Banking in Switzerland
Encyclopedia
All banks in Switzerland
are regulated by Swiss Financial Market Supervisory Authority
(FINMA), which derives its authority from a series of federal statutes. The country's tradition of bank secrecy
, which dates to the Middle Ages
, was first codified in a 1934 law.
, the banking industry in Switzerland has an average leverage ratio (assets/networth) of 29 to 1, while the industry's short-term liabilities are equal to 260% of the Swiss GDP or 1,273% of the Swiss national debt.
(CHF) has been relatively stable compared with that of other currencies
. In 2009, the financial sector comprised 11.6% of Switzerland's GDP and employed approximately 195,000 people (136,000 of whom work in the banking sector); this represents about 5.6% of the total Swiss workforce. Furthermore, Swiss banks employ an estimated 103,000 people abroad.
Swiss neutrality
and national sovereignty
, long recognized by foreign nations, have fostered a stable environment in which the banking sector was able to develop and thrive. Switzerland has maintained neutrality through both World War
s, is not a member of the European Union
, and was not even a member of the United Nations until 2002.
Currently an estimated one-third of all funds held outside the country of origin (sometimes called "offshore
" funds) are kept in Switzerland. In 2001 Swiss banks managed US$ 2.6 trillion. The following year they handled $400 billion USD less which has been attributed to both a bear market and stricter regulations on Swiss banking. By 2007 this figure has risen to roughly 6.7 trillion Swiss francs (US$6.4 trillion).
The Bank of International Settlements, an organization that facilitates cooperation among the world's central bank
s, is headquartered in the city of Basel
. Founded in 1930, the BIS chose to locate in Switzerland because of the country's neutrality, which was important to an organization founded by countries that had been on both sides of World War I.
Foreign banks operating in Switzerland manage 870 billion Swiss francs worth of assets .
(FINMA) is a public law institution that supervises most banking-related activities as well as securities market
s and investment funds. Regulatory authority is derived from the Swiss Financial Market Supervision Act (FINMASA) and Article 98 of the Swiss Federal Constitution.
The office of the Swiss Banking Ombudsman
, founded in 1993, is sponsored by the Swiss Banking Ombudsman Foundation, which was established by the Swiss Bankers Association
. The ombudsman's services, which are offered free of charge, include mediation
and assistance to persons searching for dormant assets. The ombudsman handles about 1,500 complaints raised against banks yearly.
" held in Switzerland.
(which handles some financial transactions
) use an electronic payments system known as Swiss Interbank Clearing (SIC). The system is supervised by the Swiss National Bank and is operated via a joint venture. SIC handled over 250 million transactions in 2005, with a turnover value of 41 trillion Swiss francs.
UBS and Credit Suisse
are respectively the largest and second largest Swiss banks and account for over 50% of all deposits in Switzerland; each has extensive branch networks throughout the country and most international centres.
Due to their size and complexity, UBS and Credit Suisse are subject to an extra degree of supervision from the Federal Banking Commission.
, founded in 1862, and Swiss Bank Corporation
, founded in 1872, merged. Headquartered in Zurich
and Basel
, it is Switzerland's largest bank. It maintains seven main offices around the world (four in the United States
and one each in London, Tokyo, and Hong Kong) and branches on five continents.
, UBS had a net profit of CHF7.161 billion, a market capitalization
of over CHF58.8 billion, and 64,617 employees.
insurance company in 1997; the latter was sold to AXA
in 2006. The asset management services were sold to Aberdeen Asset Management
in 2008 during the GFC.
The Swiss National Bank (SNB) serves as the country's central bank
. Founded by the Federal Act on the Swiss National Bank (16 January 1906), it began conducting business on 20 June 1907. Its shares are publicly traded, and are held by the cantons
, cantonal banks, and individual investors; the federal government does not hold any shares. Although a central bank often has regulatory authority over the country's banking system, the SNB does not; regulation is solely the role of the Federal Banking Commission....
refers to a bank that offers private banking
services and in its legal form is a partnership. The first private banks were created in St. Gallen
in the mid 18th century and in Geneva in the late 18th century as partnerships, and some are still in the hands of the original families such as Hottinger
and Mirabaud. In Switzerland, such private banks are called private bankers (a protected term) to distinguish them from the other private banks which are typically shared corporations. Historically in Switzerland a minimum of Francs 1 million was required to open an account, however, over the last years many private banks have lowered their entry hurdles to Francs 250,000 for private investors.
s; these banks are state-guaranteed semi-governmental organizations controlled by one of Switzerland's 26 cantons
that engage in all banking businesses. The largest cantonal bank, the Zurich Cantonal Bank, had a 2005 net income of CHF 810 million.
does protect the privacy of bank clients; the protections afforded under Swiss law are similar to confidentiality protections between doctors and patients or lawyers and their clients. The Swiss government views the right to privacy
as a fundamental principle that should be protected by all democratic countries. While privacy is protected, in practice all bank accounts are linked to an identified individual. Moreover, the bank secrecy is not absolute: a prosecutor or judge may issue a "lifting order" in order to grant law enforcement access to information relevant to a criminal investigation.
