Banks crash and Bern

Clock ticking on secretive practices in Switzerland

AMONG the least surprising aspects of the Fifa scandal is that Switzerland, a country that has grown fat and rich on keeping corruption and tax evasion under wraps, finds itself at the vortex of events.

For much of the last century the Swiss refused to co-operate with global investigations into wrongdoing, while defending banking secrecy as if it was a fundamental human right.

But during the past decade this culture of financial secrecy in Switzerland met its match in the shape of the long arm of puritanical American justice, which has blown a hole in the country’s defences.

There have been dramatic revelations about the hoarding of stolen wealth from the Nazi era; tax evasion on a grand scale, as shown by HSBC’s Swiss Private Bank helping its clients to avoid tax; and money-laundering for dictators and financial exiles.

If disclosures continue at such a frenetic pace, the country will have no commerce left but ski chalets for the rich, hot chocolate drinks and overpriced timepieces.

The Swiss first found themselves in the cross hairs of American investigators in the mid-1990s when the US-based World Jewish Congress stepped up its legal action to recover the looted and stolen funds of Holocaust victims and survivors that were locked up in Swiss bank accounts.

It soon became clear that billions of dollars worth of illegally obtained Nazi assets, from works of art to gold bullion, had ended up in the vaults of Swiss banks, including the central bank.

Until the action by victims of the Holocaust and their families – who had the moral support of the world behind them – Switzerland steadfastly declined to open the books or the vaults of its banks.

Its secrecy was enshrined in the 1934 Federal Act on Banks and Savings Banks, which specifically proscribed private banks from providing information to third parties, including tax authorities, foreign governments and even the Swiss government.

For most of the 20th Century, no one in Switzerland could have possibly imagined the scene last week when the Zurich cantonal police raided the exclusive Baur au Luc hotel at 6am on the orders of the US Attorney General Loretta Lynch, and rounded up seven of Fifa’s most senior officials on corruption and moneylaundering charges.

But the fact is that ever since the 2007-08 financial crisis, the Americans and other Western democracies have been battering away at Swiss banking secrecy.

The real breakthrough came in 2009 when Switzerland’s largest bank, UBS, finally admitted to American enforcers from the FBI, the Internal Revenue Service and the Securities & Exchange Commission that it had helped American clients evade taxes.

Under an agreement with the US authorities, UBS was allowed to keep its American banking licence in exchange for paying a fine of $708m, and provided a list of the alleged US tax evaders.

In the wake of the financial crisis the pressure on Switzerland to end banking secrecy and to open the affairs of its banks to tax investigators has been immense as countries have been desperate to recover lost revenues at a time of budgetary pressure across the globe. The extent of Swiss perfidy was exposed earlier this year when a computer was smuggled out of British- bank HSBC’s Geneva branch to France.

It proved a treasure trove of information, providing details of the tax avoidance activities of donors to both the Tory and Labour parties.

It showed how HSBC’s chief executive Stuart Gulliver hid his own salary and wealth from colleagues and revealed how the bank acted for foreign potentates and alleged corrupt syndicates around the world.

The reputation of Swiss banking took another hammering in January 2010 with the disclosure that the head of the Swiss National Bank, Philipp Hildebrand, had potentially engaged in insider trading on the currency markets by passing on sensitive information to his wife – information on which she acted.

This was just days before he dramatically imposed a cap on the value of the Swiss franc against the euro.

Hildebrand came under intense political pressure and was forced to resign.

The discovery of systematic wrongdoing at the heart of Swiss banking has left a permanent stain on the reputation of finance and business in a country which liked to boast of its probity and discretion.

The infamous ‘gnomes of Zurich’, the Swiss bankers disparaged by the late Harold Wilson for their sinister influence during the sterling crisis of 1967, are finally getting their comeuppance.