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Details on Site Contribution
 
Site contribution
Date: February 2016
Prepared by:
Dr. Luka Müller-Studer, LL.M., Attorney at Law, Partner
Dr. Lucy Gordon, LL.M., Attorney at Law, Partner
Christoph Rechsteiner, Certified Tax Expert, Partner
MME Legal | Tax | Compliance
Kreuzstrasse 42
8008 Zurich
Phone:   +41 44 254 99 66
Fax:   +41 44 254 99 60
E-Mail:   luka.mueller@mme.ch
lucy.gordon@mme.ch
christoph.rechsteiner@mme.ch
Caution: This summary is an overview only. It is highly recommended to seek professional advice.
I. Introduction and Overview
The term Banking Confidentiality refers to the professional obligation of a banker (and certain other persons) to keep the details of a client's financial and personal affairs private. It is intended to protect the client's interests, not those of the financial institution. When referring to the right of a client to have his/her personal and financial data safeguarded, the proper term is Bank Client Privacy.
Bank Client Privacy is not an absolute right. Since it is a client's personal right, it can be waived by him/her at all times. Further, it can be lifted by the courts in certain legal proceedings, including criminal ones. Bank Client Privacy is not intended to shield the client from criminal investigation, whether in Switzerland or abroad. Specific instances in which a client's information may be disclosed are as follows:
  • civil proceedings (such as divorce proceedings or inheritance matters);
  • debt recovery and bankruptcy proceedings;
  • criminal investigations in Switzerland;
  • request of a foreign state authority for judicial or administrative assistance;
    Swiss banking is renowned for its adherence to the principles of Banking Confidentiality, which is probably one of the best-known legal aspects of Swiss banking. While Banking Confidentiality and Bank Client Privacy may be motivating factors for the decision to invest assets in Switzerland, in many cases it is just one of several considerations. At least as important are factors such as Switzerland's reputation for high-quality services, its political and monetary stability, a long tradition of expertise in wealth management, and the legal certainty, particularly the predictability of its legal proceedings and decisions.
    Bank Client Privacy in tax matters is coming to an end. Data is currently exchanged upon request either based on a Double Taxation Treaty (DTT) or based on a Tax Information Exchange Agreement (TIEA). Additionally, as from 2017 bank data will be collected and exchanged automatically among the countries that have signed the Agreement on the Automatic Exchange of Information (AEOI). The first spontaneous exchange will actually take place in 2018.
    II. Applicable Law
  • Article 47 of the Swiss Federal Law of 8 November 1934 on Banks and Savings Banks (Banking Act, BA)
  • Article 43 of the Federal Act on Stock Exchanges and Securities Trading (Stock Exchange Act, SESTA)
  • Article 28 Swiss Civil Code
    III. Detailed Information
    The purpose of Bank Client Privacy is to safeguard the individual privacy of the bank client. To verify the creditworthiness of their clients and to satisfy the requirements of anti-money laundering provisions ("Know Your Client"), banks often collect substantial data about their clients. As a result, they have personality profiles that are relevant under the aspect of data protection and personality rights.
    In general, the right to individual privacy is protected under the Swiss Constitution (Article 13) and the Swiss Civil Code (Article 28). Under the latter, individuals and institutions have a protected sphere of privacy. All financial matters that a person discernibly keeps and wishes to remain secret are considered to be within that sphere of privacy.
    In addition to the named provisions, the obligation of a bank (or a stock exchange or a securities dealer) to keep the client's data confidential results directly from the contractual basis of their relationship.
    Article 47 of the Swiss Banking Act as well as Article 43(1) of the Stock Exchange Act fortifies this protection and embodies the concept of Banking Confidentiality: Pursuant to these two provisions, whoever discloses a secret that has been confided to him or her in his or her capacity as a bank or stock exchange functionary or a securities dealer, or whoever attempts to induce such a breach of professional confidentiality, will be punished by imprisonment or fine.
    The right to privacy is not absolute. Pursuant to Article 28(2) of the Swiss Civil Code, grounds of justification for an impairment of this right are the consent of the aggrieved person, a preponderant public or private interest, and the law. In principle, these grounds also apply with regard to Article 47 Banking Act and Article 43(1) Stock Exchange Act. Pursuant to these provisions, the right to privacy does not provide protection from acts of the state based on special norms of public law. Both Article 47 Banking Act and Article 43 Stock Exchange Act explicitly state that provisions of federal and cantonal legislation regarding the duty to inform authorities and give testimony in court take precedence over Bank Client Confidentiality. In practice, these duties concern:
    Pursuant to the Code of Civil Procedure, the Swiss court decides at its discretion in civil proceedings whether the privacy interest outweighs the interest in establishing the truth. Depending on the outcome, Bank Client Confidentiality can be lifted.
    In divorce proceedings, spouses have the right to obtain information about the other spouse's financial situation. Upon request, the court may require the bank (or securities dealer) to provide the requested information. Likewise, in probate proceedings, heirs and certain other persons have the right to request information from the bank.
    In debt enforcement and bankruptcy proceedings, bank customer privacy can also be lifted.
    For civil proceedings abroad, where one of the parties wishes to obtain information from Swiss banks or securities dealers, the Hague Convention on the Taking of Evidence Abroad applies. Upon request, a Swiss court will take the requested evidence (see section on "Mutual Assistance").
    In Swiss criminal proceedings, a banker or securities dealer is required to provide requested information, testify and/or to deliver requested documents. However, if they can credibly show that the privacy interest outweighs the interest in establishing the truth, the court may release them from providing the requested information, from testifying, and/or from delivering the requested documents.
