Academic journal article International Journal of Management

The Use of Secret Bank Accounts by Foreign National Depositors: The Swiss Bank Secrecy Crisis

Academic journal article International Journal of Management

The Use of Secret Bank Accounts by Foreign National Depositors: The Swiss Bank Secrecy Crisis

Article excerpt

Wealthy individuals around the world have always sought to protect their wealth from their own government and the payment of taxes. The pursuit of keeping their wealth private is a constant challenge. Since 1934, Swiss banks have relied upon Swiss law to keep secret information about their depositors. This has lead to foreign nationals keeping their money in Swiss banks, often to avoid paying taxes in their home countries. Recently, whistle blowers have revealed information about these depositors and have caused the Swiss law about secrecy to come under scrutiny. The government of Switzerland has put forth a proposal to allow Switzerland to collect taxes on behalf of foreign governments. This allows the collection of money to foreign governments without Switzerland having to release names of depositors in their banks. We discuss this proposal and its effects on the Swiss banking crisis.

Introduction

For decades, private Switzerland banks have served as tax havens for the world's richest people. Switzerland has protected both the investments themselves and their investors with the utmost security and secrecy. Wealthy individuals would be able to protect their accounts from their respective governments, and the Swiss would amass an incredible amount of wealth from the resulting hundreds of private banks. This secrecy had been the perfect arrangement, that is, until now. In 2007 an American executive, Bradley Birkenfeld, working for UBS came to the U.S. government and handed over documents revealing the names of people who have been protected by Swiss banks, and have thus been able to hide millions of dollars from the U.S. government. He hoped to be a successful whistle blower, and receive a large sum of money for his actions; however he currently sits in jail and is the only person to date arrested in the matter (Walt, 2010).

As countries like the United Kingdom, Germany, and France found out about the tax cheats in the U.S., they too began to look deeper into the issue to see whether or not their citizens were participating in offshore banking, in some cases offering bank employees of private firms large sums of money for information similar in nature to the documents given to the U.S. by the UBS whistleblower. World governments have recently found that they could be missing out on hundreds of millions of dollars in unpaid taxes. With the daunting task of protecting their name and leading industry there is pressure on Switzerland, to take action. Years of secrecy for the world's wealthiest people may be coming to an end as governments of the world intensify their hunt for secret tax havens. Switzerland may find themselves in a very difficult situation if they were to lose a lot of financial accounts (Pickert, 2010).

History

Swiss banking and its respective secrecy came about in 1934. Originally created for Jewish people who lived in Germany under Hitler's rule, the Swiss created this banking system to help Jews keep their money from being taken away by Nazi Germany. The way the Swiss did this was to provide complete secrecy by law. Any account opened in the banks of Switzerland would be completely private from all prying eyes, and the account holders' names would never be released for fear of persecution. Although it may seem as a selfless act created only to protect Jewish wealth, the Swiss were also making a large amount of money as a result of the secrecy factor in the new law. As many account holders passed away during the Holocaust, their accounts went unclaimed and the money went, essentially, into the Swiss banks' own accounts. Although many family members tried to claim these accounts when their loved ones had passed away, the Swiss banks would not allow the accounts to be accessed until they were provided with a valid death certificate. This became a matter of defeat as during the holocaust very few, if any death certificates were issued ("Nazi Gold", 1997).

As the war ended and time went on, many people around the world began to realize the potential benefits to the average man of the secrecy law the Swiss had created. …

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