What is Swiss banking secrecy and how has it changed?

In times gone by, the concept of having a “Swiss bank account” as someone from overseas was seen as a sly indication that a person was hiding funds or income that they perhaps were not entitled to - a stereotype built around Swiss banking secrecy. Today, the old system has been reformed as a result of external pressure and actions taken by the Swiss government. With this in mind, here is what Swiss banking secrecy means, how it has changed and whether it applies anymore.

What is Swiss banking secrecy?

Literally speaking, banking secrecy refers to a conditional agreement between a financial institute and a client which forbids the bank from disclosing information to third parties without consent. Information like salaries, tax returns, investments and dividends remain secure, confidential and ultimately private.

Unlike countries without banking secrecy laws - where individual banks are able to create their own policies around the practice - secrecy is a requirement enforced by the state. This gives financial institutions the authority to refuse requests for client information from police forces, governments and international bodies overseas because if they did provide the information without the client's consent they would be breaking domestic law.

On the one hand, banking secrecy attracts a significant number of investors and wealthy clients to certain countries and banks, who will be able to store all their wealth without much oversight. While this makes the countries that employ banking secrecy laws - like Switzerland, Luxembourg, Monaco, Hong Kong and Singapore - highly wealthy, the lack of oversight leaves the system vulnerable to corruption and exploitation, and makes it difficult for the media to effectively report on said corruption.

History of banking secrecy in Switzerland

Banking secrecy laws - often known as a banker-client privilege - have their origins in northern Italy and the area which eventually became Canton Ticino in the 1600s. The idea soon spread to banks in Geneva and the rest of the Romande region in the 1700s.

By the 1900s, the idea of disclosing or leaking financial information had become a serious social taboo in Switzerland. This was reinforced by the Banking Act of 1934, which made it a crime to disclose financial information to third parties without the client’s consent. This led Swiss banks to become the “grandfathers of banking secrecy”, according to the Financial Secrecy Index.

Swiss banks become hub for international clients

The Banking Act made Swiss banks the number one destination for those who wanted to keep their finances secret, starting a boom that continues to this day. The act also led to a number of Swiss inventions such as the idea of having account numbers not names, advances in financial cryptography like digital bank transfers and enhanced security systems.

By 2018, the Swiss Bankers’ Association estimated that Switzerland held 6,5 trillion US dollars in non-Swiss assets - 25 percent of all cross-border assets. While this has made the country extremely wealthy, and boosted the strength of the Swiss currency (Swiss francs), a report by KPMG in the same year found that secrecy laws have made Swiss banks ineffective at rooting out those trying to avoid taxes, hide assets or commit financial crimes.

How have Swiss banking secrecy laws changed?

The last two decades have seen Switzerland open up its financial records to outsiders, albeit slightly. For example, under pressure from the United States and after the Swiss Parliament in Bern rejected it twice, the alpine nation signed the Foreign Account Tax Compliance Act (FATCA) in 2013, which requires Swiss banks to provide information about US clients - so long as consent is given. 

In 2017, Switzerland adopted the Convention on the Automatic Exchange of Banking Information (AEOI), which forces the country to provide basic information about every client, but does not allow overseas authorities to see what is actually done with the balance within each account - but the government can withdraw its support whenever they like. The country has also signed tax data-sharing agreements with a number of nations like Germany, although they are usually only for statistical or back tax purposes.

How does banking secrecy operate today?

Despite being watered down, the secrecy of Swiss accounts remains solid, especially for people who reside in the country. This fact was put in stark terms by the Helsinki Commission of the United States Congress in 2022, which said, “Long known as a destination for war criminals and kleptocrats to stash their plunder, Switzerland is a leading enabler of Russian dictator Vladimir Putin... Putin and his oligarchs use Swiss secrecy laws to hide and protect the proceeds of their crimes.”

Finally, banking secrecy laws have made it challenging for Swiss-based media outlets to cover financial crime. For example, the Tages-Anzeiger refused to break the so-called Suisse Secrets scandal in 2022 for fear of breaking the law, and during subsequent scandals at Credit Suisse - which ultimately led to the firm’s merger with UBS - Swiss media figures were constrained in what they could actually reveal before the global media became involved.