The stereotype of Swiss secrecy is increasingly out of date, but some corporate governance issues remain to be dealt with
Switzerland’s tradition of secrecy is deep-rooted. Its reputation as a place of discretion is mainly attributable to its banks. At times, secrecy has been an essential barrier between Switzerland and malign outside forces. Switzerland’s 1934 Federal Act on Banks and Savings Banks imposed a duty of secrecy on bankers in part to protect German clients who at the time risked death under Nazi law if they held foreign capital.
But banking secrecy has also given Swiss banks a valuable competitive advantage, attracting those looking to hide their assets – and raising ethical questions. The financial sector is vital to the Swiss economy, contributing 11% of GDP, according to the Swiss Bankers Association (compared with about 10% in the UK, and 8.5% in the US), and the Swiss government is careful to protect its bankers.
However, Switzerland has not been immune to the forces of the outside world, and various events have led to change. In the 1990s, lawsuits filed by Jewish groups forced Swiss banks to publish details of dormant accounts containing the money of Holocaust victims. The banks eventually settled by paying $1.25bn into a compensation fund.
Swiss banks have also been stung by information leaking out in the past few years about funds deposited by foreign nationals to avoid tax in their own countries. Partly in response to leaked Swiss information, the US passed the Foreign Account Tax Compliance Act, which from 2013 will require non-US banks to report details of their US clients to the American Internal Revenue Service.
The spotlight on tax evasion is one consequence of the financial crisis, during which UBS in particular suffered because of bad investments. Desperate to avoid being labelled as a tax haven, Switzerland has taken steps to meet Organisation for Economic Cooperation and Development standards, and to conclude and update taxation agreements with many countries.
James Nason, head of international communications for the Swiss Bankers Association, says Switzerland’s reputation for secrecy is undeserved. “Swiss banking secrecy has never protected criminals and it is no obstacle whatsoever to a criminal investigation,” he says. “There is a lot of misunderstanding about Swiss banking secrecy.”
He adds that banks have an obligation of confidentiality, and “it is a criminal offence for any banker to give confidential client data to an unauthorised third party. However, Swiss bank client confidentiality has never been 100% absolute. If the Swiss attorney-general or a Swiss investigating magistrate comes into a bank in Switzerland wanting information in connection with a criminal investigation, then banking secrecy simply disappears.”
The largest Swiss banks, Credit Suisse and UBS, are both members of the Wolfsberg Group, a collective of the world’s largest banks, which works to combat money-laundering, fraud, deposits of corruptly obtained funds and other ethical and criminal risks for banks.
Olivier Dunant, an attorney-at-law with Ernst & Young in Switzerland, agrees that Swiss secrecy is a stereotype, and that the cliché of no-questions-asked banking is overstated. But lack of transparency persists in some areas. Switzerland is unusual in that it does not require private companies to publish their accounts, considering corporate taxation to be a matter between the company and its tax office.
Switzerland also allows the ownership of companies to be disguised by permitting bearer shares – shares that are not owned by a named entity or individual, but rather by whoever happens to physically hold them.
Limitations on the need to disclose information meant that even the world’s largest commodities trading company, Glencore, which is headquartered in Switzerland, published little information about itself until its recent floatation. Glencore’s head offices are in the small town of Baar, in the canton of Zug, which, despite a small population of about 112,000, is home to about 25,000 companies, attracted by low tax rates and discretion.
Many Swiss companies are committed to greater openness, Dunant says. Some private companies “publish more in the interests of transparency, even though there is no obligation”. Nevertheless, he adds, the secrecy afforded by Swiss law to non-listed corporations “is a present concern, and it will probably change in the future”.
Switzerland’s main business federation, Economiesuisse, includes guidance on transparency in its code of best practice for corporate governance, though this largely relates to being open about pay policies.
The slowness of some Swiss corporations to embrace transparency is shown by the limited adoption of the code. A “minority of companies” follow the code in every respect, says Dunant. “I don’t think it is implemented very widely.”