Bank secrecy in Switzerland

Switzerland has always been renowned as a tax haven due to several reasons. Firstly, the Swiss Banking Act penalises the disclosure of confidential information and provides punishment in the form of imprisonment for up to five years and fine. Whistleblowers and leakers of client information often face hostility from the public and sustain professional setbacks. Switzerland’s secure and discreet banking system has also been shaped by its FINMA Supervision in Switzerland, which ensures that financial institutions comply with national and international regulatory standards. [1]

So, what means banking secrecy from a legal point of view? The individual right to privacy (in this case, the right of the bank-customer) is the basis of banking secrecy. [2] Art. 28 of the Swiss Civil Code recognizes individuals' and companies' right to privacy, including economic privacy and information on their banking relationships and the assets concerned. Therefore, secrecy covers both natural and legal persons. In other words, confidentiality generally prohibits banking institutions, and their officers and employees, from disclosing customer data to third parties. [3] The delivery of negative reports relating to customers is also forbidden by bank customer secrecy codes. [4]

There is no exclusive list of data protected by bank secrecy. Still, it may include, for example, information on the customer as a private individual, the value of investments, the customer's relationship with other banks, if any, the information given by the customer about his financial circumstances etc. The Banking Act only protects information related to an identified or identifiable customer. A bank, therefore, discloses customer data by, for example, anonymising the customer name, account number, online identifier, or other identifying information, or by aggregating customer data. [3]

These strict confidentiality protocols are especially relevant when dealing with financial settlements or intermediary services such as How Escrow Payments Work, which rely on absolute discretion and legal certainty in fund handling.

However, even Swiss banking secrecy is not an absolute one. The federal and cantonal provisions on duty to provide evidence or information to authority are exempted from the provisions of Art. 47 of the Banking Act. In addition, assets accumulated through money laundering and other illicit activities are not protected under Swiss bank customer secrecy laws. [4] Finally, banks are authorised to disclose client-related data provided the client has given his or her consent.

Under the new regulation, Swiss banks are required to report to the Swiss Federal Tax Administration (FTA) a certain amount of information on the identity and status of accounts (income and assets) of customers who are residents outside Swiss territory for tax purposes. The FTA then exchanges the information it receives with the tax authorities of the customer's country of residence, which will collect the relevant taxes. [6]

The FTA notes which information is exchanged: identification, account and financial information, including name, address, state of residence and tax identification number, as well as information concerning the reporting financial institution, account balance and capital income. [7]

However, AEOI does not apply to Swiss residents. Therefore, this agreement did not change anything for them with regard to bank secrecy.

On the one hand, Switzerland is trying to show its strong commitment to international cooperation in tax matters, but at the same time, the process of exchange may seem complicated. As per Swiss legislation, a targeted person benefits from important procedural rights such as the right to review the file (including the request for information), the right to comment and correct the information to be exchanged, and the right to appeal against a decision to exchange, among others. [8] Thus, there still is a possibility to challenge each exchange in a court. For international clients or companies maintaining inactive legal entities, these developments often lead to inquiries about what does company status strike-off mean, especially if a dormant structure is under scrutiny.

Swiss banks are exchanging information, mostly with wealthy and middle-income countries. However, poorer countries are remaining out of these rules, therefore allowing their citizens to enjoy the strictest privacy. To sum up, rumours about the abolition of bank secrecy in Switzerland are a bit exaggerated.