If you are an avid reader or a movie buff like me, I’m sure you must have encountered the whole “let’s put our money in the Swiss bank” conversation at least once. Usually associated with black money (embezzlement, bribes, laundering), Swiss banks are very popular among the rich and powerful all over the world to hide assets either in the form of money or gold. There are various reasons for choosing to open a Swiss bank account. But before we get into that, let’s look at the historical events that led to the ultimate trust that is placed in Swiss banks today.
It was 1713. As a result of the French Wars of Religion in the 16th century, there was a lot of animosity between the Catholics and the Protestants, even after 200 years. French Catholic kings of those times did not want to deposit their holdings in the Protestants banking system. So they turned to their neighbouring country.
The Great Council of Geneva had recently amended their banking laws. The banks were allowed to keep records of their clients, but were prohibited from revealing client information to anyone other than the clients themselves. Although, if the City Council found it to be necessary, the information could be divulged to the concerned authorities. At that time, revealing client information was not punishable by law since banking was regulated by civil laws alone. This meant that the client could sue the bank for damages but could not file a criminal complaint with the police. As a result, the bankers did not live in fear of imprisonment. Despite of comparatively relaxed laws, the code of secrecy among bankers was rarely broken. Sometime around 1780, the Council strengthened the banking sector even more by insuring the deposits made by clients. This resulted in an influx of money from all over Europe.
Congress of Vienna (Source)
The Congress of Vienna established Swiss International Neutrality in 1815. This meant that Switzerland was not to indulge in any conflict with or between other countries. This was done to promote international peace and ensure external security. The policy is self-imposed and permanent. Because of this policy, the Swiss banking sector saw huge amounts of money, gold and diamonds being deposited in their banks.
Source- Getty Images
When World War I broke out in 1914, Switzerland was not taking sides because of their neutrality stance. But a lot of Swiss officials traveled to France during this time to advertise their strong banking policies. The European countries were in dire need of funds to bear the war costs, so they started increasing taxes. To avoid taxation, wealthy merchants and aristocrats started depositing their wealth in Swiss accounts. After the war ended, France put a lot of pressure on Switzerland to reveal names of Frenchmen who had deposited their wealth in Swiss accounts to avoid taxes. Switzerland refused.
Consequently, the French authorities raided the Paris branch of the Swiss bank Basler Handelsbank in 1932. Assets worth of one billion French francs were recovered from this branch along with the names of the tax evaders.
Gestapo searching people
Germany also passed a law that made it illegal for German citizens to own assets outside the country, and this offence was punishable by death. German Gestapo began to keep a keen eye on Swiss banks.
All through this mess, Switzerland maintained their neutrality and secrecy code. Up until then, divulging client information came under civil code. To make sure that their banking sector was impenetrable, Switzerland government passed the historic Banking Act of 1934. This law made it a federal offence - breaking bank secrecy now fell in the criminal domain.
Around the same time (1932-34), Nazis began torturing Jews, even killing them, to gain access to their Swiss accounts. They would force them to sign the necessary documents to transfer funds from Swiss to German accounts. Because of Switzerland’s neutrality, this process became very easy as Swiss banks were not to be affected by external political unrest. The banks came under a lot of scrutiny for this. Eventually, the banks amended the 1934 Banking Act to include a provision that protected Jewish assets from the Nazis.
Christoph Meili (Source- Keystone)
But when World War II ended and the Jewish people came back for their assets, they were not allowed to withdraw since they had lost all documentation and hence had no proof of their identity. In 1997, Christoph Meili, a former security guard at a Swiss bank, revealed that Swiss bank officials were destroying records of people murdered in the Holocaust so that they could keep their wealth for themselves. This led to a lot of outrage amongst people everywhere. Therefore, in 1998, the banks paid a settlement of $1.25 billion which were then converted to US bonds. The distribution of this settlement to required parties was completed in 2012.
The history of the Swiss banking sector has been rocky- which is perfect since the mountainous terrains of the Swiss Alps allow for the storage of gold and diamonds under these rocks. Even today, Switzerland constantly comes under fire for their rigid bank secrecy since it is often used for tax evasions and storing black money. Considered to be the safest and most secretive banks in the world, they hold a collective of $1.43 trillion as of 2016. Out of this, $676 million is Indian black money (about 0.04%).
In 1794, the great French Enlightenment writer, historian and philosopher Voltaire famously said, “If you see a Swiss banker jumping out of a window, follow him, for there is sure to be a profit in it”.