Between a Rock and a Hard Place: The Legal and Moral Juxtaposition of Switzerland's Bank Secrecy Laws as Illustrated by the Revelation of Nazi-Era Accounts

By Sage, Thomas A. | Houston Journal of International Law, Fall 1998 | Go to article overview

Between a Rock and a Hard Place: The Legal and Moral Juxtaposition of Switzerland's Bank Secrecy Laws as Illustrated by the Revelation of Nazi-Era Accounts


Sage, Thomas A., Houston Journal of International Law


I. INTRODUCTION

Switzerland's image of neutrality during World War II, a country surrounded by warring nations and yet heroically maintaining its own peaceful neutrality,(1) has served the Swiss well. Switzerland's official position of neutrality as well as its renowned tradition for absolute secrecy in banking have allowed this tiny nation to grow from obscurity to international prominence as the worldwide banking center.(2) In fact, for the past fifty years the Swiss citizens have "boasted to their neighbors about their enviable wealth," but it is now apparent that they were "profiting from blood money."(3) Discoveries of long dormant Nazi-era accounts have toppled this seemingly sacred historical dogma of the courageous Swiss persevering despite being surrounded by the Nazis and other Axis powers.(4)

Recently, the international community has become increasingly concerned about long dormant accounts of Holocaust victims.(5) In addition, more and more evidence has surfaced regarding the pivotal role that the Swiss gold purchases from Germany had in prolonging World War II.(6) The international furor that was created by these revelations and the ensuing threats of various private sanctions(7) resulted in an unprecedented opening of the wall of secrecy that has surrounded Swiss banking for the past seventy years.(8)

Consequently, several questions remain unanswered regarding Switzerland's continued neutrality.(9) the continued viability of Swiss banking secrecy laws,(10) and the inheritance rights of the heirs of deceased depositors.(11) The question of Switzerland's continued neutrality will be determined by its international activities in the next century, just as it has been over the last few centuries.(12) However, the latter questions of banking secrecy and inheritance of the newly discovered funds demand immediate Swiss action and their corrective actions must undergo global scrutiny. This Comment will focus upon these latter two questions and attempt to illustrate the legal morass and political difficulties involved in sorting out these accounts.

In addition, the laws that allowed these abuses to occur will be examined against the backdrop of these recent revelations. Consequently, it will become apparent that the proliferation of legislation protecting the financial confidentiality of a bank's clients inevitably led to various abuses. The discussion of these issues is rather hollow without a brief review of the historical events that set the stage for the controversial actions of Switzerland. This is necessary to grasp the context surrounding both the inception of these accounts and the terms of various Swiss dealings with the Nazis. This background information will be presented in Part II.

In Part III, the problems that the Swiss banks face in distributing these funds will be thoroughly examined. The distribution of a single account is potentially controlled by the probate codes of the several nations in which the heirs reside. Accordingly, this paper will primarily focus on the conflict of laws problem and compare the author's conclusions to the actual practices of the Swiss banks today. Following this, the continued viability of this type of banking secrecy will be examined in light of the stated benefits and potential for abuse, as illustrated by both the current controversy and other evidence of its facilitation of worldwide organized crime.

II. HISTORICAL DEVELOPMENT

In order to grasp the inappropriateness of Switzerland's conduct during the course of World War II, one must understand the historical context in which its actions occurred. After World War I, Switzerland was recognized by the League of Nations as an officially neutral state.(13) This action buttressed the century-old neutralization of Switzerland that was imposed due to its penchant for producing mercenary armies to terrorize 19th Century Europe.(14) The rise of Nazi Germany provided the first real test of Swiss neutrality.

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