In February 2022, a massive whistleblowing scandal broke at Swiss banking giant Credit Suisse, and German newspaperSouth German NewspaperThe leaked information included a list of more than 18,000 accounts of as many as 30,000 customers and the total amount of their deposits. The leaked information contained a list of over 18,000 accounts of as many as 30,000 customers, with total deposits ofUS$100 billionmore than 1,000. It was also discovered that some clients were involved in torture, drug trafficking, money laundering, corruption, and other serious crimes, and that some of them were well-known politicians and wealthy individuals. By law, banks are required to have a clear and unambiguous guarantee that the funds they handle are from a clear and legitimate source.obligationThere is a Therefore, if a customer is involved in a crime, the bank should not permit any transactions at all. However, the bank does not seem to have fulfilled this obligation, and some accounts remain open to this day, which is a suspicious situation.

Credit Suisse has been involved in a number ofscandaland have been fined numerous times. Yet, they have continued to manage and profit from the dirty money obtained through crime and other means. How did this happen? In this article, we trace the history of the Swiss banking industry to find out.

Organized Crime and Corruption Reporting Project (OCCRP) website (Photo: Hanafusa Mayuko)

History as a financial center

Switzerland is one of the world's most financiallycenterThe name of the company is one of the most important. First, let's look back at the history of the banking industry to see why it has developed to the point of being recognized as such.

As far back as the 16th century, religious reforms were taking place in various parts of Europe. From France, one of them, Calvinist Huguenots and Protestant refugees fled to the Reformed areas of Switzerland, seeking freedom from religious persecution. Many of the refugees were skilled craftsmen and merchants, and they contributed greatly to the development of watchmaking and other manufacturing industries. The manufacturing industry became the engine of economic growth in Switzerland, as demand for their products increased and capital flowed into the region. When the Wars of Religion broke out, Switzerland remained neutral, but many Swiss were sent as mercenaries to fight in foreign armies. The Swiss were sent abroad as mercenaries to fight in foreign armies, and the money they earned on their return was deposited in banks for safekeeping, which in turn brought in even more capital. As a result of this influx of capital, the banking industry in SwitzerlanddevelopmentThe company was to follow the path of the

In 1713, the Grand Council of Geneva (*1) passed a law requiring bankers to keep a list of their customers, but prohibiting them from disclosing information to anyone other than their customers without the consent of the City Hall.enactmentThe French royalty had been trading with a sectarian Swiss bank. It was the dealings of French royalty with sectarian Swiss banks.concealmentThe purpose of the law was to help the banks to With the enactment of this law, banks gained confidence in their confidentiality. In the late 18th and early 19th centuries, amidst the political and social turmoil of the Civil Revolution and other events, the wealthy Europeans sought a place to accumulate their wealth, and they turned to Switzerland to do so.EstablishmentThe bank here means a private bank. Bank here means private bank. A private bank is a form of banking that provides comprehensive services such as asset management and investment for wealthy clients who own more than a certain amount of assets.

The reason for this development is not only a high level of trust in confidentiality. Switzerland has a mountainous terrain,safeThe building was suitable for the construction of a new building. The site was also surrounded by industrialized countries, such as Germany, which made it possible to provide services to markets in other countries. In addition, Switzerland was surrounded by industrialized countries such as Germany, which made it possible to provide services to markets in other countries. Furthermore, Switzerland became a permanent neutral country at the Congress of Vienna (*2) in 1815, and was recognized as a federal state in 1848. In addition to a high level of trust in confidentiality, these geographical conditions and the political security of being a neutral country also contributed to the country's success.affectand greatly to the financial center of the country.developmentThe first time, the company was in a position to do so.

Thereafter, the bank enhanced its status as a private bank.1901.and inheritance taxes were introduced in France and other countries. Swiss banks jumped at the opportunity and attracted foreign capital, which in turn attracted wealthy French citizens. And gradually Switzerland becametax haven(*3)), as it came to be known. Switzerland became the perfect hiding place for the wealthy in France, but the French government was becoming increasingly angry with Switzerland for contributing to the loss of tax revenue and capital flight in its own country. Therefore, in 1932, the French police, with the aim of cracking down on tax evasion, established the Paris branch of the Swiss Bank ofsearch conducted with the consent of the party concernedThe company stepped in as a The data seized showed that several hundred wealthy French people had secret accounts in Switzerland.detectionThe Swiss banking industry was outraged by this. The Swiss banking industry was outraged by this and lobbied for retaliation by tightening banking secrecy.