For Swiss taxpayers the distinction remains in place. Although not considered a crime and hence not prosecuted in a penal court, tax evasion is a serious offence under Swiss tax law and hefty financial penalties apply. In domestic prosecutions, banking secrecy may be lifted by court order in cases of tax fraud or particularly severe cases of tax evasion.
, whose member countries geographically surround Switzerland, has complained about member states' nationals using Swiss banks to avoid taxation in their home countries. The EU has long sought a harmonized tax regime among its member states, although many Swiss banking officials (and, according to some polls, the public) are resisting any such changes.
However, Switzerland did not want to be seen as an obstacle to closer tax cooperation among EU-member states and decided to support the international efforts to adequately tax cross-border investment income. The retention tax agreed with the European Union (EU) in the taxation of savings income agreement is a suitable and efficient means of doing so. The EU is committed to eliminating existing loopholes in the system of taxation of savings income. Switzerland has expressed to the EU its willingness in principle to correspondingly adjust the taxation of savings income. Here it should be noted that Switzerland has adopted the OECD standard on administrative assistance and that the Federal Council rejects the automatic exchange of information. Since July 1, 2005, Switzerland has charged a withholding tax
on all interest earned in the personal Swiss accounts of European Union residents.
Switzerland is not a member of the European Union but, since December 2008, is a part of the Schengen agreement
.
. Despite this, Swiss banks have been criticized for improperly shielding tax evaders.
In January 2003, the United States Department of Treasury announced a new information-sharing agreement under the already extant U.S.-Swiss Income Tax Convention; the agreement was intended to facilitate more effective tax information exchange between the two countries. However, Swiss policy has continued to come under international criticism, and in March 2009 Switzerland agreed to renegotiate more effective tax cooperation
with the United States and other countries.
. The Money Laundering Act sets forth requirements of account holders' identification, and requires reporting of any suspicious transactions to the Money Laundering Reporting Office.
According to the CIA World Factbook, Switzerland is "a major international financial center vulnerable to the layering and integration stages of money laundering; despite significant legislation and reporting requirements, secrecy rules persist and nonresidents are permitted to conduct business through offshore entities and various intermediaries..." However, Switzerland's cooperation in transnational financial issues has been praised by several major U.S. officials. A Federal Bureau of Investigation
anti-terrorism official noted that Switzerland was one of several countries to participate in joint task forces targeting financing of Al-Qaeda
terrorist cells; a former Assistant Secretary of the Treasury praised Swiss cooperation and the country's assistance in the finding and freezing of terrorist and Iraqi assets.
s, is restricted to senior bank officers, rather than being accessible to all the employees of a bank. However, the information required to open such an account is no different from that of an ordinary account; completely anonymous accounts are not allowed by law. Should a criminal investigation take place, law enforcement has access to information related to a numbered account in the same way it has access to information about any other account.
period (1933–1945), especially regarding funds deposited by or allegedly stolen from victims of the Holocaust. The campaign causing the highest outlays ($1.25 billion in 1999) on the part of the Swiss banking industry as of 2009 was the World Jewish Congress lawsuit against Swiss banks
launched by Edgar Bronfman
, president of the World Jewish Congress
, in concert with US Senator Alfonse d'Amato
of New York.
The audit run by the Volcker commission which resulted from this lawsuit cost CHF 300 million and gave its final report in December 1999. It determined that the 1999 book value of all dormant accounts possibly belonging to victims of Nazi persecution that were unclaimed, closed by the Nazis, or closed by unknown persons was CHF 95 million. Of this total, CHF 24 million were "probably" related to victims of Nazi persecution. In addition the commission found "no proof of systematic destruction of records of victim accounts, organized discrimination against the accounts of victims of Nazi persecution, or concerted efforts to divert the funds of victims of Nazi persecution to improper purposes." It also "confirmed evidence of questionable and deceitful actions by some individual banks in the handling of accounts of victims".
In response to the lawsuit, the Swiss government commissioned an independent panel of international scholars known as the Bergier Commission
to study the relationship between Switzerland and the Nazi regime. It reached similar conclusions about the banks' conduct in its final report, and found that trade with Nazi Germany did not significantly prolong the war
.
