COLUMN ONE : Swiss Open the Vaults of Secrecy : Long famous for asking no questions, the Alpine nation's bankers--at times prodded by new laws--are rebuffing shady clients, returning ill-gotten gains and helping authorities counter crime.


The South American drug lord strode into one of the famously discreet banks here recently with a large cash deposit. Expecting a simple transaction, he was, instead, questioned for two hours, then shown the door, still carrying his cash-stuffed suitcase.

"I'm sorry, but you aren't the right customer for this bank," the banker told him, according to someone familiar with the incident. Even a narcotics agent, working undercover in the drug lord's entourage, had to work to contain his surprise.

As that rebuff suggests, the days of no-questions-asked deposits in Swiss banks are fast disappearing.

Not only are banks turning away suspiciously wealthy customers, but for the past year they have been voluntarily reporting some to the authorities, under a special exception to the 61-year-old banking secrecy law.

In fact, Swiss bankers are making many changes in the way they do business.

They are cooperating with foreign governments more often, most recently in the case of late Philippine dictator Ferdinand Marcos' multimillion-dollar Swiss assets. And beginning next year, Swiss banks will make it easier for the heirs of deceased customers such as Holocaust victims to apply for family assets held in Swiss accounts.

"Bankers are becoming much more conscious of their moral responsibilities," said Silvia Matile-Steiner, an attorney with the Swiss Bankers Assn. in Basel. "We want to keep our image as a safe place but also as an honest place."

Or as an American diplomat in Switzerland put it: "They've got enough clean money without needing dirty money. The new rule for bankers is: If you take dirty money, you're in trouble."

Of course, secrecy remains the backbone--and sturdy appeal--of this powerful industry, whose 494 banks manage an estimated $2 trillion in assets, about half of the world's privately managed assets.

The numbered account still lives. Although, these days, all the owners of those accounts are known to the bank, their identities held close to the executive vest and far from the eyes of tellers--and investigators.

Largely as a result, millions of dollars still flow into this banking haven from Third World dictators, tax-evading foreigners and rich folks trying to hide their nest eggs from mercenary heirs.

"Money we receive because the customer lacks confidence in his own country? It's not a problem," said Christian Frey, an economist at the nation's largest bank, the Union Bank of Switzerland. "We cannot be responsible for the instability of other countries."

But other practices are changing, if slowly.

Banks still refuse to divulge information on customers sought by foreign law enforcement agencies for tax evasion, because that is not a crime in Switzerland. Yet they now are cooperating on cases of insider trading, which became a Swiss crime in 1988, and on money laundering, which was criminalized here in 1990.

The most important change has been the 1994 law that allows bankers to report suspicious customers. Before, bankers were legally bound to maintain customer confidentiality even in suspicious cases.

Now the Swiss federal prosecutor wants a stronger law, one that would require banks to report such cases. To no one's surprise, the banks vociferously oppose it, arguing that it would undermine their special relationship with customers.

"We don't want criminals as customers," one banker said, "but we don't want to become policemen either."

Still, in the banking center of Zurich, the country's largest city, authorities have received 26 reports of shady customers in the past year; nine of the cases led to prosecutions.

A senior manager of Union Bank of Switzerland is also under investigation for allowing a Colombian couple to make $200 million in deposits. The couple had said the money was from their South American hotels, but the cash deposits suggest drug money. And the authorities contend that the banker should have known.

All this is part of a broad move to polish the image of Swiss banking, an effort especially evident in two recent announcements.

In August, Switzerland agreed to turn over $500 million of Marcos' assets to the Philippine government.

Although the banks have appealed the decision, lawyers say that is just a formality to protect the banks from competing claims for the money. The lawyers say the banks intend to return the assets eventually, and the Philippine government is negotiating with human rights groups to divide the money.

In September, Swiss banks revealed that they have about $37 million in 893 deposit accounts that were opened before the end of World War II and have been dormant since 1985. At least some of that money may belong to Holocaust victims.

Swiss officials have tried to dampen speculation that billions of dollars from Holocaust victims remain in the country.

