Banking in Switzerland

Overview

Banking in Switzerland dates to the early 18th century through Switzerland's merchant trade and over the centuries has grown into a complex and regulated international industry. Banking is seen as emblematic of Switzerland and the country has been one of the largest, if not largest, offshore financial centers and tax havens in the world since the mid-20th century, with a long history of banking secrecy, security and client confidentiality reaching back to the early 1700s. Starting as a way to protect wealthy European banking interests, Swiss banking secrecy was codified in 1934 with the passage of a landmark federal law, the Federal Act on Banks and Savings Banks. These laws were used to protect assets of persons being persecuted by Nazi authorities but have also been used by people and institutions seeking to illegally evade taxes, hide assets, or to commit other financial crime. Controversial protection of foreign accounts and assets during World War II sparked a series of proposed financial regulations seeking to limit bank secrecy, but with little resulting action. Despite various international efforts to roll back banking secrecy laws in the country which were largely minimized or reverted by Swiss social and political forces, in 2017 Switzerland agreed to "automatic exchange of information" (AEOI) with foreign governments and their revenue services regarding information of depositors not resident in Switzerland. This constituted de facto the end of Swiss banking secrecy for depositors who were not Swiss residents. Furthermore, after Switzerland ratified the Foreign Account Tax Compliance Act agreement with the United States, because of concerns regarding their tax liability (the U.S. taxes its citizens regardless of whether they are resident in the U.S. or not) some Swiss banks have gone so far as to close accounts held by US citizens, and to ban the opening of new accounts by US citizens and by dual US-Swiss citizens, including those deemed lawful permanent Swiss residents. Thus banking secrecy remains in force only for those residing in and solely taxable in Switzerland. Disclosing client information has been considered by Switzerland a criminal offence since the early 1900s. Employees working in Switzerland and at Swiss banks abroad have "long adhered to an unwritten code similar to that observed by doctors or priests". Since 1934 Swiss banking secrecy laws have been violated to a major extent by only four people, namely: Christoph Meili (1997), Bradley Birkenfeld (2007), Rudolf Elmer (2011) and Hervé Falciani (2014). The Swiss Bankers Association (SBA) estimated in 2018 that Swiss banks held US$6.5 trillion in assets or 25% of all global cross-border assets. Switzerland's main lingual hubs, Geneva (for French), Lugano (for Italian), and Zürich (for German) service the different geographical markets. It currently ranks number two behind the United States and on par with Singapore in the Financial Secrecy Index. The banks are regulated by the Swiss Financial Market Supervisory Authority (FINMA) and the Swiss National Bank (SNB) which derives its authority from a series of federal statutes. Banking in Switzerland has historically played, and still continues to play, a dominant role in the Swiss economy and society. According to the Organisation for Economic Co-operation and Development (OECD), total banking assets amount to 467% of total gross domestic product. Banking in Switzerland has been portrayed, with varying degrees of accuracy, in overall popular culture and television shows. Switzerland's credibility as a banking centre was hurt in 2023 after the collapse of Credit Suisse, one of the largest Swiss banks, which was subsequently acquired by its Swiss competitor UBS. However, the rapid action taken by the Federal Council, the Swiss National Bank, and FINMA helped to minimise further damage.

History

Bank secrecy in the Swiss region can be traced to the Great Council of Geneva, which outlawed the disclosure of information about the European upper class in 1713. During the 1780s, Swiss bank accounts began insuring deposits, which contributed to their reputation for financial security. In 1815, the Congress of Vienna formally established Switzerland's international neutrality, which led to a large capital influx. The wealthy, landlocked Switzerland saw banking secrecy as a way to build an empire similar to that of France, Spain, and the United Kingdom. Swiss historian Sébastian Guex notes in The Origins of Secret Swiss Bank Accounts:

