T. R. FEHRENBACH The Swiss Banks THE SWISS BANKS Copyright © 1966 by T. R. Fehrenbach. All Rights Reserved. Printed in the United States of America. This book, or parts thereof, may not be reproduced in any form without permission of the publishers. Library of Congress Catalog Card Number: 65-28589 First Edition 59085 Eingescannt mit OCR-Software ABBYY Fine Reader CONTENTS Preface vii Introduction 1 ONE Banker’s Blood 7 TWO Big Banks and Small, Bad Times and Good 23 THREE The Plain Brown Envelope 36 FOUR Cloaks without Daggers 56 FIVE A Squeeze by Any Other Name 71 SIX Blood Money 96 SEVEN Pecunia Non Olet, or Money Has No Smell 104 EIGHT Les Rackets Internationales, or Who Needs a Good Swiss Bank? 120 NINE Shysters and Sophisticates: The North American Trade 146 v vi Contents TEN How to Avoid Taxes by Really Trying 157 ELEVEN Elegance: Der Privatbankier 175 TWELVE Migros: The Voice of Dissent 203 THIRTEEN Interhandel FOURRTEEN 213 All That Glitters . 237 FIFTEEN The Clearing House of the World 252 Appendix The Big Banks 267 269 The Swiss Cantons 271 Switzerland in Figures Exchange Rates 273 Index 275 PREFACE The facts, cases, incidents, and stories related in this book are true. But, while truth is usually a defense against libel, it is not a defense in US or other courts against invasion of privacy. The civil codes of most Atlantic nations provide for the right of individuals and business firms to be left alone. Public figures, such as dictator Juan Peron of Argentina or Yul Brynner of Switzerland and Hollywood, are fair game. Anyone may tell the truth about their private affairs. But ordinary businessmen, such as Signor Agnelli, the Italian auto-maker, his money, his lawyers, and his banks, are not. Rich men, corporations, corporation lawyers, and their banks all enjoy a legal right to privacy. If it is violated, they can sue. But the world also has a right to know about Swiss banks. To tell the whole story, it has been necessary in some cases in this book to alter circumstances or dates, and even to change names. In some cases this protects the innocent. In any event, many names are not important. What happened – and is still happening – is. Many men contributed to the writing of this book: Swiss bankers, lawyers, businessmen, police, and officials. People from various parts of the world assisted. But Interpol detectives, Treasury agents, and Department of Justice lawyers, as well as ordinary European businessmen, do not like their names made public. In a few instances any open acknowledgment might be embarrassing; it would pinpoint whence the story came. So no acknowledgments will be made, but I am grateful to everyone who helped. Finally it is hoped that an honest attempt to show Swiss banks as they really are – and the world around them which supports them as it actually is – will be considered by no one, even the Swiss bankers themselves, as unfair. T. R. F. Gott regiert im Himel und s Gält uf Erde. Für Gält tanzet sogar de Tüüfel. (God rules in Heaven, and money on earth. Even the Devil dances for gold.) Zürich Proverb INTRODUCTION In recent years Swiss banks have been very much in world news. In 1954 the government of Israel charged that huge sums of money deposited by Jewish families killed in Hitler’s death camps still resided in Zurich. Under Swiss law, after twenty years this money would revert to the Swiss banks. Israel claimed at least $30 million was at stake, and various Jewish world or- ganizations began court proceedings to make the banks disgorge. But there was one problem; it was almost impossible to prove that such deposits did in fact exist. In 1957 American newspapers carried the news that notorious proxy raider Leopold Silberstein had used Swiss banks to buy up big chunks of Fairbanks, Morse Company stock in his under- cover battle to gain control of that corporation. Also in 1957 Louis Lefkowitz, the Attorney General of New York, accused three Swiss trusts of stock fraud amounting to $8 million. The trusts were administered through Swiss banks. Lefkowitz complained there was nothing he, the state of New York, or even the federal government could do about this. No US regulatory or governmental agency had jurisdiction or con- trol over foreign businesses headquartered abroad, even if they operated in New York state and took money from American citi- zens. The same year the Senate of the United States began hearings to determine what influence Swiss banks wielded in American financial affairs. Securities Exchange Commission Chairman J. Sinclair Armstrong was called to testify. He stated it was quite possible for SEC rules to be flouted and American taxes evaded by individuals buying and selling American securities through Swiss banks. He further stated it might