"I can understand people thinking their relatives may have kept some money in Switzerland, but I don't know where they get this figure," attorney Matile-Steiner said. "It is highly exaggerated."

The $37 million represents abandoned accounts in about half of Switzerland's banks, including the largest ones. It is likely to increase when a final tally is made.

Financial analysts say victims of the Nazi regime probably account for only a few of those deposits, noting that about a fourth of the money came from customers in Germany, Austria or Eastern Europe. Some of it may even belong "to Americans who were trying to avoid taxes in the 1930s and 1940s," one analyst said.

This was Switzerland's third large-scale attempt since the war to return money belonging to victims of Nazi persecution.

Swiss banks returned $13 million to rightful heirs in the first seven years after the war. Then, in 1962, the Swiss legislature ordered a review of all unclaimed bank holdings from the Nazi era, finding $8 million more that was returned to heirs or donated to charities.

But, facing continuing inquiries from would-be heirs, the Swiss banking Establishment decided in September to set up a Central Contact Office, run by the country's banking ombudsman, to streamline the claims process.

Georg Krayer, chairman of the Swiss Bankers Assn., promised that the office will "offer efficient help in the search for assets."

While the service will not be "free of charge," he added, "it will make the process transparent." Jewish families have paid as much as several hundred dollars in fruitless searches for Swiss assets.

The claims office will be helped by new guidelines requiring banks to mark all accounts that have been dormant for at least 10 years and to continue paying interest.

Bank officials say they hope that will also protect accounts from any temptation to "misuse" them.

"This is not just for Holocaust victims but for everybody," Matile-Steiner said. "If you consider what is happening in the world, in places such as the former Yugoslavia, you realize we'll always have people disappearing. So it's important to have a solution for the future."

Although the Swiss government regulates the industry, banks have, in practice, been largely self-regulating. And while banks have long worked with police investigating specific clients, bankers were prohibited, until last year, from identifying any customer without a court order.

Bank officials say they hope that the new measures will not scare away customers, especially those drawn to Switzerland by the reputation for confidentiality. Already, bankers have had to reassure many clients that the right to report suspicious deposits is not a legal obligation.

"Banks don't like to report customers to the police," said Martin Kurer, a Zurich attorney who represents the Philippine government in the Marcos case. "It's a question of loyalty, really, not secrecy."

Matile-Steiner likens the banker-customer relationship to that of doctor and patient.

"There is a kind of trust between a banker and his customer," Matile-Steiner said. "And being forced to report clients would hurt that relationship."

Yet some top Swiss government officials say the laws still are not strong enough.

Carla Del Ponte, the federal prosecutor, contends that banks are lax in tracking down suspected money launderers. Fearful of frightening away customers, most banks just turn suspect customers away without reporting them, she contends. And she adds that the majority of money-laundering prosecutions in Switzerland originate not from the banks themselves but rather from foreign law enforcement agencies.

Del Ponte is also giving the banking industry fits with her call for a new law to prohibit deposits from foreign tax evaders. Tax evasion is not, strictly speaking, a crime in Switzerland, though anyone who does not report income may, if caught, be subject to penalties.

Until tax evasion is criminalized, bankers must protect the identity of their clients from authorities in other countries. About a third of the $700 billion in deposit accounts in Switzerland is foreign owned, the government reports.

For most foreigners, though, the Swiss banks do not provide much protection from taxes because interest on bank deposits is subject to a 35% withholding tax. That withholding, which is much higher than the tax rate, provides an incentive to the Swiss to file their tax returns, which would in most cases reduce their tax to 20% of earnings.

Bank officials, though, make a distinction between tax evasion and tax fraud. Tax fraud, defined in Switzerland as knowingly falsifying documents, is a crime here, and banks do cooperate with foreign governments in such cases.

But, Del Ponte said, "if we don't make tax evasion illegal, we can't distinguish between tax evasion and money that is being laundered."

"You used to be able to deposit a garbage bag full of bills," attorney Kurer said. "But they don't even think of doing that now without asking a lot of questions. Even if the bank knows you pretty well, it's not easy to get rid of $100,000 in cash in Switzerland."

Copyright © 2019, Los Angeles Times
EDITION: California | U.S. & World