This is what the Swiss bourgeoisie are thinking: "That's our future. We will play on the contradictions between the European powers and, protected by the shield of our neutrality, our arm will be industry and finance." After a small scale civil war in the 1840s between the Swiss cantons, the Swiss Federation was founded in 1848. The formation of the state, through a direct democracy, contributed to the political stability needed for banking secrecy. The mountainous terrain of Switzerland provided a natural environment in which to excavate underground vaults for storage of gold and diamonds. In the 1910s, during World War I, Swiss bankers traveled to France to advertise the country's banking secrecy. According to Sébastien Guex, the banks printed "brochures, circulars, personalised letters, and advertising in newspapers, and sent representatives who approached their clientele in person". The war's contribution to political and economic instability sparked a rapid capital movement into Switzerland. As France and Germany introduced progressive income and inheritance taxes for the first time, taxing greater wealth at higher rates to finance the war, wealthy clients moved their holdings into Swiss accounts to avoid taxation. The French banked in Geneva, the Italians in Lugano, and the Germans in Zürich. The Federal Act on Banks and Savings Banks, colloquially known as the Banking Law of 1934, made the violation of banking secrecy a federal criminal offence. That major step beyond the prior enforcement of banking secrecy under civil law resulted from several developments of the early 1930s, including the introduction in the same legislation of an embryonic form of banking supervision, which Swiss bankers argued could endanger secrecy; evolving jurisprudence of the Federal Supreme Court; and a 1932 campaign against tax evasion in France led by Édouard Herriot's government, following a financial scandal that erupted in France in that year, involving thousands of wealthy French citizens and the Commercial Bank of Basel (Banque commerciale de Bâle–BCB). In a hotel apartment in Paris, the police discovered that the director and other officials of the aforementioned Swiss bank were providing information to important members of the French financial elite on how to transfer their money to Switzerland, in order to obtain untaxed returns. Alleged wealthy French tax evaders included military generals and Catholic bishops. An additional provision, Article 47(b), was drafted before its ratification to protect Jewish assets from the Nazi party.

During World War II, Switzerland remained diplomatically neutral but its economy and financial system served the Axis powers by storing gold and cash balances in underground vaults, buying gold from the Nazi German state, and lending to both Germany and Italy, thus supporting their aggressive endeavors. Adolf Hitler maintained an account at the Union Bank of Switzerland (UBS) estimated at 1.1 billion ℛ︁ℳ︁. After the United States formally asked the bank to transfer the money in the 1990s, UBS wired US$400 to 700 million worth of Reichsmarks to U.S. authorities. Banking regulations in Switzerland limit the amount of orphaned assets allowed to leave a bank's custody. UBS, with consent from the Swiss government, froze the account containing Hitler's assets indefinitely, and clipped the Reichsmarks, stripping the currency of value. During World War II, UBS also maintained accounts for hundreds of German Jewish businesspeople and households. After the Banking Law of 1934 was passed, the bank aggressively protected assets of the "enemies of Nazi Germany". When Hitler announced an (aborted) invasion of Switzerland in 1940, UBS contracted the Swiss Armed Forces to blockade their retail banks and transport Jewish assets to underground military bunkers.The Swiss Bank Corporation (SBC) and Credit Suisse, did likewise. However, after the war, many of these account holders had been killed in the Holocaust, and their heirs often lacked the documentation required to claim the accounts. For decades, Swiss banks were accused of failing to return the money to rightful heirs, destroying records or placing excessive bureaucratic obstacles in the way of claims, and profiting from dormant accounts. This ended when the Volcker Commission reached a paltry $1.25 billion settlement with the victims.

World War II and beyond

After the end of World War II, Switzerland and its financial system benefited greatly from having remained unharmed while all the neighbouring economies were devastated, but had to face the reputational damage from its support to the Axis powers, which also led to threats to banking secrecy as the Allied victors sought to expropriate Nazi assets held under Swiss custody. By and large, the Swiss banking sector was able to successfully deflect the threat to its secrecy practices, not least as it supported France and the United Kingdom with significant lending. When British politician George Brown blamed "gnomes of Zurich" for a weak pound sterling in 1964, Swiss bankers began using the title as proof of their financial skill and adherence to secrecy. Throughout the 1980s and 1990s, numerous international proposals for bank secrecy rollbacks were made by foreign states with little success.