Developments in Germany also affected Swiss banks. The Nazi regime led by Adolf Hitler discriminated against Jews andpersecutionThe first time, the Jewish community in Germany was forced to move to Switzerland. Accordingly, many German Jews put their funds in Swiss accounts and their valuables in Swiss safety deposit boxes to protect some of their assets.Deposit.When Germany invaded Central and Eastern Europe, Jews living in these areas deposited their assets as well. However, Swiss banks also deposited the assets of German government officials and the money and valuables they looted from Jews, profiting from both victims and perpetrators. In fact, after World War II, the Swiss Bank, citing confidentiality obligations, refused to release details of dormant accounts owned by victims of the Holocaust (*4) and did not return the assets to the bereaved families, which was laterquestion (e.g. on a test)The first time this happened was in 1983, when the company was founded.

In response to the need for bank secrecy and to facilitate Jewish remittances, in 1934 the Swiss government passed the Banking ActtighteningThe law was amended in April 2008 to make it a crime for a bank official to disclose customer information to foreign authorities. It stated that it would be considered a crime for bank officials to disclose customer information to foreign authorities. The stricter rules on confidentiality helped Switzerland to establish itself as a private bank.

Gold bullion stamped Credit Suisse (Photo:Marco Verch / CCNULL [CC BY 2.0 DE])

This situation continued after the war. And1980sThe Swiss Bank came under pressure from other countries, which wanted to collect taxes from their own citizens who had assets in Switzerland. The Swiss banks came under pressure from other countries, which wanted to collect taxes from their own citizens who had assets in Switzerland. However, in 1984, a referendum to relax the banking laws regarding the protection of personal data was rejected by a majority of the votes cast.73%.The vote was against the bill, and the proposal was rejected. Since then, the strong tradition of secrecy in Swiss banking has remained strong, and the Swiss financial system has not allowed foreign regulators or tax authorities to enter the country.

Why it is a hotbed of crime

With a history of thorough protection of customers' personal information, why do Swiss banks attract illicit funds obtained through crime and other means? The first reason is to take advantage of their secrecy. For example, tax evasion. Because of the banks' high degree of secrecy, account information is not shared with foreign governments. Also, foreign countries cannot conduct investigations to obtain information. This is why some people take advantage of this system to evade taxes by hiding their assets in Swiss banks. The same applies to money laundering. Money laundering is the practice of hiding assets obtained through criminal activities in order to make them appear as if they were obtained through legitimate means.deedand is also called money laundering. The high degree of secrecy makes it difficult to determine whether the funds are legitimate or not, since it is difficult to see the specific flow of transactions.

In fact, in 2020, Credit Suisse said it helped launder money through cocaine trafficking for the Bulgarian mafia.suspicionCriminal charges were filed in Switzerland in connection with Credit Suisse believes that the firm engaged in smurfing in its dealings with Evelin Banev, a former Bulgarian wrestler who has been convicted of smuggling cocaine, and his associates. Smurfing is a type of money laundering in which a large amount of illicit funds are divided into smaller amounts to avoid exceeding the reporting threshold amount for a deposit or other transaction, and the transaction is conducted multiple times or by multiple individuals.modus operandiThe Swiss financial institutions are In this way, Swiss financial institutions are easily misused by criminals who take advantage of their secrecy and lack of visibility into the flow of money.

Second, because the banking culture encourages them to take the risk of handling assets obtained through crime in violation of the law. Securing large customers and continuing customer relationships are key to maximizing revenues, bankers' salaries, and shareholders' dividends. Bankers must follow strict rules, but they have an incentive to ignore them. One of the rules is due diligence. Due diligence is a detailed investigation and assessment of the risks of taking on a customer, including where the customer is getting its assets from.

Swiss banknotes (Photo:cosmix / Pixabay)

For clients with assets worth US$1 million, due diligence is verythoroughnessIt is believed that they are doing so. However, it is noted that attitudes change when it comes to the accounts of the very wealthy, who are more Those in management positions seek their own promotion.coerciveand seem to encourage their subordinates to turn a blind eye to bad evaluations. Bankers, as individuals, are almost always criminally responsiblenot to be questionedTherefore, it is reported that there are times when taking the risk of handling assets obtained through crime in violation of the law is a priority.

