A Snapshot of the Swiss Banking Law of 1934

Swiss National Bank
Swiss Bank

Switzerland is well-known around the world for a number of things. Swiss watches are routinely regarded as being among the best in the global market. Swiss chocolate garners a fair amount of international attention. And the tradition of Swiss neutrality also contributes toward the country’s public identity. However, if there is a single thing which most colors foreign perception of Switzerland it is probably the Swiss banking industry. Swiss banking – with its long history, its commitment to secrecy, and its association with nefarious characters of all sorts and kinds – has gathered an almost legendary reputation in the minds of foreign observers. As we will see in this article, the long history of bank secrecy in Switzerland was formally codified by the Federal Act on Banks and Savings Banks (also referred to as the Banking Law of 1934) and this act was then amended after the infamous UBS tax scandal of 2007.

Legally Enforced Privacy

Under the banking act of 1934, the established tradition of bank secrecy in Switzerland was officially etched in law. Under this act, revealing the name of an account holder became a criminal offense. Swiss banks were barred from sharing information about an account with third parties – including tax authorities, foreign governments and even Swiss authorities – except when served with a subpoena by a Swiss judge. Account information could only be shared in cases involving severe criminal acts, such as terrorism or tax fraud. The Swiss Banking Law of 1934 statutorily reinforced the status of Switzerland as the premier tax haven for foreigners.

The law was passed shortly after the Nazi Party had created a dictatorship in Germany. Contrary to what many have assumed, the bank secrecy codified by the Swiss law of 1934 failed to give protection to Jewish account holders attempting to protect their wealth from Nazi authorities. In theory, the law should have granted Jews adequate protection; in reality, however, Swiss banks colluded with Nazi authorities and over $100 billion in Jewish wealth was stolen.

Revision Following Tax Evasion Scandal

In 2007, whistleblower Bradley Birkenfeld revealed information which led to tax evasion charges against Swiss bank UBS. This tax scandal eventually prompted Swiss lawmakers to amend the banking act in 2009. Even with the revisions, banks in Switzerland still maintain considerable secrecy, but the revisions permit banks to share information more easily with foreign governments seeking to investigate criminal behavior.

Given their commitment to privacy, it seems likely that Swiss banks will continue to occupy a special place in the global imagination for many years to come. Despite amendments to the 1934 law, lots of loot of questionable origin will still find its way into Swiss bank vaults.

Image credit: marcokalmann

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