After the 2008 financial crisis, Switzerland signed the European Union Savings Directive (EUSD) which obliges Swiss banks to report to 43 European countries non-identifying annual tax statistics. On December 3, 2008, the Federal Assembly increased the prison sentence for violations of banking secrecy from a maximum of six months to five years. In late 2008, after an international, multi-state investigation into Switzerland's role in U.S. tax evasion, UBS entered into a limited, deferred prosecution agreement (DPA) with the U.S. Department of Justice. The agreement initiated the landmark Birkenfeld Disclosure of information on more than 4,000 clients.

In November 2013, the Zürcher Kantonalbank was classified as a systemically important bank in Switzerland by order of the Swiss National Bank (SNB), alongside UBS, Credit Suisse, Raiffeisen (Switzerland) and PostFinance, and must meet stricter capital requirements and prepare contingency plans for times of crisis. In another step toward loosening banking secrecy, Switzerland signed the U.S. Foreign Account Tax Compliance Act (FATCA), after rejecting it twice in parliament. The FATCA requires Swiss banks to disclose non-identifying U.S. client information annually to the Internal Revenue Service. The agreement does not guarantee the semi-automatic information transfers, which remain at the discretion of Swiss government authorities. If a client does not consent to having their information shared with the IRS, Swiss law prohibits the disclosure. If a client does consent, Swiss banks send the IRS tax-related information about the account holder but are prohibited from disclosing identities pursuant to Article 47 of the Banking Law of 1934. The 2018 Financial Secrecy Index stated: "this [does] not mean that Swiss banking secrecy was finished, as some excitable news reports suggest... the breach was a partial [dent]". In March 2015, the Swiss government entered into bilateral "Rubik Agreements" with Germany, Austria, and the United Kingdom allowing foreign holders of Swiss bank accounts to retain their anonymity in exchange for paying predetermined back taxes. Switzerland adopted the International Convention on the Automatic Exchange of Banking Information (AEOI) in 2017, agreeing to automatically release limited financial information to certain countries for the sole purpose of tax auditing. This agreement includes the Common Reporting Standard (CRS) which obliges Swiss banks to automatically send foreign tax authorities the client's name, address, domicile, tax number, date of birth, account number, account balance at years end, and the gross investment income. The CRS does not, however, override the Swiss Banking Law of 1934, so the client's expenses (withdrawals) and investments are not disclosed. Thus tax authorities cannot "go fishing" for tax evaders, they must directly link a financial crime to the client's account. The disclosed information can only be used for tax auditing and Swiss authorities may prevent disclosure. In December 2017, the Swiss parliament launched a standing initiative and expressed an interest in formally embedding banking secrecy within the Swiss Constitution, making it a federally-protected constitutional right. In January 2018, a U.S. district court ruled that Swiss bankers "[have] nothing to do with the choice that an American taxpayer makes to not declare offshore assets", later clarifying they should not be seen as facilitating tax evasion but rather provide a legal service that is made illegal by the client. The Swiss Justice Ministry announced in March 2018 that disclosure of client information in a pending court case involving a Swiss bank is subject to federal espionage and extortion charges in addition to charges relating to banking secrecy laws. After a serious crisis, on 19 March 2023, following negotiations with the Swiss government, UBS announced its intent to acquire Credit Suisse for $3.25 billion (CHF 3 billion) in order to prevent the bank's collapse. UBS completed the acquisition in June 2023.