, Julian Assange
, noted that, as per documents of bank accounts by a former banker and whistleblower Rudolf Elmer
, the "names in the documents came from "US, Britain, Germany, Austria and Asia' – from all over".
, have attracted depositors seeking privacy and protection. Having taken steps to make its banks more attractive, Singapore strengthened penalties for violators of bank secrecy (and now imposes steeper fines and longer jail sentences for offenders), and modified its laws on trusts
and inheritance. Singapore is also now the location of Credit Suisse's international banking headquarters.
Switzerland
Switzerland name of one of the Swiss cantons. ; ; ; or ), in its full name the Swiss Confederation , is a federal republic consisting of 26 cantons, with Bern as the seat of the federal authorities. The country is situated in Western Europe,Or Central Europe depending on the definition....
are regulated by Swiss Financial Market Supervisory Authority
Swiss Financial Market Supervisory Authority
Swiss Financial Markets Authority is the Swiss government body responsible for financial regulation. This includes the supervision of banks, insurance companies, stock exchanges and securities dealers as well as other financial intermediaries in Switzerland.FINMA is an independent institution...
(FINMA), which derives its authority from a series of federal statutes. The country's tradition of bank secrecy
Bank secrecy
Bank secrecy is a legal principle in some jurisdictions under which banks are not allowed to provide to authorities personal and account information about their customers unless certain conditions apply...
, which dates to the Middle Ages
Middle Ages
The Middle Ages is a periodization of European history from the 5th century to the 15th century. The Middle Ages follows the fall of the Western Roman Empire in 476 and precedes the Early Modern Era. It is the middle period of a three-period division of Western history: Classic, Medieval and Modern...
, was first codified in a 1934 law.
, the banking industry in Switzerland has an average leverage ratio (assets/networth) of 29 to 1, while the industry's short-term liabilities are equal to 260% of the Swiss GDP or 1,273% of the Swiss national debt.
Overview
Switzerland is a prosperous nation with a per capita gross domestic product higher than that of most western European nations. In addition, the value of the Swiss francSwiss franc
The franc is the currency and legal tender of Switzerland and Liechtenstein; it is also legal tender in the Italian exclave Campione d'Italia. Although not formally legal tender in the German exclave Büsingen , it is in wide daily use there...
(CHF) has been relatively stable compared with that of other currencies
Fiat money
Fiat money is money that has value only because of government regulation or law. The term derives from the Latin fiat, meaning "let it be done", as such money is established by government decree. Where fiat money is used as currency, the term fiat currency is used.Fiat money originated in 11th...
. In 2009, the financial sector comprised 11.6% of Switzerland's GDP and employed approximately 195,000 people (136,000 of whom work in the banking sector); this represents about 5.6% of the total Swiss workforce. Furthermore, Swiss banks employ an estimated 103,000 people abroad.
Swiss neutrality
Neutral country
A neutral power in a particular war is a sovereign state which declares itself to be neutral towards the belligerents. A non-belligerent state does not need to be neutral. The rights and duties of a neutral power are defined in Sections 5 and 13 of the Hague Convention of 1907...
and national sovereignty
National sovereignty
National sovereignty is the doctrine that sovereignty belongs to and derives from the nation, an abstract entity normally linked to a physical territory and its past, present, and future citizens. It is an ideological concept or doctrine derived from liberal political theory...
, long recognized by foreign nations, have fostered a stable environment in which the banking sector was able to develop and thrive. Switzerland has maintained neutrality through both World War
World war
A world war is a war affecting the majority of the world's most powerful and populous nations. World wars span multiple countries on multiple continents, with battles fought in multiple theaters....
s, is not a member of the European Union
European Union
The European Union is an economic and political union of 27 independent member states which are located primarily in Europe. The EU traces its origins from the European Coal and Steel Community and the European Economic Community , formed by six countries in 1958...
, and was not even a member of the United Nations until 2002.
Currently an estimated one-third of all funds held outside the country of origin (sometimes called "offshore
Offshore bank
An offshore bank is a bank located outside the country of residence of the depositor, typically in a low tax jurisdiction that provides financial and legal advantages. These advantages typically include:...
" funds) are kept in Switzerland. In 2001 Swiss banks managed US$ 2.6 trillion. The following year they handled $400 billion USD less which has been attributed to both a bear market and stricter regulations on Swiss banking. By 2007 this figure has risen to roughly 6.7 trillion Swiss francs (US$6.4 trillion).
