Myth and Reality of Swiss Secrecy : Handling of Marcos, Duvalier Deposits Stirs Controversy

This nation’s freeze on the assets of former PhilippinesPresident Ferdinand Marcos and ousted Haitian President Jean-Claude (Baby Doc) Duvalier has exposed a truth and blown away a myth about the world of Swiss banking.

The truth is that rulers said to have accumulated fortunes while in power can and do bring their money to Swiss banks.

The myth is that once it is here, Switzerland’s tight veil of banking secrecy means it can never be repatriated to the countries where succeeding governments believe it belongs.

But the differing paths taken by the Swiss government to secure the deposits of the two fallen heads of state have stirred controversy. Swiss bankers say recent events show there is a right and a wrong way of lifting secrecy should the need arise.

They say that when the Swiss Cabinet hurriedly invoked emergency law on March 24 to freeze the Marcos funds, it manifestly chose the wrong way.

By contrast, the decision April 15 to block the funds of self-styled President-for-life Duvalier followed established legal procedures and the vehement criticism from bankers over the Marcos freeze was not voiced about Duvalier.

Hans Voegeli, a private banker and a member of the Swiss Bankers’ Assn.’s Tax Committee, described the government’s handling of the Marcos affair as over-hasty and a purely political move.

Caused Uncertainty

Kurt Schiltknecht, a former Swiss National Bank chief economist turned commercial banker, said the invocation of emergency powers had caused uncertainty in financial circles.

Swiss banking secrecy laws, drawn up in the 1930s to fend off Nazi probes into the accounts of refugees from German terror, have their parallels elsewhere in Europe, although the aura of the numbered Swiss bank account has never diminished.

But the once-humanitarian aspect of the laws was readily manipulated after World War II by drug traffickers, money launderers and heads of state with an uncertain future.The shah of Iran, with a villa in chic St. Moritz, was believed to hold part of his personal fortune here.

In 1979, the Swiss government took a very different line after the shah’s fall than with Marcos and refused to allow investigators from Tehran access to his accounts.

Swiss banking secrecy may be lifted if a foreign government, pursuing criminal proceedings at home, makes a request to Berne for cooperation under the 1983 International Mutual Assistance in Criminal Affairs (IMAC) law.

The Swiss government was told that sums from Marcos accounts--alleged in Manila to hold up to $1.5 billion--were being withdrawn but could not invoke the IMAC because no request had come from Manila and no charges had been laid.

In the case of Duvalier, the new Haitian regime telexed Berne on the morning of April 15 to say it was accusing him of embezzling funds and a request for legal help was on its way.

Swiss authorities say they do not know just how much money Duvalier, who fled to France from one of the world’s poorest countries on Feb. 7, may have in Swiss accounts.

Bankers here believe that by not waiting for a request from Manila, the government undermined the legal apparatus which has gradually been established in Switzerland to ensure that Swiss banking secrecy is not sacrosanct.

Partly under pressure from tenacious American investigators and partly to counter accusations that the country is just a safe dumping ground for dirty money, new legislation has been drawn up to make the face of Swiss banking more acceptable.

Tough Treaty

As well as the IMAC law, the Swiss have a tough bilateral treaty with the United States which provides for Swiss assistance in certain areas of investigation.

In the early 1980s, the case of international commodities trader Marc Rich caused much tension between the two countries, with Berne accusing Washington of interfering with Swiss laws and the United States saying Rich was allowed to shelter behind secrecy.

The Americans sought evidence that Rich had evaded taxes and oil price regulations, but rejected the option of a request for legal assistance and tried to force Rich into supplying company documents with a daily fine.

The Swiss, who said that infringed on their sovereignty, impounded the papers to stop Rich complying. Only after Rich had settled out of court were the seized documents handed over.

Pressure Continued

But U.S pressure continued in other cases. John Fedders, former law enforcement chief of the U.S. Securities and Exchange Commission, had long charged that Switzerland turned a blind eye to “insider trading” carried out through its banks.

A law banning the abuse of insider knowledge when making securities transactions in Switzerland is currently awaiting parliamentary approval.

It was with the backing of this array of legal mechanisms to help fight financial crime that banks challenged voters in 1984 to reject a Socialist-backed referendum which would have carved a massive slice out of Swiss banking secrecy.

The voters threw the motion out by a margin of nearly three to one. The bankers now feel that by sidestepping the law in the case of Marcos the government ran counter to the feelings of the people who had backed the status quo.

Voegeli said that the freezing of the Duvalier deposits was acceptable because it complied with the existing laws. He hoped that was a sign that the government was returning to the application of established legislation.

Swiss bankers say they are fully prepared to cooperate with foreign authorities tracking identified criminals, but even with a strict convention making them refuse suspect funds it is often impossible to know the source of the money.

“Government leaders themselves do not turn up at bank counters. And criminals filter money into Switzerland via lawyers, bogus companies and other accounts,” one banker said.

The government has taken pains to stress that the Marcos case was exceptional and the Berne authorities were forced to act with extraordinary speed.

As far as banking secrecy is concerned, bankers foresee no change resulting from the incident.