An incriminating leak by an unnamed whistleblower has exposed confidential data related to 30,000 clients of leading Swiss investment bank Credit Suisse made headlines across the world on Sunday. These accounts reportedly belong to clients with allegedly shady background such as drug-trafficking, money-laundering and crimes of severe nature. The collective wealth held in the said accounts is reportedly around USD108 billion. The data was provided to a German newspaper Süddeutsche Zeitung which was further distributed to various news organisations which form the Organised Crime and Corruption Reporting Project (OCCRP).
Credit Suisse said in a statement that it “strongly rejects the allegations and interferences about the bank’s purported business practices.” This is however not the first time that the Swiss Banks have been at the centre of scandals vis-à-vis parking of illegally-gotten wealth and money laundering. But why do these allegedly nefarious individuals choose Switzerland based banks as their favoured destinations? Here’s an explanation:
1. Secrecy in Swiss banks dated back to the 18th century when the Great Council of Geneva banned the divulgence of information regarding bank accounts of the European aristocracy (bourgeoisie) in 1713. The formation of the Swiss state in 1848 coupled with political stability and high degree of professionalism in running financial institutions made Switzerland banks an attractive destination for the European upper class to deposit their wealth.
Also read| Rs 18,000 cr returned to banks from Mallya, Nirav & Choksi: Centre to SC
2. World War I, the associated destruction and the post-war reconstruction took a heavy toll on the wealth of the European aristocracy in the form of high taxes. This only reinforced the image of Swiss banks as an ideal place to secure one’s money. Before the 1930s, disclosure of account details was a civil offence. But after the arrest of two employees of a bank in 1932, Switzerland passed the Swiss Federal Banking Act of 1934 which made such disclosures a criminal offence.
3. The most important provision of the Act is Article 47 which made it a federal crime to reveal the information regarding clients to foreign entities or even the Swiss government without either the client’s consent or an accepted criminal complaint. One of the Swiss banks, UBS infamously held wealth around 1.1 billion Reichsmarks belonging to Adolf Hitler. Swiss banks also stored wealth and other assets of German/Polish Jews to shield it from Nazi law enforcement authorities.
4. Over the years, especially with the advent of globalization and the fluidity of wealth flow across national borders and Switzerland’s domestic political stability and international neutrality, the Swiss banks have acquired a reputation for tax evasion and money laundering for the uber rich individuals involved in shady business. . Opening an account in one of these banks is hassle-free work requiring a proof of identity (passport, etc.) and a minimum bank account.
Also read| ITC is both a top dividend-yielding and a growth stock
5. Swiss banks are critical to the Swiss economy. Out of the total Swiss workforce, 5.8 percent of the employees work in financial services. This is the second highest figure in the world after Switzerland which employs 6.7 percent of its workforce in the financial sector. The Swiss financial sector contributes 10.5 percent of the country’s GDP. There are around 240 banks in the country. Credit Suisse and UBS control around 50 percent of all the banking assets, as per The Guardian report.
6. India has been dealing with the issue of corruption and “black money” stashed in Swiss Banks is always a heated topic of debate in Indian politics. Both the countries have “automatic exchange of information” (AEOI) in place to share details regarding bank accounts of Indian clients. In October 2021, India received the third set of Swiss bank account details, the first one being shared in 2019 and the next one in 2020. The next batch of names will be received in September 2022.