The Bank of International Settlements, an organization that facilitates cooperation among the world's central bank
Central bank
A central bank, reserve bank, or monetary authority is a public institution that usually issues the currency, regulates the money supply, and controls the interest rates in a country. Central banks often also oversee the commercial banking system of their respective countries...
s, is headquartered in the city of Basel
Basel
Basel or Basle In the national languages of Switzerland the city is also known as Bâle , Basilea and Basilea is Switzerland's third most populous city with about 166,000 inhabitants. Located where the Swiss, French and German borders meet, Basel also has suburbs in France and Germany...
. Founded in 1930, the BIS chose to locate in Switzerland because of the country's neutrality, which was important to an organization founded by countries that had been on both sides of World War I.
Foreign banks operating in Switzerland manage 870 billion Swiss francs worth of assets .
Law and regulation
The Swiss Financial Market Supervisory AuthoritySwiss Financial Market Supervisory Authority
Swiss Financial Markets Authority is the Swiss government body responsible for financial regulation. This includes the supervision of banks, insurance companies, stock exchanges and securities dealers as well as other financial intermediaries in Switzerland.FINMA is an independent institution...
(FINMA) is a public law institution that supervises most banking-related activities as well as securities market
Securities market
Securities market is an economic institute within which take place sale and purchase transactions of securities between subjects of economy on the base of demand and supply....
s and investment funds. Regulatory authority is derived from the Swiss Financial Market Supervision Act (FINMASA) and Article 98 of the Swiss Federal Constitution.
The office of the Swiss Banking Ombudsman
Ombudsman
An ombudsman is a person who acts as a trusted intermediary between an organization and some internal or external constituency while representing not only but mostly the broad scope of constituent interests...
, founded in 1993, is sponsored by the Swiss Banking Ombudsman Foundation, which was established by the Swiss Bankers Association
Swiss Bankers Association
The Swiss Bankers Association is a professional organization of Swiss financial institutions.-Background:The trade association known as the Swiss Bankers Association was founded in 1912 in Basel, Switzerland. It is the primary industry group representing the Swiss Banks to the government of...
. The ombudsman's services, which are offered free of charge, include mediation
Mediation
Mediation, as used in law, is a form of alternative dispute resolution , a way of resolving disputes between two or more parties. A third party, the mediator, assists the parties to negotiate their own settlement...
and assistance to persons searching for dormant assets. The ombudsman handles about 1,500 complaints raised against banks yearly.
Banking law of 1934
The Swiss Parliament passed the Banking Law of 1934, which codified the rules of secrecy and criminalizes violation of it. The secrecy provisions were not included in the first draft of the law, which mainly concerned administrative matters such as bank supervision. The provisions, found in Article 47(b), were added before passage of the bill due to Nazi authorities' attempts to investigate the assets of Jews and "enemies of the stateEnemy of the state
An enemy of the state is a person accused of certain crimes against the state, such as treason. Describing individuals in this way is sometimes a manifestation of political repression. For example, an authoritarian regime may purport to maintain national security by describing social or political...
" held in Switzerland.
Electronic payments
Swiss banks, as well as the post officeSwiss Post
Swiss Post is the postal service of Switzerland. A public company owned by the Swiss Confederation, it is the country's second largest employer...
(which handles some financial transactions
Postal savings system
Many nations' post offices operated or continue to operate postal savings systems to provide depositors who do not have access to banks a safe, convenient method to save money and to promote saving among the poor.-Great Britain:...
) use an electronic payments system known as Swiss Interbank Clearing (SIC). The system is supervised by the Swiss National Bank and is operated via a joint venture. SIC handled over 250 million transactions in 2005, with a turnover value of 41 trillion Swiss francs.
Major banks
As of 2008, there are 327 authorized banks and securities dealers in Switzerland, ranging from the "Two Big Banks" down to small banks serving the needs of a single community or a few special clients.UBS and Credit Suisse
Credit Suisse
The Credit Suisse Group AG is a Swiss multinational financial services company headquartered in Zurich, with more than 250 branches in Switzerland and operations in more than 50 countries.-History:...
are respectively the largest and second largest Swiss banks and account for over 50% of all deposits in Switzerland; each has extensive branch networks throughout the country and most international centres.
Due to their size and complexity, UBS and Credit Suisse are subject to an extra degree of supervision from the Federal Banking Commission.
UBS
UBS came into existence in June 1998, when Union Bank of SwitzerlandUnion Bank of Switzerland
Union Bank of Switzerland was a large integrated financial services company located in Switzerland. The bank, which at the time was the second largest bank in Switzerland, merged with Swiss Bank Corporation in 1998, to become UBS to form what was then the largest bank in Europe and the second...
, founded in 1862, and Swiss Bank Corporation
Swiss Bank Corporation
Swiss Bank Corporation was a large integrated financial services company located in Switzerland...