Third, the system for monitoring Swiss banks is inadequate. Switzerland has a financial sector supervisory authority, the Financial Market Supervisory Authority (FINMAThe agency is not very powerful, however. However, this institution does not have much power. FINMA's power over the acceptance of risky customers is not as strong as it could be if the bank had aWarning.The only thing to do is to do it. The bank continues to take the risk, since it is ultimately the bank that decides whether or not to actually accept it. By law, it is determined that bankers can only be sanctioned if they were directly involved in the wrongdoing. This makes it difficult for FINMA to gather evidence to hold bankers accountable, and makes it difficult for the courts to determine that the bankers are responsible for the crimes. As a result, cases of acquittal on the grounds that "they knew nothing about it" arenumerousIt seems.

The penalties imposed are also weak. Even if a bank is found to have committed wrongdoing, whether domestic or foreign, the amount of the fine it is required to pay is compared to the total assets held by the bank.(a) littleonly. Since penalties are not a strong deterrent to illegal behavior, banks continue to take risks. Banks take risks and receive a share of others' ill-gotten gains, in exchange for providing a safe and secret stash of their wealth and hoarding their money.business modelIt remains as a

This leak

Let's take a look at the specifics of what the leak was actually about. As mentioned at the beginning of this article, Credit Suisse leaked customer information to a German newspaper as a result of a massive whistleblower leak. And the "Swiss Secret (Suisse Secrets(OCCRP), a project called "The World's Most Wanted" was set up. It was a coordinated survey of more than 40 news organizations around the world, led by a German newspaper and the Organized Crime and Corruption Reporting Project (OCCRP). However, the Swiss media did not participate in the project. This is because the Swiss banking lawArticle 47.Then, Swiss journalists are not in a position to do so, because they risk criminal prosecution simply for possessing data held by private banks, and even more so for making it public.

Credit Suisse headquarters in Zurich, Switzerland (Photo:Roland zh / Wikimedia [CC BY-SA 3.0])

The study found that more than 18,000 leaked accounts, some dating back to the 1940s, but more than two-thirds were opened after 2000. Moreover, many of these accounts have been opened over the past decade, and some are still open today. It was also revealed that Credit Suisse clients, including prominent wealthy individuals and politicians, were involved in serious crimes. The accounts in which the illicit funds obtained through crimes, etc. may have been deposited,US$8 billionThe company said that more than $1.5 billion in assets were held in the account. As for account holders who committed crimes relatively recently, a Serbian securities fraudster indicted in 2001, a German company employee convicted of bribery in 2008, and a Swede sentenced to life in prison in 2011 for human trafficking in the Philippines were among theExampleThe first is.

The impact of the leak is not limited to the loss of credibility of Credit Suisse. The European People's Party (EPP), the largest party in the European Parliament, has asked the European Union to review its stance on Switzerland and consider whether to recognize it as a country at high risk of committing money laundering.Sought.The It will also have a negative impact on the Swiss banking industry and, by extension, the European financial sector.pointing outThe company has been

Improvement?

As mentioned above, after World War II, Swiss banks did not agree to release details of accounts owned by Holocaust victims and did not return their assets. The reason for this was confidentiality, and if they could not meet legal requirements, such as providing documents, including a death certificate, then they could not reveal the account details.attitudeshowed. They followed strict banking laws without taking into account the unusual circumstances of the Holocaust.

 In response to this issue, the World Jewish Congress (WJCIn the 1950s, when Switzerland was asked to investigate the issue of the deposit accounts of Holocaust victims, negotiations were held between its representatives, the Swiss government, and Swiss banks (see "The Swiss Government and Swiss Banks"). It was revealed how Switzerland had played a major role as a depository for the property of Jews and the Nazi regime.1995In 1949, Caspar Villiger, then Federal President, said of Switzerland's complicity in the Holocaust, "I feel quite guilty about the treatment of the Jews by our country."proposalThe first time the Swiss government did so was in 1949. This was an opportunity for Switzerland to publicly acknowledge and apologize to the Jews of Europe, for which it was in some way responsible. And for the victims of the Holocaust and their heirs on the part of the bank.12hundred million5,000The company agreed to pay US$10,000,000.

