Fighting Against Financial Crimes, the Swiss Way

The reputation of Swiss banks in maintaining client confidentiality is legendary. However, Swiss laws governing such confidentiality do not protect criminals. In order to maintain that the funds that flow into the Swiss banking system are of clean origin, the Swiss government has put in place mechanisms to prevent money laundering as well as track down the ill-gotten wealth of people of dubious reputation. Following are the issues concerning financial crimes and how the Swiss are fighting to curb and prevent them.

Money laundering
Money Laundering is the term applied to the act of concealing the origins of money earned through criminal activities and of releasing it unnoticed into legitimate business activities. Money laundering is most commonly associated with drug trafficking. However, any number of criminal activities may give rise to money laundering, e.g. embezzlement, corruption, blackmail, trafficking in people, to name just a few.

Comprehensive Law
Switzerland has set up what is probably the world's most comprehensive and effective mechanism for dealing with money from criminal sources. The Swiss Money Laundering Act (in force since 1998) obliges all financial intermediaries (not only banks) to identify all clients and to establish the beneficial owners of the assets (“know your customer”). Furthermore, they must report any justified suspicion of money laundering to the authorities and freeze the suspicious assets. Finally, for more than 20 years now, banks in Switzerland have observed a „Due Diligence Agreement” which contains the “know your customer” rules. The Due Diligence Agreement was a key point of reference when the Money Laundering Law was being drawn up.
Further rules and regulations against money laundering are laid down in the Swiss Criminal Code and the Federal Banking Commission guidelines of 26 March 1998. Moreover, the two major Swiss banks, together with nine other international banks, have committed themselves to applying global due diligence standards within the framework of the “Wolfsberg Anti-Money Laundering Principles”.

Cross-Border Financial Dealings
Switzerland is the global leader in cross-border asset management. The statistical probability of a dictator or despot bringing his money into Switzerland is therefore relatively high. But Switzerland doesn't want this money. The damage to the image of the Swiss banking system caused by such incidences is much greater than the value of the customer relationship - not just for the Swiss financial center but also for the institution involved. Thus, Switzerland is the only country in the world to have drawn up and implemented a detailed set of rules covering the treatment of assets belonging to politically-exposed individuals. These regulations have been described as exemplary by the United States and other countries.

Customer Confidentiality - Legal basis
The Swiss banker's professional duty of client confidentiality is rooted in the Federal Law on Banks and Savings Banks, which came into force as far back as on 8 November 1934. The article governing confidentiality stipulates that anyone acting in his/her capacity as member of a banking body, as a bank employee, agent, liquidator or auditor, as an observer of the Swiss Federal Banking Commission (SFBC), 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.
Although the Federal Law refers to “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 terms “bank client confidentiality” or “financial privacy” are much more appropriate.
Swiss legislation also guarantees respect for privacy in other areas of professional activity, e.g. for doctors or lawyers. It is a question of protecting personal privacy, a basic right established under the Swiss 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 factor in the decision. One should not forget that Switzerland's political and monetary stability, its excellent infrastructure and the professional know-how and experience of its bankers are also attractive factors.

Confidentiality & Its Limit
A banker's obligation to respect his clients' privacy is not absolute and no protection is afforded to criminals. In particular, there is a duty to provide information under the following circumstances:
• civil proceedings (inheritance or divorce, for example)
• debt recovery and bankruptcies;
• 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 have the right to inform the authorities without thereby breaching bank client confidentiality. if the suspicion is well-founded, they must inform the Money Laundering Reporting Office.
International mutual legal assistance proceedings