, founded in 1872, merged. Headquartered in Zurich
Zürich
Zurich is the largest city in Switzerland and the capital of the canton of Zurich. It is located in central Switzerland at the northwestern tip of Lake Zurich...
and Basel
Basel
Basel or Basle In the national languages of Switzerland the city is also known as Bâle , Basilea and Basilea is Switzerland's third most populous city with about 166,000 inhabitants. Located where the Swiss, French and German borders meet, Basel also has suburbs in France and Germany...
, it is Switzerland's largest bank. It maintains seven main offices around the world (four in the United States
Economy of the United States
The economy of the United States is the world's largest national economy. Its nominal GDP was estimated to be nearly $14.5 trillion in 2010, approximately a quarter of nominal global GDP. The European Union has a larger collective economy, but is not a single nation...
and one each in London, Tokyo, and Hong Kong) and branches on five continents.
, UBS had a net profit of CHF7.161 billion, a market capitalization
Market capitalization
Market capitalization is a measurement of the value of the ownership interest that shareholders hold in a business enterprise. It is equal to the share price times the number of shares outstanding of a publicly traded company...
of over CHF58.8 billion, and 64,617 employees.
Credit Suisse
Credit Suisse is the second-largest Swiss bank. Based in Zurich, it was founded in 1856; its market capitalization is $95.2 billion, and the company has about 40,000 employees. Credit Suisse Group offers private banking, investment banking and asset management services. It acquired The First Boston Corporation in 1988 and merged with the WinterthurWinterthur Group
AXA Winterthur is a multinational insurance company. The original company named Winterthur was founded in Winterthur, Switzerland, in 1875. Until June 2006, Winterthur was a Credit Suisse subsidiary. Now, Paris-based AXA Insurance has entered into a definitive agreement to purchase Winterthur...
insurance company in 1997; the latter was sold to AXA
AXA
AXA S.A. is a French global insurance group headquartered in the 8th arrondissement of Paris. AXA is a conglomerate of independently run businesses, operated according to the laws and regulations of many different countries. The AXA group of companies engage in life, health and other forms of...
in 2006. The asset management services were sold to Aberdeen Asset Management
Aberdeen Asset Management
Aberdeen Asset Management plc is an international investment management group, managing assets for both institutions and private investors from offices around the world. Its head office is in Aberdeen, Scotland. The company is a constituent of the FTSE 250 Index.-History:The company was...
in 2008 during the GFC.
Central Bank
Central bank
A central bank, reserve bank, or monetary authority is a public institution that usually issues the currency, regulates the money supply, and controls the interest rates in a country. Central banks often also oversee the commercial banking system of their respective countries...
. Founded by the Federal Act on the Swiss National Bank (16 January 1906), it began conducting business on 20 June 1907. Its shares are publicly traded, and are held by the cantons
Cantons of Switzerland
The 26 cantons of Switzerland are the member states of the federal state of Switzerland. Each canton was a fully sovereign state with its own borders, army and currency from the Treaty of Westphalia until the establishment of the Swiss federal state in 1848...
, cantonal banks, and individual investors; the federal government does not hold any shares. Although a central bank often has regulatory authority over the country's banking system, the SNB does not; regulation is solely the role of the Federal Banking Commission....
Private banks – Private bankers
The term private bankPrivate bank
Private banks are banks that are not incorporated. A private bank is owned by either an individual or a general partner with limited partner...
refers to a bank that offers private banking
Private banking
Private banking is banking, investment and other financial services provided by banks to private individuals investing sizable assets. The term "private" refers to the customer service being rendered on a more personal basis than in mass-market retail banking, usually via dedicated bank advisers...
services and in its legal form is a partnership. The first private banks were created in St. Gallen
St. Gallen
St. Gallen is the capital of the canton of St. Gallen in Switzerland. It evolved from the hermitage of Saint Gall, founded in the 7th century. Today, it is a large urban agglomeration and represents the center of eastern Switzerland. The town mainly relies on the service sector for its economic...
in the mid 18th century and in Geneva in the late 18th century as partnerships, and some are still in the hands of the original families such as Hottinger
Hottinger
Hottinger or Hottinguer may refer to:*Henri Hottinguer , first born son of Rodolphe Hottinguer*Jay Hottinger , Republican member of the Ohio House of Representatives...
and Mirabaud. In Switzerland, such private banks are called private bankers (a protected term) to distinguish them from the other private banks which are typically shared corporations. Historically in Switzerland a minimum of Francs 1 million was required to open an account, however, over the last years many private banks have lowered their entry hurdles to Francs 250,000 for private investors.