be possible for Com- munist nations to use Swiss banks as agents to buy control of vital US industries. What most irritated Armstrong was the fact that most stocks and bonds purchased by foreigners in the United States were bought through Swiss banks, and under Swiss law all bank trans- 1 2 Introduction actions remained closed to the government of the US. Unlike American banks, Swiss banks could act all over the world as stockbrokers for clients whose names were protected from rev- elation by Swiss law. For this reason alone the Senate investiga- tion of 1957 was able to prove, or even investigate, very little of the problem. In 1958 Senator Dennis Chavez, Democrat of New Mexico, attacked Swiss bank secrecy on the Senate floor. Chavez said the system permitted «crooks and swindlers» and even Com- munists to buy American defense stocks. He implied that the managers of Swiss banks, no matter how unsavory the client, would do anything the client desired, for a profit. The chairman of the Senate Judiciary Committee on Banking and Currency, South Carolina’s Olin Johnston, went so far as to inform the managers of the three largest Swiss banks of his intention to call them as witnesses. This proved impossible, since no Senate subpoena could be served in Switzerland. On July 18, 1958, The New York Times quoted the American ambassador to the Swiss Confederation, Mr. Henry J. Taylor, as follows: «There has been a heavy increase in financial trans- actions in Bern in connection with the narcotic traffic from Com- munist China to the Western world,» and «there is reason to believe that Communists send out an average of $1,000,000 a week from Switzerland to spies, provocateurs, and contraband agents for their work in the Western democracies.» To all this the New York Journal-American editorialized: It is one thing to protect the funds of refugees from Communist lands and Nazis back in World War II. But it is something else to run a business that caters to international vice racketeers, Communists in their infiltration activities, financial operators evading American law and SEC rules, and American income tax dodgers. These are criminal activities. In 1959 Newsweek ran an article on Swiss banking. Among other things, it reported that ex-strong man Juan Domingo Peron of Argentina had $15 million in Swiss vaults. Fulgencio Batista, former President of Cuba, was said to have at least $3 million. Exiled King Farouk of Egypt, the former Red boss of Guatemala, Jacobo Arbenz, and the murdered King of Iraq, Feisal, were all claimed to have concealed enormous fortunes somewhere in Introduction 3 Switzerland. It was said that Fcisal’s relatives could not touch his money, and that Peron himself was unable to get at some $60 million carted off to Geneva by his dead wife, Little Eva – who had inconveniently failed to open a joint account. Also in 1959, the French government angrily accused Swiss banks of financing major arms deals for Algerian rebels, using Egyptian and other Arab money. But because of bank secrecy, not even the Swiss government could interfere. Newsweek further announced that purchases of American stocks by Swiss banks acting as agents for anonymous clients had been $30 million in 1950. Mysteriously, the annual amount had jumped to $500 million by 1959. Not long afterward, European newspapers printed that Pre- mier Moise Tshombe’s first stop after leaving the Congo with the Katanga National Treasury was his Swiss bank. Another news item of the early 1960s was that the heirs, legitimate and otherwise, of the late Dominican dictator Rafael Leonidas Trujillo had brought suit against certain Swiss banks to gain control of the Dominican gross national product, re- putedly deposited there over a period of thirty years. The papers also reported that Trujillo’s direct heirs had as little chance of getting this money as the new government of Santo Domingo, which felt it also had a claim. Newspapers in Milan and Rome stated that the most important event in the lives of Italian businessmen was not weekly visits to their mistresses but their annual or semiannual jaunts to Lugano just over the Swiss border. Lugano had three major attractions: it was close, it was in the hard Swiss franc area, and it was con- veniently beyond the reach of the Italian tax collector. German government journals mourned private hoarding and the loss of German gold in 1963. One repeated a modern German proverb: Money alone can't bring happiness – unless you've got it in a Swiss bank. In 1964 when the British pound teetered on the brink, the Manchester Guardian reported Labour ministers were convinced Swiss banks were deliberately undermining sterling. In London government and financial circles Zurich had become a dirty word.