Banking and the Swiss economy

Switzerland is a prosperous nation with a per capita gross domestic product higher than that of most Western European nations. The value of the Swiss franc (CHF) has been relatively stable compared with that of many others. Swiss neutrality and national sovereignty, long recognized by foreign nations, have fostered a stable environment for the banking sector to develop and thrive. Switzerland maintained neutrality through both World Wars, is not a member of the European Union or NATO, and did not join the United Nations until 2002. The Bank of International Settlements (BIS), an organization that facilitates cooperation among the world's central banks, is headquartered in Basel. Founded in 1930, the BIS chose to locate in Switzerland because of the country's neutrality, which was important to the organization founded by countries that had been enemies in World War I. Banking has played a dominant role in the Swiss economy for two centuries. According to the Organisation for Economic Co-operation and Development (OECD), total banking assets amount to 467% of total gross domestic product. Swiss banks managed $2.4 trillion (CHF2.1 trillion) of assets belonging to wealthy foreigners in 2022, more than any other country and before Hong Kong ($2.2T) or Singapore ($1.5T) who are ranked 2nd and 3rd respectively, according to the study conducted by the Boston Consulting Group.

Origin of funds

Most of the wealth from overseas in Switzerland originates in Germany, France and Saudi Arabia (2018). According to the Swiss Bankers Association in 2022, the amount held by Russian clients in Swiss banks is between CHF150 and CHF200 billion ($160 and $214 billion). The holding of the Rothschilds assets is located in Zurich, said by insiders to be worth "trillions" according to The Independent (UK) journal and others.

Regulation

The Swiss Financial Market Supervisory Authority (FINMA) is a public law institution that supervises most banking-related activities as well as securities markets and investment funds. Regulatory authority is derived from the Swiss Financial Market Supervision Act (FINMASA) and Article 98 of the Swiss Federal Constitution. The office of the Swiss Banking Ombudsman, founded in 1993, is sponsored by the Swiss Banking Ombudsman Foundation, which was established by the Swiss Bankers Association. The ombudsman's services, which are offered free of charge, include mediation and assistance to persons searching for dormant assets. The ombudsman handles about 1,500 complaints raised against banks yearly. Generally speaking, lawyers will not work against the banks and regulators are "too weak" to act in case of a problem, according to the Financial Times of London. Swiss law recognizes foreign trusts.

Automatic exchange of tax information

In February 2013, the Swiss Federal Council allowed the signing of the Foreign Account Tax Compliance Act (FATCA) with the US. These agreements force all Swiss banks to inform the Internal Revenue Service of undeclared, offshore accounts. These new regulations are applicable from 2014, and in turn assure Swiss banks of continued operations within the US. In July 2019, the US Senate approved the Double Taxation Treaty (DTA) with Switzerland, which had already been accepted by the Swiss parliament in 2010. The new agreement, applicable to accounts from September 23, 1999, onward, amends the tax treaty of 1996 and regulates requests for information on financial accounts by US authorities, as well as exemptions for retirement savings by US persons. Starting in 2019, Switzerland began to share (with the country of origin or residence) the details of 3.1 million bank accounts held by foreigners, as part of the agreed automatic exchange of information. Swiss banks, insurance companies and trusts have a legal obligation to comply but charitable Swiss foundations are so far exempt. As of 2019, Switzerland received financial data from 75 countries and shared data with 63 (over 100 countries starting in 2023) representing 3.6 million accounts as of 2023. Around 9000 banks, insurers, trusts and other financial institutions in Switzerland provide this information to the Swiss authorities.