Cantonal banks
There are, as of 2006, 24 cantonal bankCantonal bank
Cantonal banks are Swiss governmental-owned commercial banks, that use the canton that they are based in as guarantee for the assets held there. However, currently they are in process of being partially privatised...
s; these banks are state-guaranteed semi-governmental organizations controlled by one of Switzerland's 26 cantons
Cantons of Switzerland
The 26 cantons of Switzerland are the member states of the federal state of Switzerland. Each canton was a fully sovereign state with its own borders, army and currency from the Treaty of Westphalia until the establishment of the Swiss federal state in 1848...
that engage in all banking businesses. The largest cantonal bank, the Zurich Cantonal Bank, had a 2005 net income of CHF 810 million.
Banking privacy
Swiss bank secrecyBank secrecy
Bank secrecy is a legal principle in some jurisdictions under which banks are not allowed to provide to authorities personal and account information about their customers unless certain conditions apply...
does protect the privacy of bank clients; the protections afforded under Swiss law are similar to confidentiality protections between doctors and patients or lawyers and their clients. The Swiss government views the right to privacy
Privacy
Privacy is the ability of an individual or group to seclude themselves or information about themselves and thereby reveal themselves selectively...
as a fundamental principle that should be protected by all democratic countries. While privacy is protected, in practice all bank accounts are linked to an identified individual. Moreover, the bank secrecy is not absolute: a prosecutor or judge may issue a "lifting order" in order to grant law enforcement access to information relevant to a criminal investigation.
Taxation
Swiss law distinguishes between tax evasion (non-reporting of income) and tax fraud (active deception). International legal assistance used to be granted only with respect to tax fraud. Under pressure from the OECD and the G20, the Swiss government decided in March 2009 to abolish the distinction between tax evasion and tax fraud in dealings with foreign clients. Switzerland adheres to the international OECD standards with regard to administrative assistance in tax matters (decision to take over the OECD Model Tax Convention, in particular Article 26)For Swiss taxpayers the distinction remains in place. Although not considered a crime and hence not prosecuted in a penal court, tax evasion is a serious offence under Swiss tax law and hefty financial penalties apply. In domestic prosecutions, banking secrecy may be lifted by court order in cases of tax fraud or particularly severe cases of tax evasion.
European Union
Pressure on Switzerland has been applied by several states and international organizations attempting to alter the Swiss privacy policy. The European UnionEuropean Union
The European Union is an economic and political union of 27 independent member states which are located primarily in Europe. The EU traces its origins from the European Coal and Steel Community and the European Economic Community , formed by six countries in 1958...
, whose member countries geographically surround Switzerland, has complained about member states' nationals using Swiss banks to avoid taxation in their home countries. The EU has long sought a harmonized tax regime among its member states, although many Swiss banking officials (and, according to some polls, the public) are resisting any such changes.
However, Switzerland did not want to be seen as an obstacle to closer tax cooperation among EU-member states and decided to support the international efforts to adequately tax cross-border investment income. The retention tax agreed with the European Union (EU) in the taxation of savings income agreement is a suitable and efficient means of doing so. The EU is committed to eliminating existing loopholes in the system of taxation of savings income. Switzerland has expressed to the EU its willingness in principle to correspondingly adjust the taxation of savings income. Here it should be noted that Switzerland has adopted the OECD standard on administrative assistance and that the Federal Council rejects the automatic exchange of information. Since July 1, 2005, Switzerland has charged a withholding tax
European Union withholding tax
The so-called European Union withholding tax is a withholding tax which is deducted from interest earned by European Union residents on their investments made in another member state, by the state in which the investment is held....
on all interest earned in the personal Swiss accounts of European Union residents.
Switzerland is not a member of the European Union but, since December 2008, is a part of the Schengen agreement
Schengen Agreement
The Schengen Agreement is a treaty signed on 14 June 1985 near the town of Schengen in Luxembourg, between five of the ten member states of the European Economic Community. It was supplemented by the Convention implementing the Schengen Agreement 5 years later...
.
United States
Swiss bank accounts cannot be opened without the holder signing a legal document asserting that they have no outstanding financial obligations to the IRSInternal Revenue Service
The Internal Revenue Service is the revenue service of the United States federal government. The agency is a bureau of the Department of the Treasury, and is under the immediate direction of the Commissioner of Internal Revenue...
. Despite this, Swiss banks have been criticized for improperly shielding tax evaders.
In January 2003, the United States Department of Treasury announced a new information-sharing agreement under the already extant U.S.-Swiss Income Tax Convention; the agreement was intended to facilitate more effective tax information exchange between the two countries. However, Swiss policy has continued to come under international criticism, and in March 2009 Switzerland agreed to renegotiate more effective tax cooperation
Tax treaty
Many countries have agreed with other countries in treaties to mitigate the effects of double taxation . Tax treaties may cover income taxes, inheritance taxes, value added taxes, or other taxes...
with the United States and other countries.
