, the Swiss legislator improved upon these provisions by adopting a series of articles that aim to repress organized crime. Article 260b of the criminal code renders punishable any person who has participated in an organization that keeps its structure and its collaborators secret and that seeks to commit criminal acts of violence or to obtain revenue by criminal means. What is more, articles 58 to 60 of the criminal code reinforce measures relating to the confiscation of assets of unlawful origin.

Banking surveillance and self-regulation
The banking system in Switzerland assures a large part of its regulation. The Swiss Bankers Association and the Federal Banking Commission have enacted rules that must be followed by the entire banking system.

1. Code of Due Diligence
The banks are also subject to self-regulation rules issued by the Swiss Bankers Association (SBA), notably the "Agreement on the Swiss banks' code of conduct with regard to the exercise of due diligence when accepting deposits and upholding bank secrecy" of 1 July 1977.

This agreement primarily concerns ethical issues, with a view to ensuring banking activity management that is beyond reproach. It also provides for the appointment of a Supervisory Board in charge of curbing violations to the agreement. It binds the Swiss Bankers Association and the signatory banks.

This agreement establishes in particular the duty to identify the contracting partner or the beneficial owner, in the case that they are not the same person, and prohibits anyone from actively assisting in capital flight and in ploys that aim to deceive the Swiss or foreign authorities (tax, customs, legal, etc.).

Compliance with the Code of Conduct is guaranteed by bank auditing firms, who notify the Federal Banking Commission (FBC) and the Supervisory Board of any offense that has been reported or that is legitimately suspect. The Supervisory Board can issue a financial penalty of up to 10 million Swiss francs. Over the years, the Code of Conduct on due diligence has become an extremely effective surveillance instrument. The FBC considers that compliance with this code of conduct is the minimum standard for fulfilling the condition of guaranteed irreproachable activity.

The Banking Act has instituted an independent supervisory authority called the Federal Banking Commission (FBC). Upon request, it grants the authorization to practice a banking activity once the all the conditions have been met. One of these conditions is the guarantee of banking activity that is beyond reproach. At any time the FBC can verify whether a bank still meets the conditions and, if this is not the case, it can withdraw the authorization.

2. Money laundering policy
The FBC has developed a policy regulating the duties of banks and traders in securities when accepting capital assets. In particular, it enacted the "Policy on the prevention and fight against money laundering". The policy provides elements for interpreting the criminal code; it gives concrete expression to the standards that the banks and the traders in securities must respect with regard to the guarantee of irreproachable activity as defined by the Banking Act.

The organizational requirements oblige banks and traders in securities to enact an internal policy, to train personnel and to implement a special anti-money laundering unit. Reference is made to the bankers' Code of Conduct for verifying the identity of the contracting partner and of the beneficial owner.

In the event of an unusual transaction, of a higher amount, or if there are signs that point to possible money laundering, additional inquiries must be made. A list of indications of money laundering helps to create employee awareness on the issue. Special care must be taken with funds that are known or presumed to come from the corruption or the abuse of public property, particularly for funds of people who exercise important official duties abroad or in firms with which they have close ties. Entering into business relations with such people must be the result of a decision made by the management.

Regulating the financial sector
Until now, only the banks were subject to the Code of Conduct on due diligence and the money laundering policy. The "Federal Act on the prevention of money laundering in the financial sector"(MLA), entered into effect on 1 April 1998 and applies the same principles to the entire financial sector.

This act serves as a supplement to the provisions of the criminal code. It applies equally to all financial intermediaries, i.e. any person who, on a professional basis, accepts, maintains deposit of or helps to invest or transfer assets belonging to a third party (e.g.: banks, fiduciaries, wealth managers, traders in securities, funds directorates, lawyers and notaries, the post office or the Swiss Federal Railways and change bureaus).

The act imposes on financial intermediaries new organizational duties (training personnel, internal controls) and policy duties (verify identity of the contracting partner, verify beneficial owner, even clarification of the economic background of a transaction that shows signs of laundering, retaining documents attesting to the verifications made).

In accordance with this law, all financial intermediaries are henceforth obliged to inform the Federal Reporting Office for Money Laundering when, in a business relationship, they know or presume, on the basis of sound evidence, that money laundering is taking place. This office is attached to the Federal Office for Police.

Since the first year the Money Laundering Act has been enforced, 80% of the 210 declarations recorded were made on behalf of banks. Cantonal investigations are currently underway in 161 of the cases. In total, 423 million Swiss francs have been frozen.