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Among the various aspects of the Swiss financial center, one of the best
known abroad is probably the bank customer privacy. In broad terms, bank
customer privacy is the banker’s professional obligation to keep the details
of a client’s financial and personal affairs – including the very existence
of the relationship with the client – strictly private. The purpose of bank
customer privacy is not to safeguard the interests of Swiss banks. Rather,
the Swiss banker’s professional duty of bank customer privacy – breaches of
which are subject to criminal prosecution under Article 47 of the Federal Law
on Banks and Savings Banks of 1934 (“Swiss Banking Law”) - is designed to
protect the private sphere of bank customers. Therefore, although the Swiss
Banking Law refers to “banking secrecy”, it is more appropriate to refer to
this duty of confidentiality as “bank customer privacy” or “bank customer
secrecy”.
At the same time, Swiss securities dealers and stock exchanges are subject
to an analogous professional obligation to keep the details of a customer’s
financial and personal affairs strictly private. This professional obligation
of “securities dealer customer privacy” is set out in Article 43 of the
Swiss Stock Exchange and Securities Trader Act (“SESTA”), and any violations
of this obligation are likewise subject to criminal sanctions.
1
As a basic matter, it must be noted that bank customer privacy is not
absolute. Because bank customer privacy is based on the obligation of
confidentiality implied in contracts between the customer and the bank or
securities dealer, it can be lifted whenever the customer so chooses with a
valid waiver. Further, although bank customer secrecy is strict in
safeguarding a customer’s privacy, it is not intended to protect criminals.
There are clear limits to bank customer privacy, and it will be lifted in the
case of Swiss criminal investigations, in the course of providing
international legal assistance in criminal matters, including foreign
criminal investigations of money laundering, terrorism and insider trading,
in cases of tax fraud, if money laundering activities are suspected and in
certain other cases.
In general, information must be disclosed by banks and securities dealers
in the following situations:
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in criminal investigations (suspicion of money laundering, membership
in a criminal organization, theft, tax fraud, blackmail, etc.);
-
when providing international legal and administrative assistance
(criminal investigations conducted abroad; investigations by financial
market supervisory authorities;
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in debt recovery and bankruptcy proceedings; and
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in civil proceedings (e.g., inheritance and divorce matters).
Bank customer privacy will not, however, be lifted in cases of simple tax
evasion. The Swiss tax system is based on the principle that the taxpayer
bears sole responsibility for meeting his tax obligations via the tax return.
Tax evasion is discouraged by a 35% withholding tax at source on all interest
and dividend payments of Swiss issuers or debtors, the highest in any OECD
country, and such other measures as official tax assessment procedures. The
existence of the 35% withholding tax encourages 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,
as can investors domiciled abroad, provided that a double taxation treaty
provides for full or partial relief. Accordingly, the bank (or securities
dealer) is under no obligation to provide information to the tax authorities
in connection with tax proceedings or an appeal, unless asked to do so by
the client.
On the other hand, where tax fraud is involved, the offences are dealt with
in ordinary criminal proceedings and Swiss bank customer privacy will be
lifted. Tax fraud occurs when a taxpayer deliberately uses forged or
falsified documents in order to deceive the tax authorities and obtain undue
tax advantages.
Although a desire for privacy can play an important role in an investor’s
decision to deposit his/her assets in a Swiss bank, it is by no means the
only factor. Other key factors enhancing Switzerland’s attractiveness as a
financial center include its political and monetary stability, its excellent
infrastructure, its diligence in combating money laundering and the
high-quality services, professional know-how and wealth management experience
of its banking institutions.
Applicable law
Frequently asked questions
Useful links
This site has been prepared by
Rebecca Brunner-Peters
Director
Legal & Compliance
Credit Suisse
P.O. Box
8070 Zurich
E-Mail: rebecca.brunner@credit-suisse.com
The author wishes to acknowledge the substantial contributions to this
article by the law firm of Nobel & Hug.
1 Unless the context requires otherwise,
the term “bank customer privacy” will subsequently be used to refer
collectively to both “bank customer privacy” and “securities dealer customer
privacy”.
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