Bank-client confidentiality protects privacy in
accordance with the constitution and laws of Switzerland. Article 13 of the Swiss Federal Constitution
confers on every person "the right to receive respect for his/her private and family life".
This includes
privacy in relation to financial income and assets. However, this does not cover abuses, particularly
of a criminal nature. Bank-client confidentiality has always been waived for criminal investigators,
to whom banks are required to pass client information. The addition of new crimes to the statute books
has led to the creation of new duties of disclosure, for example regarding insider trading (1988) and
money laundering (1990). This also applies to foreign prosecuting authorities, through the medium of
international administrative and judicial assistance. The double taxation agreement between Switzerland
and the US extended administrative assistance, which had been restricted to tax fraud, to "tax
fraud
and the like" (1997). On 13 March 2009, the Swiss Federal Government announced that it was to adopt
the standards of the OECD (Organisation for Economic Cooperation and Development) and in future would
also offer administrative assistance in respect of tax evasion in new negotiations with major financial
centres (Article 26 of the OECD Model Tax Convention). This does not, however, imply the automatic exchange
of information, as there are strict conditions on administrative assistance (e.g. well-founded suspicion
of a tax offence). Otherwise, bank-client confidentiality remains in place.
Legal
basis
The Swiss banker's professional duty of client confidentiality
is codified in  Article 47 of the Federal Act on Banks and Savings
Banks (available
in German, French and Italian only), 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 or liquidator,
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. The same is true for stock exchanges and securities dealers pursuant to
Article
43 of the Federal Act on Stock Exchanges and Securities Trading of 24 March 1995 (available in
German, French and Italian only).
Although people traditionally
speak of "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 term "bank-client confidentiality" is
much more
appropriate.
Swiss legislation also guarantees respect for privacy
in other areas of professional activity, e.g. for doctors and lawyers. This is a question of protecting
personal privacy, a basic right established under Article 13 of the Federal Constitution.
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 or most important factor in the decision. One should not forget
that Switzerland's political and monetary stability, its excellent banking 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/her clients' privacy is not absolute, and no protection is afforded to criminals. In
particular, there is a duty for banks to provide information under the following circumstances:- civil
proceedings (inheritance or divorce, for example);
- debt
recovery and bankruptcy proceedings;
- 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 may inform the authorities without thereby breaching bank-client
confidentiality; if the suspicion is well-founded, they must inform the Money Laundering Reporting Office;
- international
administrative and judicial assistance proceedings (see below).
Bank-client
confidentiality and tax law
The Swiss tax system is based
on the principle of self-declaration by the taxpayer. Information and documents that a client requires
from a bank for the tax authorities may only be passed from the bank to the client, not directly from
the bank to the tax authorities. It is not the responsibility of the bank to oversee their clients'
tax affairs. However, they may not assist in tax evasion by issuing misleading or incomplete attestations,
as is expressly stated in the Due Diligence Agreement.
Withholding
tax is an effective means of fighting tax evasion. Most income (interest and dividends) from Swiss capital
investments is subject to this 35% tax, deducted at source. The existence of a withholding tax is a
strong incentive to declare taxable gains honestly, as investors (bank clients) can only demand a refund
of the tax on making the corresponding declaration. This also applies to taxpayers resident or domiciled
abroad, where a double taxation agreement makes provisions for partial or total reimbursement of withholding
tax.
A comparable solution exists with the European Union through
the agreement on the taxation of savings income (tax withheld by banks in favour of the European Union).
Where
tax fraud is involved, offences are dealt with by the competent authorities, towards which banks have
a duty of cooperation, information and disclosure. Tax fraud occurs when a taxpayer deliberately uses
forged or falsified documents in order to deceive the tax authorities and obtain undue tax advantages.
In
such cases Switzerland extends international administrative assistance on the basis of its double taxation
agreements or the second package of bilateral treaties with the European Union; it also extends international
judicial assistance in criminal matters.
In the case of the US,
the Swiss Federal Administrative Court ruled on 5 March 2009 that fraud could also exist where the US
tax authorities did not intend to conduct an investigation due to the situation and that the taxpayer
had anticipated this. In the specific case in question, a company controlled by the taxpayer (rather
than the taxpayer himself) was the client of the bank, and the tax authorities were given inaccurate
information about the control arrangements.
On 13 March 2009, the
Federal Council finally announced that administrative assistance would in future also be offered in
individual cases of well-founded suspicion of tax evasion, bringing the country into line with international
standards (Article 26 of OECD Model Tax Convention).
International
judicial assistance in criminal matters
Switzerland assists
the authorities of foreign states in criminal matters in accordance with the Federal Act on International
Mutual Assistance in Criminal Matters of 20 March 1981. 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 on the principles of dual criminality, specificity 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 is punishable
under the law of both the requesting state and Switzerland. Under the specificity 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, coercive measures
such as waiving bank-client confidentiality are not granted in the case of minor offences or where there
is a risk that the proceedings may adversely affect the interests of persons not directly involved.
International
administrative assistance between supervisory authorities
FINMA
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 by Switzerland 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. In administrative assistance of stock exchange supervisors,
provisions on the public nature of the foreign proceedings take precedence.
- The
requesting foreign authority may not pass the information received from Switzerland to other supervisory
authorities without the prior agreement of FINMA or the general authorisation of an international treaty.
Such information cannot be passed to criminal investigation authorities in foreign countries
if mutual judicial assistance in criminal matters between the states involved would be excluded. This
policy is designed to prevent states from bypassing the rules governing mutual judicial assistance in
criminal matters. It applies only to administrative assistance between bank supervisory authorities,
and not stock exchange supervisory authorities.
If the information
to be communicated to a foreign supervisory authority concerns specific clients, any decision of FINMA
can be appealed against before the Swiss Federal Administrative Court. Both FINMA and the Federal Administrative
Court must guarantee the client's right to be heard and 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 of up to three years or by a fine (up to CHF 250,000 in the case of negligence). Violation
of 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. The same applies to stock
exchanges and securities dealers.
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