OECD conference on efforts to prevent tax evasion and avoidance (Photo:OECD Organisation for Economic Co-operation and Development / Flickr [CC BY-NC2.0])

Since the 2000s, there have been calls for financial transparency. Among others, in 2007, Bradley Birkenfeld, a banker at banking giant UBS, voluntarily provided information to U.S. authorities that UBS had helped thousands of wealthy Americans evade taxes.offerThe situation changed drastically when the U.S. In response to the revelations, the US pressured Switzerland to unilaterally disclose the financial secrets of its wealthy account holders starting in 2014. A similarEUalso did, and the banks were obligated to reveal the information or face penalties.

As a measure to prevent Switzerland from being perceived by the rest of the world as a hub for tax evasion, in 2014 Switzerland adopted the Common Reporting Standard (CRS)adoptionThe CRS is a set of reporting standards, such as account information, taxpayers, financial institutions that are required to report, and general due diligence procedures that financial institutions should follow. Furthermore, in 2017, the Organization for Economic Cooperation and Development (OECD) established the Automatic Exchange of Information (AEOI) system to prevent tax avoidance through accounts held at foreign financial institutions.decisionThe AEOI is a system whereby the account information of a non-resident in a financial institution is reported to the government of the other country through the tax authorities of each country. Switzerland has signed on to the introduction of the AEOI and provides financial information to other countries on a reciprocal basis, in accordance with the CRS and in accordance with the provisions of the Multilateral Convention on Automatic Exchange of Financial Account Information (MCAA).

With regard to the AEOI, the Swiss government has announced that amendments to the Ordinance on the International Automatic Exchange of Information for Tax Purposes (AEOIO) and the Federal Law on the International Automatic Exchange of Information for Tax Purposes (AEOIA) will enter into force in 2021.announcementThe amendment was made. As a result of this amendment, there will be increased scrutiny of foreigners investing in Swiss real estate. Property owners will have to share their financial information, and Swiss financial institutions will be obliged to keep any documents they deem useful for tax purposes. However, not all of the financial transparency recommendations have been accepted by the Swiss government, as some, such as digital currency accounts, are exempt from the automatic exchange of information requirements. In addition, many of the countries losing tax revenue are poor countries that have yet to reach an agreement with Switzerland on information exchange,More than 90 countries(most of which are low-income countries), the wealthy still hide their money in Swiss accounts. The inequities in this system encourage corruption and deprive low-income countries of much-needed tax revenues.

Thus, it seems that we are on the road to improvement, but there is still much work to be done to improve transparency. A British NGO, theTax Justice Networkhas published a Financial Secrecy Index that indexes the extent to which countries' laws and financial systems enable wealthy individuals to hide their assets and launder criminal money. In its Financial Secrecy Index, Switzerland is ranked in the top 20203rd placemaintained. From this it may be inferred that Swiss banking secrecy remains high.

The Federal Supreme Court of Switzerland (Photo:Norbert Aepli / Wikimedia [CC BY 3.0])

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Without major reforms, the Swiss banking industry will only lose credibility as a legitimate financial institution. However, the whistleblower who disclosed the data in the leak said that the banks alone are not to blame for the current situation, as they are "only maximizing their profits within the legal framework and being good capitalists.suggestionThe law is not the same as the law of the land. What needs to be changed are the laws that make the crimes possible. We hope that the Swiss government will change the law and be a light in the darkness that the Swiss banks are facing.

1 Switzerland is a federal republic, consisting of several cantons (currently 20 cantons and 6 sub-cantons). The parliament of the Canton of Geneva, one of the cantons.

2 An international conference held in Vienna, the capital of Austria. Its purpose was to rebuild order in Europe after the French Revolution and the Napoleonic Wars.

3 A region where taxation is completely exempt or significantly reduced, also called a tax haven. Multinational corporations and wealthy individuals avoid taxes by transferring their assets to tax havens where there is no corporate tax or withholding tax.

4 The genocide of Jews carried out by Nazi Germany during World War II. Millions of Jews were transported to camps where they were murdered in specially developed gas facilities.

Writer: Mayuko Hanafusa

Graphic: Mayuko Hanafusa

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