Patrick Radden Keefe writes: Since 1713, when the Great Council of Geneva banned banks from revealing the private information of their customers, Switzerland had thrived on its reputation as a stronghold of financial secrecy. International élites could place their fortunes beyond the reach of tax authorities in their own countries. For Swiss wealth managers, who oversaw more than two trillion dollars in international deposits, the promise to maintain financial privacy was akin to a religious vow of silence. Switzerland is the home of the numbered account: customers often specify that they prefer not to receive statements, in order to avoid a paper trail. In light of these safeguards, the notion of a breach at HSBC was shocking in 2008.
The Swiss economy is charged by banking. Were its secrecy policies to be ended, they would be left making cheese, cuckoo clocks and watches. The Swiss vote in their cantons almost daily on every imagineable issue, so at some point they will weigh in on the future of their economy.
In the meanwhile, the US and its tax and justice departments want to know which of their citizens are avoiding taxation by stashing their money in private accounts in Swiss banks.
When Hervé Falciani, a computer technicians, arrived in Geneva, he realized that HSBC. was engaged in a “gigantic swindle.” Clients were not only placing their fortunes in accounts that were “undeclared” to tax authorities; HSBC bankers were actively assisting clients in hiding their money, by setting up shell companies and sham trusts in the British Virgin Islands and Panama. In some instances, the bankers were handing customers hundred-thousand-dollar bricks of U.S. bills, allowing money to be smuggled back home. In a subsequent investigation by French prosecutors, an HSBC client said that the bank had instructed him to “make a company in Panama, which should open an account at HSBC. in Lugano, into which I should transfer all my holdings, in order to not be hit by this tax.”
Like many Swiss banks HSBC. offered “hold mail” accounts, refraining from sending any statements or other mail to clients. Nearly fifteen thousand clients chose this method—roughly half of the account holders at HSBC’s Swiss bank. Another client questioned in the subsequent investigation recalled that when he wanted to make a deposit he would meet his account manager in a public place. “I would give him an envelope holding my money, in cash,” he explained. “And a few days later he would tell me by phone that the funds had been credited to my account in Switzerland.” H.S.B.C. has numerous offices in Paris, but, according to the French investigation, when the Swiss bankers visited clients there they preferred to meet in cafés; in a similar spirit of concealment, account holders used pay phones when making calls to Switzerland. One client pointed out that the furtive face-to-face meetings offered “a bit of reassurance about the money I had in Switzerland, since I had no documents or anything that attested to my having an account.”
Although the conduct that Falciani witnessed may have been illegal, it was fairly standard practice for Swiss banks at the time. A 2014 U.S. Senate report describes a Credit Suisse banker travelling to America to meet a client for breakfast at a Mandarin Oriental hotel, and passing along an issue of Sports Illustrated in which account statements were concealed between the pages.
Swiss banks routinely dispatched emissaries to cultivate new clients at art shows and regattas, and the illegality of the service was implicit in the pitch: if you bank with us, your fortune will not be taxed. It is not illegal for a person or a corporation to hold a Swiss bank account, or to engage in tax “avoidance”—skirting tax requirements through gymnastic accounting and the exploitation of loopholes. But tax evasion, in which wealth is actively concealed from authorities, is illegal, and the behavior of Swiss bankers often suggested that they knew they were crossing the line. According to testimony in a 2014 criminal trial in Florida, representatives of the Swiss bank UBS. who travelled to such events as Art Basel to recruit clients carried encrypted laptops that were configured with an emergency password, so that they could erase the hard drive with a few keystrokes. An unnamed Swiss banker said, “We all have one foot in prison. Maybe that’s why we were all paid so much.”