    In criminal proceedings, information between the authorities of two states may be exchanged by means of "mutual assistance". Mutual assistance is rendered to foreign states on the basis of international treaties, as well as pursuant to the Swiss Federal Law on International Judicial Assistance in Criminal Matters (IMAC). In relation to the United States, the Treaty between the United States of America and the Swiss Confederation on Mutual Assistance in Criminal Matters is also significant. One of the key principles of mutual assistance in criminal matters under Swiss law is the requirement of dual criminality, meaning that it is not sufficient that an act is a criminal offence under the laws of the requesting State (i.e. the United States) but also under the laws of Switzerland. With regard to Bank Client Confidentiality, this means that it will not be lifted by the Swiss authorities unless the act being investigated in the United States qualifies as a crime under both Swiss and U.S. law. Under certain conditions, it is possible to have assets in Switzerland frozen and subsequently handed over to the requesting authorities. (For more detailed information, see the section on "Mutual Assistance".)
    Mutual Assistance in Administrative Matters means that assistance is provided by one administrative agency to another in order to facilitate the execution of the latter's duties. The legal basis for international mutual assistance in administrative matters depends on the nature of the case. Statutory provisions exist in the areas of tax, financial market regulation and money laundering.
    The Swiss Financial Market Supervisory Authority (FINMA) provides information to foreign financial market supervisory authorities where the information requested is used for the direct supervision of the institution concerned. The foreign authority may not transfer the information to another authority or body without the consent of the FINMA or the general authorization of an international treaty ("Principle of Specialty") and only then if the requesting authorities are themselves bound by official or professional secrecy ("Principle of Confidentiality") (Art. 42 Federal Law on the Federal Financial Market Supervision; Art. 23septies Swiss Banking Law; Art. 38 Stock Exchange Act).
    With regard to tax, the Swiss Federal Tax Administration (FTA) provides information to the US pursuant to the Tax Administrative Assistance Act (TAAA) and the DTT with the United States. The ratification of an OECD-compliant tax treaty with the United States, which allows mutual assistance not only in cases of tax fraud but also of tax evasion, has been stalled in the U.S. Senate. While so-called "group requests" (i.e. requests concerning a specific group of tax payers from a certain country that hold financial assets abroad and cannot be identified individually) are permissible, fishing expeditions are not.
    As for combating money laundering and terrorist financing, the Swiss Money Laundering Reporting Office (Reporting Office) may, under certain conditions, pass information to foreign prosecutors or equivalent authorities.
    In cases where circumstantial evidence gives rise to a suspicion that financial assets are the proceeds of a crime or serve the financing of terrorism, Swiss financial institutions are permitted – and in cases of reasonable suspicion obliged – to inform the Reporting Office without infringing upon Bank Client Privacy.
    Many Swiss financial institutions have entered into a Qualified Intermediary (QI) agreement with the United States Internal Revenue Service (IRS). A bank or securities dealer that is a Qualified Intermediary must ensure that "US Persons" (US citizens, Greencard holders, and persons resident in the United States for more than 183 days during the current year) are disclosed to the IRS if they have invested through them in US securities. In order to avoid violating Bank Client Confidentiality, Swiss banks and securities dealer therefore require either a declaration by their US customers that they agree to such disclosure or that they will refrain from investing in US securities.
    Along with many other countries, Switzerland has signed an intergovernmental agreement with the U.S. to facilitate the implementation of FATCA. A Swiss FATCA law was enacted on the basis of this intergovernmental agreement (the so-called FATCA agreement), which came into effect on 30 June 2014. The FATCA agreement that is currently in force between Switzerland and the U.S. requires the Swiss financial institutions to directly provide the U.S. tax authorities with the account information that is subject to notification with the consent of the clients concerned. In the case where no consent has been granted, an anonymous, aggregated notification containing certain account information is provided instead. On the basis of the aggregated notification, the US tax authorities can then seek disclosure of specific client account information by means of a request for administrative assistance, if this is provided for under the DTT between Switzerland and the U.S. Changes to the current FATCA model (i.e. a notification of information is not provided directly by the financial institution to the U.S. tax authorities but to the FTA, which in turn provides this to the U.S. tax authorities) will become effective in 2018 at the earliest. For further information FATCA please refer to section "FATCA").
  • What are the reasons for having Banking Confidentiality?
    By obliging a banker to keep the details of a client's financial and personal affairs confidential, Banking Confidentiality protects Bank Client Privacy, i.e. the right of an individual to privacy. Banking Confidentiality is based upon a centuries-old culture of confidentiality in business dealing practiced by private banks. In light of several cases of foreign bank espionage, Banking Confidentiality was formally enacted in 1935 as a provision of the new Swiss Federal Act on Banks and Saving Banks.
  • What is the difference between tax fraud and tax evasion?
    Swiss law distinguishes between tax fraud and tax evasion. Tax fraud, which is considered a crime in Switzerland, is committed if falsified or otherwise non-genuine records are used in order to deceive tax authorities. Tax evasion, on the other hand, is committed if the documentation submitted to the tax authorities is incomplete. In Switzerland, tax evasion is dealt with at the administrative law level rather than the criminal law level. In the past, this distinction has led to requests for assistance by a foreign state being refused on the basis that tax evasion does not qualify for assistance. In 2009, Switzerland agreed to adopt the OECD standard, which means that when asked to hand over tax-relevant information, Switzerland will not refuse on the basis that tax evasion does not qualify for assistance. The concrete implementation of the OECD standard has taken place by way of the revision of tax agreements with other countries. Additionally, Switzerland has signed a number of TIEA that allows the exchange of (banking) information. For Swiss taxpayers, the distinction between tax fraud and tax evasion still applies with regard to taxes to be paid in Switzerland.
    Useful Links
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  • Swiss Financial Market Supervisory Authority FINMA
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  • Swiss Bankers Association
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  • Swiss Federal Department of Foreign Affairs
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  • Swiss Federal Tax Administration