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1. Introduction, scope and legal basis
Swiss bank customer privacy is an important component of
the general right to individual privacy established under the Swiss
constitution (Art. 13). The protection of customer privacy also stems from
the general provisions of the Swiss Civil Code protecting against illegal
invasions of privacy, or the “sphere of confidentiality” (Art. 28 of the
Swiss Civil Code). A person’s sphere of confidentiality encompasses all
matters that the person wishes to keep secret in any perceivable or
distinguishable way. More specifically, bank customer privacy also finds its
basis in contract law, where an obligation of confidentiality is implied in
contracts between the bank customer, on the one hand, and the bank or
securities dealer, on the other hand, as an accessory obligation stemming
from the principle of good faith that permeates Swiss civil law (Art. 398
para. 1 of the Swiss Code of Obligations and Art. 2 of the Swiss Civil Code).
Swiss criminal law provisions – which sanction violations
of bank customer privacy with imprisonment or a fine - are set out in Art. 47
of the Swiss Banking Law and, for securities dealers, Art. 43 of the SESTA.
Bank customer privacy covers all information resulting from business
relationships between customers and banks, or securities dealers, and
violations of bank customer privacy remain punishable even after the
relationship with the customer has come to an end or the banker has
terminated his/her professional activity. The relevant provisions are as
follows:
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Article 47 paras. 1 and 2 Swiss Banking Law
1 Whoever divulges a secret entrusted
to him or of which he has become aware in his capacity as an officer,
employee, mandatory, liquidator or commission of a bank, as representative of
the Banking Commission, officer or employee of a recognized auditing company,
and whoever tries to induce others to violate professional secrecy, shall be
punished by imprisonment for not more than six months or by a fine of not
more than CHF 50,000.
2 If the perpetrator acted negligently,
the punishment shall consist of a fine not exceeding CHF 30,000.
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Article 43 para. 1 SESTA
Whoever
a. discloses a secret which has been confided to him in his capacity as a
member of a governing body, employee, mandatory or liquidator of a stock
exchange or securities dealer, as a member of one of the governing bodies
or employee of recognized auditors, or of which he becomes aware in any
such capacity; or
b. attempts such breach of professional secrecy by inducement, shall be
punished by imprisonment or with a fine.
Both Art. 47 Swiss Banking Law and Art. 43 SESTA stipulate
that provisions of federal and cantonal legislation relating to the
obligation to inform authorities and testify in court take precedence over
bank customer privacy.
2. Limits on Swiss bank customer privacy
It is important to bear in mind that Swiss bank customer
privacy is not absolute. Bank customer privacy is flanked by rules to prevent
its abuse, particularly through organized crime. Legitimate protection of
personal rights, on the one hand, must be weighed against public interest, on
the other hand, including the public interest in preventing criminal abuse of
all kinds. For this reason, there are a series of legally defined limits to
bank customer privacy. Both the Swiss Banking Law and the SESTA provide that
bank customer privacy will be lifted if provisions of federal or cantonal
legislation require a banker or securities dealer to provide customer
information to authorities or testify in court. Instances of such legislation
include the following:
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Criminal
proceedings within Switzerland
In criminal proceedings in Switzerland, bank customer privacy is lifted and a
banker or securities dealer is required to testify, provide information and/or
deliver documents.
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Civil proceedings
(divorce, inheritance, bankruptcy)
The Swiss federal and cantonal codes of civil procedure take precedence to
bank customer privacy. Under most Swiss cantonal codes of civil procedure,
the judge may decide at his discretion on whether or not bank customer
privacy justifies a refusal to give evidence or testify. Bank customer
privacy may also be lifted in connection with debt collection and bankruptcy
cases. Under Swiss inheritance law, each successor, heir, representative,
official administrator, executor and public liquidator (not the legatee) has
the right to obtain information from a bank or securities dealer. Switzerland
is a member of the Hague Convention on the Taking of Evidence Abroad in Civil
or Commercial Matters (see the page on “Mutual Assistance”).
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International
mutual judicial assistance in criminal matters
Switzerland grants mutual judicial assistance in criminal matters to foreign
States on the basis of international treaties on mutual legal assistance (including
the United States-Swiss Treaty on Mutual Assistance on Criminal Matters) as
well as the Swiss Federal Law on International Judicial Assistance in
Criminal Matters. The arrangements allow assets to be frozen and if necessary
handed over to the foreign authorities concerned. Under Swiss law, one of the
core principles for international mutual legal assistance in criminal matters
is the condition of dual criminality, which means that an act has to be a
criminal offence not only under the law of the requesting State, but also
under Swiss law. Hence, Swiss courts will not order coercive measures –
lifting the requirement of bank customer privacy, for example – unless, among
other things, the act being investigated qualifies as a crime under the law
of Switzerland as well as that of the requesting State.
For further information, see the page on “Mutual Assistance”.
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International
mutual assistance in administrative matters
Under certain conditions, bank and financial market supervisory authorities
from certain foreign countries may request and receive information from the
Swiss Federal Banking Commission (SFBC), the regulator charged with rendering
administrative assistance. Art. 23septies
of the Swiss Banking Law and Art. 38 of the SESTA specify the conditions:
among other things, the information must only be used for direct supervision
of the institution concerned, the requesting foreign authority must itself be
bound by official or professional secrecy (principle of “confidentiality”),
and the foreign authority may not retransmit the information to another
person or authority without the prior consent of the SFBC or the general
authorization of an international treaty (principle of “specialty”). If the
information to be communicated to a foreign supervisory authority concerns
individual customers, the Federal Law on Administrative Proceedings applies,
the customer may challenge any decision of the SFBC to the Swiss Federal
Tribunal, and both the SFBC and the Federal Tribunal must guarantee the
customer’s right to be heard and examine the case file.1
It should be noted that fulfilling the conditions for administrative
assistance is problematic in connection with requests from the U.S.