Loopholes

Swiss banks are obliged to reject or terminate business relationships if there are doubts about the real identity of the owner of the account. Swiss banks have a legal obligation to record the ultimate beneficial owners of all assets they handle worldwide, but doing so accurately can be tricky in jurisdictions where it is easy for third parties to mask who the owners are. Thus, loopholes exist through the use of shell companies, trust funds, and proxy directors signing the paperwork without owning the assets. Similarly, the use of a "straw man" or a family member is a way also to hide the true beneficial ownership in some cases. Loopholes exist also with people with multiple nationalities who only declare one citizenship to the authorities for the purpose of tax reporting. Another loophole consists (for US citizens) in setting up shell companies abroad and registering them with the IRS as "offshore financial institutions". The IRS issues the entities unique Global Intermediary Identification Numbers, or GIINs, which relieve the banks of FATCA's requirement to investigate whether they're held by Americans. This loophole was allegedly used by billionaire Robert Brockman to avoid taxation. The banking systems of Switzerland and Liechtenstein have close ties. Liechtenstein's trust companies are clients of Swiss banks. Liechtenstein does not require trust companies to identify people with signatory powers, and does not prosecute tax evasion or tax fraud (2000).

Reforms

To improve the tracking down and freezing of assets, Swiss NGO Public Eye has called for a national task force, a register of the beneficial owners of front companies and a reporting obligation for lawyers. The Tax Justice Network and FATF made similar recommendations in 2018, including breaking up the Big Four accounting firms. As of 2022, the Swiss government is following up on some of those recommendations. In addition, Transparency International is demanding that lawyers, financial advisors plus real estate and art transactions be subject to the same exacting anti-money laundering measures as banks. However, in 2025, the Swiss parliament has pushed back on many of these reforms on grounds of "competitiveness" for the Swiss banking sector. In October 2026, Switzerland plans to create a central register of the beneficial owners of assets held through shell companies to counter money laundering (available to the authorities only). Transparency International says the reform is not going far enough and contains many loopholes.

Enabling industry

The "enabling industry" refers to lawyers, fiduciaries, notaries, and real estate agents who assist criminals in investing or hiding their ill-gotten wealth. Their activity is not covered by the Swiss Anti-Money Laundering Act as long as they are only advising clients to place money in a particular financial institution or country. Furthermore, lawyers in Switzerland can refuse to disclose almost anything to the authorities about their clients. Under the Swiss Anti-Money Laundering Act, banks must report suspicious clients and transactions to the authorities. Lawyers and other advisors have no such obligation if they simply create trusts and other constructs rather than handle assets. According to the Money Laundering Reporting Office Switzerland in 2017, official "suspicious activity reports" reached nearly 4,700 (worth $16.2 billion) up from 2,909 reported cases in 2016. Suspicious activity reports increased to 21,000 in 2025. According to FINMA in 2023, 50 percent of Swiss banks had “largely unsatisfactory” anti-money laundering systems. The Swiss Financial Services Act of 2020 (FinSA) requires financial advisers to obtain a licence (950 firms advising on nearly $200 billion have been approved by FINMA). The law also requires any "retrocession" paid by the bank to the advisor to be disclosed publicly.

Assets seizure

Under current rules, banking institutions and cantonal authorities can only report what is in their registers; looking into the origins of assets or connections between individuals is not permitted. For example, in 2022, a Russian oligarch reportedly handed his Swiss company over to his wife to avoid the sanctions against Russia. Swiss authorities can freeze assets if the law requires them to. However, seizing assets is only permitted in cases involving crime or for destituted potentates. At least a dozen destitute autocrats have had their assets frozen or seized by the Swiss government over the years. The amounts can be counted in billions of dollars. According to the Swiss media, some of the amounts have not yet been restituted to the people of the countries of origin to whom it properly belongs.

Protections

Breaches of banking secrecy laws in Switzerland are automatically processed pursuant to Article 47 of the Banking Law of 1934: those who disclose client information are subject to a maximum of five years' imprisonment and 250,000 francs (€215,000 or US$250,000) in fines. Whistleblowers and leakers of client information often face hostility from the public and sustain professional setbacks. Denounced as a criminal in Switzerland, a federal arrest warrant has been in place for Bradley Birkenfeld since 2008, after he disclosed UBS client information to the U.S. Internal Revenue Service in 2007. After the 2008 financial crisis, the Swiss Parliament initiated a series of international tax treaties that rolled back banking secrecy protections for foreign clients in response to pressure from the European Union, United States, and United Kingdom.