Money laundering
There are several measures in place to counter money launderingMoney laundering
Money laundering is the process of disguising illegal sources of money so that it looks like it came from legal sources. The methods by which money may be laundered are varied and can range in sophistication. Many regulatory and governmental authorities quote estimates each year for the amount...
. The Money Laundering Act sets forth requirements of account holders' identification, and requires reporting of any suspicious transactions to the Money Laundering Reporting Office.
According to the CIA World Factbook, Switzerland is "a major international financial center vulnerable to the layering and integration stages of money laundering; despite significant legislation and reporting requirements, secrecy rules persist and nonresidents are permitted to conduct business through offshore entities and various intermediaries..." However, Switzerland's cooperation in transnational financial issues has been praised by several major U.S. officials. A Federal Bureau of Investigation
Federal Bureau of Investigation
The Federal Bureau of Investigation is an agency of the United States Department of Justice that serves as both a federal criminal investigative body and an internal intelligence agency . The FBI has investigative jurisdiction over violations of more than 200 categories of federal crime...
anti-terrorism official noted that Switzerland was one of several countries to participate in joint task forces targeting financing of Al-Qaeda
Al-Qaeda
Al-Qaeda is a global broad-based militant Islamist terrorist organization founded by Osama bin Laden sometime between August 1988 and late 1989. It operates as a network comprising both a multinational, stateless army and a radical Sunni Muslim movement calling for global Jihad...
terrorist cells; a former Assistant Secretary of the Treasury praised Swiss cooperation and the country's assistance in the finding and freezing of terrorist and Iraqi assets.
Numbered bank accounts
Some bank accounts are afforded an extra degree of privacy. Information concerning such accounts, known as numbered accountNumbered bank account
A numbered bank account is a type of bank account where the name of the account holder is kept secret, and he identifies himself to the bank by means of a code word known only by the account holder and a restricted number of bank employees, thus providing the holder with a degree of bank privacy in...
s, is restricted to senior bank officers, rather than being accessible to all the employees of a bank. However, the information required to open such an account is no different from that of an ordinary account; completely anonymous accounts are not allowed by law. Should a criminal investigation take place, law enforcement has access to information related to a numbered account in the same way it has access to information about any other account.
Swiss Banks and World War II
Several inquiries have been made into the conduct of Swiss banks during the Nazi GermanyNazi Germany
Nazi Germany , also known as the Third Reich , but officially called German Reich from 1933 to 1943 and Greater German Reich from 26 June 1943 onward, is the name commonly used to refer to the state of Germany from 1933 to 1945, when it was a totalitarian dictatorship ruled by...
period (1933–1945), especially regarding funds deposited by or allegedly stolen from victims of the Holocaust. The campaign causing the highest outlays ($1.25 billion in 1999) on the part of the Swiss banking industry as of 2009 was the World Jewish Congress lawsuit against Swiss banks
World Jewish Congress lawsuit against Swiss banks
The World Jewish Congress lawsuit against Swiss banks was launched to retrieve deposits made by victims of Nazi persecution during and prior to World War II.-Negotiations:...
launched by Edgar Bronfman
Edgar Bronfman
Edgar Bronfman may refer to:* Edgar Bronfman, Sr. , Canadian businessman and former long-time president of the World Jewish Congress* Edgar Bronfman, Jr. , CEO of the Warner Music Group...
, president of the World Jewish Congress
World Jewish Congress
The World Jewish Congress was founded in Geneva, Switzerland, in August 1936 as an international federation of Jewish communities and organizations...
, in concert with US Senator Alfonse d'Amato
Al D'Amato
Alfonse Marcello "Al" D'Amato is an American lawyer and former New York politician. A Republican, he served as United States Senator from New York from 1981 to 1999.-Early life and family:...
of New York.
The audit run by the Volcker commission which resulted from this lawsuit cost CHF 300 million and gave its final report in December 1999. It determined that the 1999 book value of all dormant accounts possibly belonging to victims of Nazi persecution that were unclaimed, closed by the Nazis, or closed by unknown persons was CHF 95 million. Of this total, CHF 24 million were "probably" related to victims of Nazi persecution. In addition the commission found "no proof of systematic destruction of records of victim accounts, organized discrimination against the accounts of victims of Nazi persecution, or concerted efforts to divert the funds of victims of Nazi persecution to improper purposes." It also "confirmed evidence of questionable and deceitful actions by some individual banks in the handling of accounts of victims".