Securities and Exchange Commission (SEC), which publishes so-called
litigation releases, naming the defendants and the suspected violations in
its court actions, on its publicly accessible website, and which must file
civil lawsuits in public procedures in order to sanction investors not
directly subject to its supervision (see the page on “Mutual Assistance”).
The Swiss-United States double taxation agreement (DTA) includes a provision
that the United States and Switzerland exchange information necessary for the
proper implementation of the DTA or “to prevent tax fraud and the like” in
relation to the income taxes that are the subject of the DTA. In January
2003, Switzerland and the United States concluded a Mutual Agreement setting
out criteria for interpreting the term “tax fraud and the like” and providing
corresponding examples. Under this concept, Switzerland also provides
administrative assistance even with respect to acts that cannot be committed
under the Swiss assessment procedure, but that exhibit the same degree of
illegality as tax fraud.
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Money laundering
The Swiss Penal Code (Art. 30ter para. 2) permits Swiss financial
institutions to inform the authorities without thereby violating bank
customer privacy in the event that circumstantial evidence gives rise to a
suspicion that the financial assets are the proceeds of a crime. At the same
time, in the event that such suspicion is well-founded, the Swiss Federal Act
on the Combating of Money Laundering in the Financial Sector re-quires the
financial institution to notify the Money Laundering Reporting Office and
block the assets that are the object of the notification. For further
information, see the page on “Anti-Money Laundering”.2
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Holocaust-related
records and information
Under a special federal decree of 1996, bank customer privacy does not apply
to requests for records by the independent commission of experts appointed by
the Swiss Federal Council to investigate the fate of assets that reached
Switzerland as a result of the Nazi rule. Further, the Holocaust claims
resolution process requires Swiss banks to publish names and other
information on accounts of residents and non-residents that have been dormant
since 1945.
3. The US Qualified Intermediary (QI) system
US citizens and US tax residents should be aware that many
Swiss banks and securities dealers have concluded “Qualified Intermediary” (QI)
agreements with the United States Internal Revenue Service (IRS). Pursuant to
these agreements, the Swiss banks and securities dealers are required as from
January 1, 2001, to disclose to the IRS the identity of US citizens and US
tax residents who have invested through them in US securities. Swiss banks
and securities dealers therefore now require their US customers to consent to
such disclosure or, alternatively, decline to invest in US securities.
Why does Switzerland have bank customer privacy?
In Switzerland, the concept of privacy in financial
affairs has long been recognized as a component of the general right to
individual privacy protected under Swiss civil law. In 1934, a special
section was added to the Swiss Banking Act, making it a criminal offence for
the banks or their employees or agents to improperly divulge information
protected under bank customer privacy to any third party, including to
foreign governments. This feature was designed to preserve the financial
privacy of bank customers, regardless of persecution for racial, political or
religious reasons.
Aren’t numbered accounts anonymous?
Contrary to popular misconception, there is no such thing
as an anonymous Swiss account. Even when opening a numbered (or pseudonym)
account, Swiss banks must clearly establish the identity of the customer and
all beneficial owners to the account, and these accounts are also subject to
disclosure in the limited instances in which bank customer privacy is lifted.
The numbered accounts merely serve to provide a higher degree of
confidentiality within the customer’s bank, i.e., the name of the account
holder is known to a narrower circle of bank employees than in the case of an
ordinary account. The due diligence requirements, however, are the same, and
bank official must always know the identity of the customers and beneficial
owners “behind the number”.
What is the difference between tax evasion and tax
fraud?
A distinction is drawn in Swiss law between tax evasion
and tax fraud. Tax evasion is committed when a taxpayer fails to submit a tax
return or when a valid tax return is incomplete (e.g., as a result of false
or incomplete entries). Tax evasion in Switzerland is generally punished in
Switzerland with a fine and is therefore considered an infraction, not a
criminal offense under the Swiss Penal Code. The Swiss tax authorities, not
the prosecuting authorities, are responsible for pursuing cases of tax
evasion. Tax fraud, on the other hand, is committed when, for purposes of tax
evasion, falsified or non-genuine records such as accounts, balance sheets or
income statements or other statements of third parties are used to deceive.
The tax return itself is not considered to be a “document”. Tax fraud can
also exist without documents being falsified when willful deceit is practiced
to evade tax. Tax fraud is treated as a crime and is criminally punishable.3
Useful links
1 See "Bank client confidentiality",
published on the website of the Swiss Bankers Association (www.swissbanking.org/en/home/themen-geheimnis.htm). ▲
2 Source: Swiss Federal Tax
Administration website, announcement as of January 24, 2003,
www.estv.admin.ch/data/dba/e/indexe.htm.
▲
3 Source: “The Basis for
International Mutual Legal and Administrative Assistance”, chapter 4, in: The
Swiss Financial Center: A summary of important topics and developments in the
financial sector, a specific sub-site of the Economic and Financial Affairs
Division (DFA) of the Swiss Federal Department of Foreign Affairs, 2002 (available
over
www.eda.admin.ch). ▲
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