Switzerland Supports Criminals & Hurts Your Wallet

by Odysseas Papadimitriou on November 2, 2011

wb_swiss_criminalsWhen you think of Switzerland, the first few things that likely come to mind are bank accounts, chocolate, and neutrality, and there’s a reason for that. The Swiss love to portray themselves as mild mannered people who eschew crime, make delicious candy and run perhaps the most unique banking industry in the world. But hidden behind this façade are layers of hypocrisy and implicit criminal involvement, which allow illicit operations to flourish around the world and provide safe haven for tax evaders. Lost in the aura and tradition of Swiss banking isolationism is the negative effect the Swiss system often has on citizens of other countries. The bottom line is that economies around the world are now more interconnected than ever, and if we want the world to become a safer place or all U.S. citizens to be held accountable for the same tax laws, then Switzerland will need to adjust or risk expulsion from the Western financial network.

Swiss Banking’s Murky Past
Swiss banking secrecy officially took effect in 1934 with the passage of the Swiss Banking Act—which effectively made it illegal to share bank account information with third-parties, including Swiss authorities and foreign governments—and even the circumstances of these origins are enough to raise eyebrows. Switzerland has long justified its banking secrecy laws by harping on the merits of personal privacy, and while this is likely a large part of the equation, scholars seem to agree that the aforementioned 1934 law was passed in reaction to a French scandal, which involved France’s Prime Minister accusing distinguished French citizens from various walks of life of stashing money away in Swiss banks and thereby funding the Nazi regime.

Indeed, the Swiss banking system has been widely accused of essentially laundering money for the Nazis, allowing them to hide assets stolen from captives and gold stolen from occupied nations in the country’s infamous numbered accounts. According to a 1999 report by the Volcker Commission, the value of accounts potentially belonging to Nazi victims that were closed by Nazis, closed by unknown parties or unclaimed was $107 million. Swiss banks have also been tied to notorious crime and terrorism figures, such as Meyer Lansky and Osama Bin Laden, as well as numerous international financial scandals, including that which resulted in the Swiss bank UBS paying a $780 million penalty to the U.S. In addition, accusations from developing countries hold that Swiss banks are the final destination for much of the estimated $50 billion a year siphoned away by corrupt dictators.

Hypocrisy Incarnate?
This all would certainly seem to contradict the idea of the noble Swiss banker, concerned only with sound banking principles, and not international politics or cutthroat business practices that ignore international law. It also serves to illustrate the hypocrisy of a culture that acts as if it treasures neutrality and peace, but supports a system that has served as the financial backbone for some of the most notorious criminal operations in history (and those are only the ones we know about). When you consider how harsh Switzerland has traditionally been on crime internally, especially as it relates to foreign perpetrators, the double-standards practiced by the nation are even more evident. According to a 1999 report from Switzerland’s Federal Department of Justice and Police, the conviction rate for foreigners living in Switzerland is double that of Swiss citizens. What’s more, in 2010, 53% of voters voted for a law proposed by the Swiss People’s Party that, if passed, will allow automatic deportation of foreign nationals legally residing in the country who commit certain crimes.

Necessary Changes
By now, you must be wondering why countries around the world allow this system to subsist. 2001 Nobel Laureate for Economics Joseph Stiglitz tackled this exact question in a 2003 interview, saying:

“You ask why, if there’s an important role for a regulated banking system, do you allow a non-regulated banking system to continue? It’s in the interests of some of the moneyed interests to allow this to occur. It’s not an accident; it could have been shut down at any time. If you said the U.S., the UK, the major G-7 banks will not deal with offshore bank centers that don’t comply with G-7 bank regulations, these banks could not exist. They only exist because they can engage in transactions with standard banks.”

Within this reasoning lies the exact solution to the problem of Swiss banking secrecy. Officials from the U.S. and the E.U. need to join forces in outlawing the transfer of funds originating from anonymous accounts (including company accounts that cannot be traced back to individual owners). If there is no physical person behind the cash or the identity of said person is not available to all relevant parties, including governments for taxation and law enforcement purposes, there should be no transaction. Such a requirement would eliminate transfers involving shell corporations that mask criminal activity and would effectively shut off corrupt banking systems from the world economy. It would also make it much harder to finance criminal enterprises, given that under such a system you would be unable to maintain a useful bank account unless you‘re willing to have your financial information disclosed to your country of citizenship.

Final Thoughts
We should all care about restricting banking secrecy precisely because of the effect such a move would have on crime. The free flow of money is the lifeblood of all types of crime and without it the world would be a much safer place. What’s more, by holding our wealthiest citizens responsible for their civic and legal duty to pay taxes, we would have more funding for things like schools, public works, police forces, deficit reduction, etc. That sounds a whole lot better than the current “what you don’t know won’t hurt you” approach held by Switzerland, as we’ve seen that the country’s banking practices have indeed hurt many, either directly or tangentially.

Much like the Swiss wish to expel from their country legally residing foreign immigrants who commit crimes, it is time to expel Switzerland from our banking system, unless they cease aiding criminal activity on a daily basis.

Discussion

I disagree with your comments on the unfairness of Swiss incarceration.nThe incarceration rate in Switzerland is 80 for 100,000 people. In the US it is 745 for 100,000 people.n10 times MORE than Switzerland.nSince the Schengen agreements that allows free circulation throughout Europe, the number of robberies has exploded in Switzerland. How do you blame that on the Swiss?
November 4 at 20:56 pm
Switzerland is OECD compliant and has double taxation agreements with many countries. I am not sure why you think that some level of privacy is such a bad thing nowadays when scammers know no borders and are definitely interested in private financial information. Bank secrecy is routinely lifted when there is evidence of fraud however.nYou must be aware that the US is a tax haven for non-resident aliens as the US levies no taxes on that group of people. The use of Delaware LLCs makes it pretty opaque too. It is known that the US siphons funds from all of South America.
November 4 at 20:43 pm
Let me say that the US also traded gold with Germany until 1941 while they were not surrounded like Switzerland and had no pressure to do so. You also make it sound like the Swiss kept gold which is not true. The Swiss printed Francs in exchange for gold and that gold ended up in Portugal, Turkey, or Spain to pay for tungsten. The Swiss derived $28 million from it that was used to buy food and coal for its own population while sheltering 340,000 refugees.
November 4 at 20:23 pm
I disagree with your shocking comments. The charges against the Swiss banks were grossly distorted. The Volcker Committee report found that the Swiss banks did not systematically deny Holocaust victims or their heirs access to accounts after the war and did not systematically destroy bank records. $17 million was traced to holocaust victims and that was using modern databases that were not available after the war.nCompare that to the US where Holocaust assets were simply turned to the states and the paperwork shreded.
November 4 at 20:14 pm

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