In response to the lawsuit, the Swiss government commissioned an independent panel of international scholars known as the Bergier Commission
Bergier commission
The Bergier commission in Bern was formed by the Swiss government on 12 December 1996. It is also known as the ICE ....
to study the relationship between Switzerland and the Nazi regime. It reached similar conclusions about the banks' conduct in its final report, and found that trade with Nazi Germany did not significantly prolong the war
World War II
World War II, or the Second World War , was a global conflict lasting from 1939 to 1945, involving most of the world's nations—including all of the great powers—eventually forming two opposing military alliances: the Allies and the Axis...
.
Allegations of black money
Swiss Banks are alleged to stash black money i.e. as that part of a nation's income or that a person or organization acquires illegally and concealed, by reporters and journals, and reportedly there are more Indian and Pakistani deposits in the Swiss banks than any other nationality. Editor-in-chief for WikiLeaksWikileaks
WikiLeaks is an international self-described not-for-profit organisation that publishes submissions of private, secret, and classified media from anonymous news sources, news leaks, and whistleblowers. Its website, launched in 2006 under The Sunshine Press organisation, claimed a database of more...
, Julian Assange
Julian Assange
Julian Paul Assange is an Australian publisher, journalist, writer, computer programmer and Internet activist. He is the editor in chief of WikiLeaks, a whistleblower website and conduit for worldwide news leaks with the stated purpose of creating open governments.WikiLeaks has published material...
, noted that, as per documents of bank accounts by a former banker and whistleblower Rudolf Elmer
Rudolf Elmer
Rudolf Elmer is a former employee of Swiss bank Julius Bär. He worked for the bank for close to two decades, the last position being overseeing the Caribbean operations of the bank for eight years until his dismissal in 2002...
, the "names in the documents came from "US, Britain, Germany, Austria and Asia' – from all over".
International competition
With recent changes in the Swiss bank secrecy regime the assets held by foreign persons in Swiss bank accounts declined according to data by the Swiss National Bank (SNB) by 28.1% between January 2008 and November 2009. Other states, such as SingaporeSingapore
Singapore , officially the Republic of Singapore, is a Southeast Asian city-state off the southern tip of the Malay Peninsula, north of the equator. An island country made up of 63 islands, it is separated from Malaysia by the Straits of Johor to its north and from Indonesia's Riau Islands by the...
, have attracted depositors seeking privacy and protection. Having taken steps to make its banks more attractive, Singapore strengthened penalties for violators of bank secrecy (and now imposes steeper fines and longer jail sentences for offenders), and modified its laws on trusts
Trust law
In common law legal systems, a trust is a relationship whereby property is held by one party for the benefit of another...
and inheritance. Singapore is also now the location of Credit Suisse's international banking headquarters.
See also
- List of Banks in Switzerland
- List of Swiss financial market legislation
- Offshore bankOffshore bankAn offshore bank is a bank located outside the country of residence of the depositor, typically in a low tax jurisdiction that provides financial and legal advantages. These advantages typically include:...
- Societe Internationale v. RogersSociete Internationale v. RogersSociete Internationale Pour Participations Industrielles Et Commerciales, S.A. v. Rogers, 357 U.S. 197 , was a case decided by the United States Supreme Court, in which the court considered whether a district court could dismiss a case based on the petitioner's failure to comply with the court's...
- Swiss francSwiss francThe franc is the currency and legal tender of Switzerland and Liechtenstein; it is also legal tender in the Italian exclave Campione d'Italia. Although not formally legal tender in the German exclave Büsingen , it is in wide daily use there...
- World Jewish Congress lawsuit against Swiss BanksWorld Jewish Congress lawsuit against Swiss banksThe World Jewish Congress lawsuit against Swiss banks was launched to retrieve deposits made by victims of Nazi persecution during and prior to World War II.-Negotiations:...
- Swiss Bankers AssociationSwiss Bankers AssociationThe Swiss Bankers Association is a professional organization of Swiss financial institutions.-Background:The trade association known as the Swiss Bankers Association was founded in 1912 in Basel, Switzerland. It is the primary industry group representing the Swiss Banks to the government of...
- Black moneyBlack MoneyBlack Money is a novel by US American mystery writer Ross Macdonald. Published in 1966, it is, according to Matthew Bruccoli and other critics, among the most powerful of all Ross Macdonald's novels...
External links
- / Swiss banking consultants
- The Swiss banking law, as amended, from KPMGKPMGKPMG is one of the largest professional services networks in the world and one of the Big Four auditors, along with Deloitte, Ernst & Young and PwC. Its global headquarters is located in Amstelveen, Netherlands....
- Offshore Banking, Directory resource, from OTH
- The Swiss Financial Center, from swissworld.org
- swissbanking.org
- Swiss Private Banking News