Explained: What Are Swiss Banks And Why Do They Maintain Secrecy

A whistleblower has revealed details on more than $100 billion held in 30,000 accounts at Zurich-based Credit Suisse, one of the world's most recognisable banks ¡ª much of it suspected to be illegal money from human rights violators, fraudsters, and businesspeople sanctioned by international organisations.

The database was handed to the S¨¹ddeutsche Zeitung in Germany, which shared it with the Organised Crime and Corruption Reporting Project and 46 other news organisations such as The New York Times, The Guardian, and Le Monde.

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The study refocused attention on Swiss banks and their well-known, century-old culture of secrecy, which is under threat as countries throughout the world try to persuade its super-rich to pay fair taxes on their fortunes.

How do Swiss banks maintain secrecy?

Geneva had become a preferred destination for French royalty and other European elites seeking discreet havens to stash their wealth since at least the beginning of the 18th century, and Swiss government authorities announced laws prohibiting bankers from disclosing information about their customers in 1713.

As a result, a tremendous culture of quiet and secrecy arose, which would eventually become the defining trait of Swiss finance.

The Federal Act on Banks and Savings Banks, also known as the Banking Law of 1934 or the Swiss Banking Act, was passed in 1934 in Switzerland. Article 47, the most well-known section of the law, made it illegal to provide customer details or information to nearly anybody ¡ª even the government ¡ª without their consent and in the absence of a criminal complaint.

Article 47 is at the heart of some of the most stringent financial secrecy regulations anywhere, with violators facing up to five years in prison.

The safety and stability of Swiss banks, located in a peaceful, politically neutral country committed to secrecy, became an irresistible attraction for the super wealthy and others who did not want to answer questions about their wealth's sources as wealth became more easily mobile across international borders.

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Long tunnels leading to underground vaults and bank employees with an unshakeable reputation for customer confidentiality became famous imagery thanks to film depictions. "If you can't trust a Swiss banker, what has the world come to?" says James Bond in The World Is Not Enough (1999).

'Black money'

In India, "black money" supposedly stored by Indians in Swiss banks is a political issue, with parties and politicians frequently promising to "bring it back." The Swiss government has stated that they work with the Indian government to combat tax evasion and fraud.

Since 2018, the two nations have had an automatic exchange of information in tax matters, with complete financial information on all Indian residents with accounts in Swiss financial institutions being made available to Indian authorities for the first time in September 2019.

Simple and secure banking

Depositors prefer Swiss bank accounts because they offer minimal risk and excellent privacy. The Swiss economy is extremely solid, and the banks are professionally administered.

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An account in a Swiss bank can be opened by almost any adult anywhere in the globe. Opening an account is simple and only requires basic KYC, such as a passport or other form of identification. There is a minimum balance requirement, which varies by account type and bank.

International clients' patronage is vital to Swiss banks and the Swiss economy as a whole. According to the Guardian, foreign clients own nearly half of Switzerland's 7.9 trillion Swiss francs ($8.59 trillion) in assets under management. The banking industry accounts for a tenth of Switzerland's GDP and employs a similar number of people. The country has over 240 banks, yet Credit Suisse and UBS control almost half of all banking assets, The Guardian reported.

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