NARRATIVE REPORT ON SWITZERLAND PART 1: NARRATIVE REPORT Rank: 3 of 133 Switzerland is ranked in third in the 2020 Financial Secrecy Index, based on a high secrecy score of 74 and a large global scale weight for the How Secretive? 74 size of offshore financial services (4.12 per cent of the global market). Its famed banking secrecy laws are still functional though the move towards automatic tax information exchange through the Common 1 Reporting Standard has started to erode this secrecy. oderately secretive 0 to 25 Switzerland: history of a secrecy jurisdiction Switzerland is the grandfather of the world’s tax havens, one of the world’s largest offshore financial centres, and one of the world’s biggest 25 to 50 secrecy jurisdictions and tax havens. In addition to asset management and wealth management, Switzerland hosts services such as investment banking, insurance and reinsurance, hedge funds and private equity, corporate tax avoidance structures, 50 to 75 offshore companies and trust administration, and plenty more.2 Swiss financial centres in French-speaking Geneva, German-speaking Zurich and St. Gallen; and Italian-speaking Lugano (and elsewhere) cater to different geographical markets, each offering a range of banking and Exceptionally secretive 75 to 100 offshore facilities. Financial services make up over 10 percent of GDP, according to OECD data:3 more than twice the European Union average, and total banking assets were estimated in 2015 at 467 percent of Swiss GDP4, one of How big? 4.12% the highest in the world. Banking looms especially large in the Swiss economy: more so than in almost any other major country. Given this dominance, with UBS and Credit Suisse accounting for about half of all Swiss banking assets, it is hardly surprising that bank lobbies have huge powerful representation within government circles, though unlike many small island offshore financial centres, there are powerful counter- lobbies among progressive political parties and within civil society. Though Switzerland has made several improvements to its secrecy large regime in recent years, following concerted pressure from the United States, the European Union and others, the concessions it has made – nearly always in response to pressure against Swiss banks, rather than small against Switzerland itself – are generally not serving the interests of developing countries. So, the Swiss will exchange information with rich and most upper and lower middle income countries if they have to, huge: >5% large: >1% to 5% small: >0.1% to 1% tiny <0.1% but will continue offering citizens of the poorer and poorest countries Switzerland accounts for 4.12 per cent of the global the opportunity to evade their taxpaying responsibilities. These factors, market for offshore financial services. This makes it a along with ongoing aggressive pursuit of financial sector whistleblowers large player compared to other secrecy jurisdictions. (resorting at times to what appear to be non-legal methods)5 are ongoing reminders of why Switzerland remains among the most important secrecy jurisdictions in the world. The ranking is based on a combination of its secrecy score and scale weighting. Early beginnings Full data is available here: http://www. financialsecrecyindex.com/database. To find out more about the Financial Secrecy Swiss banking secrecy has old and deep roots, based on three Index, please visit foundations: first, Switzerland’s infamous tradition of banking secrecy; http://www.financialsecrecyindex.com. second, its political stability, underpinned by neutrality and its powerful The FSI project has received funding from the system of direct democracy, and third, a ‘financial consensus’ rooted European Union’s Horizon 2020 research and in Swiss society which for decades protected the offshore financial innovation programme under grant agreement No 727145. © Tax Justice Network 2020 If you have any feedback or comments on this report, contact us at [email protected] 1 SWITZERLAND services sector against external political challenges. to contemplate such adventures, began to see an alternative in creating a financial empire that In 1713, long before Switzerland existed as a would deal with the wealthiest and most powerful federal state, the Great Council of Geneva adopted dynasties as equals9. The Swiss found that trade and regulations prohibiting bankers,6 who were already living standards were never as good as they had harbouring substantial deposits belonging to been during the Thirty Years War of 1618-48, one European aristocracy, from revealing details about of the most destructive in Europe’s history: That, their clients. Catholic French kings, among the as Steinberg put it, was when “the Swiss began to earliest known clients of Geneva banks, enjoyed associate neutrality with profit, virtue and good these banks’ traditions of secrecy partly because sense.” The Franco-Prussian War of 1870-1 saw they did not want to be seen to be dealing with another surge of money into Switzerland. As Guex ‘heretical’ Protestant bankers. A centuries-old put it (p55): tradition of ‘unlimited liability’ – where partners were personally liable for bank losses – further “This is what the Swiss bourgeoisie are bolstered their reputation for solidity. thinking. ‘That’s our future. We will play on the contradictions between the European Wars and neutrality: the bedrock of Swiss banking powers and, protected by the shield of our neutrality, our arm will be industry and Switzerland’s reputation for safety, helping attract finance.’ ”10 ‘safe haven’ financial flows from the nobility in a turbulent Europe, was bolstered when Swiss Secrecy continued to fuel the sector: Guex describes neutrality was formalised at the Congress of a major Swiss bank openly advertising its ‘utmost Vienna in 1815.7 Neutrality was a matter of self- discretion’ in France in 1910; soon afterwards a preservation. Switzerland’s mountainous terrain Swiss economy minister had to press Swiss banks meant that the territories that make up today’s to tone down such messages overseas for fear of Switzerland were deeply divided between often retaliation by angry foreign tax authorities. isolated valley communities. This evolved into sharp divisions between its French, German and The First World War precipitated the biggest ever Italian (and a small number of Romansh) speakers. cascade of money into Swiss banks. But this wasn’t Any taking of sides in a European war would have only about Switzerland’s safe-haven status. Tax was risked civil war in Switzerland – and matters were also a large part of it. As governments hiked taxes to exacerbated by religious and other divisions. Indeed, pay for their respective war efforts, many wealthy the creation of Switzerland as a Federal republic in Europeans escaped their share of the war effort and 1848 was a direct consequence of a 27-day civil war took their money away to Switzerland: the French which pitted conservative Roman Catholics against preferring French-speaking Geneva, the Germans liberal Protestant cantons. went to German-speaking Zürich, Basel, and St. Gallen; and the Italians to Lugano in the southern The potential for internal conflict led the Swiss Italian-speaking Swiss canton of Ticino. Meanwhile, to develop a complex, intricate form of direct commercial interests in warring countries also used democracy, based on a large degree of autonomy Switzerland as a turntable allowing them to keep for local units, which serves as a highly effective doing business with the enemy, in secret. mechanism for resolving and dissolving conflict. As the historian Jonathan Steinberg put it, Swiss As this was happening, Swiss bankers continued communities are: to spread their net wider, pushing their wares downmarket beyond the aristocracies. Meanwhile “bottom-heavy, rather like those dolls the spread of technology and globalisation was which spring up no matter how often the making capital more mobile, and significant child pushes them over. The weight is at quantities began to come from beyond Europe. the base. The communities have a deep Switzerland’s role as a top global financial centre equilibrium, to which, as the point of rest, was further underpinned by a decision to site the social and political order tends to the headquarters of the Bank for International return.” (p.89)8 Settlements in Basel in 1930. In the words of Swiss scholar Sébastian Guex, Switzerland enacted its famous banking secrecy laws Swiss élites in the 19th century jealously watched in 1934, entrenching de facto banking secrecy by other European countries building empires, and making it a criminal offence to divulge information. without a corridor to the sea to allow them even A widespread and false myth has been propagated 2 SWITZERLAND that this was done to protect German Jewish money from the Nazis; in fact, Swiss politicians enacted the Box 2: Estelle Sapir, Swiss bankers and Nazi gold law for far less altruistic reasons, as Box 1 explains. Before the banking secrecy law of 1934, client In 1999 the New York Times wrote an obituary of Box 1: The myth of 1934 Estelle Sapir, a Holocaust survivor who was the lead plaintiff in a class-action lawsuit involving Before the banking secrecy law of 1934, client thousands of Holocaust survivors who sought to confidentiality rules applied (such as exists recover deposits made by their families in Swiss between doctors and their patients), violation of banks. which was a civil offence, not a criminal one as it is today. Many defenders of Swiss bank secrecy Before the war her father Jozef, a Jewish assert that the law was put in place to protect businessman from Poland, had deposited money German Jewish money from the Nazis. This is quite in several banks. During the war she was sent to false: this story seems to have first appeared in the a Nazi concentration camp but was able to speak November 1966 Bulletin of the Schweizerische to her father beforehand, through barbed wire in a Kreditanstalt (which became today’s Credit detention camp.