Farewell to the Swiss Bank Secrecy Tradition and Principle

by Sando Sasako
Lead Consultant
Advanced Advocacy Plus

Jakarta, 19 June 2010, 21.11

The world is changing. A new beginning has come. A new horison is about to be embraced
and dealt with. The old tradition has come to an end. So is the secrecy tradition and the
history of Swiss banks in keeping secrets very tightly. A brave new world. A world or realm
that has been transformed radically.

The secrecry of Swiss banking principles has been breached many times. The last one
happened legally voted by the Switzerlands parliament on 17 June 2010 to allow banking
giant UBS AG to hand over the names of 4,450 Americans with Swiss offshore accounts to
the US Internal Revenue Service as part of an IRS tax evasion probe.1

It was just two months before the 24 August 2010 deadline set for the bank to comply. The
US Department of Justice had issued Switzerland with a deadline which, had it not been met,
could have led to UBS losing its US operating licence. Swiss President and Finance Minister
Hans-Rudolf Merz said the move would have threatened the very existence of the bank, and
with it, the Swiss economy.2

Such Switzerlands parliament vote was following the rule order of a Swiss court in January
2010. Swiss lawmakers approved a final deal to hand over to American authorities data on
thousands of suspected tax cheats with accounts at UBS. Swiss law distinguishes between tax
evasion, a civil matter rarely prosecuted, and tax fraud, a criminal matter.3

Failure to declare earnings, or tax evasion, is not a crime in Switzerland, and therefore Swiss
banks see no reason to offer information. Sharing client information with other parties, where
no crime is suspected, is actually an offence under Switzerland's banking laws. Such a system
has been, and according to many financial analysts, still is, open to exploitation by anyone
who wants to hide their money.

Swiss banks have already been involved in a number of embarrassing cases involving corrupt
government leaders. The former presidents of the Philippines and Zaire, Ferdinand Marcos
and Mobutu Sese Seko, were among those who hid billions of dollars of their countries'
money in Swiss banks.

The January 2010 court panel said that under Swiss law, the failure to file a W-9 form wasnt
considered fraud in Switzerland, as it would be in the U.S. The W-9 form notifies a bank or
broker that a customer is a U.S. taxpayer. A failure by U.S. taxpayers to file a W-9 form is
indicated by as a fraud incident.4

1
Clifford M. Marks, Swiss Parliament Clears the Way for Handover of UBS Names, The Wall Street
Journal Blogs, 18 June 2010, http://blogs.wsj.com/law/2010/06/18/swiss-parliament-clears-the-way-for-
handover-of-ubs-names/
2
Imogen Foulkes, Clock ticking for Swiss bank secrecy, BBC News, Geneva, 20 Feb. 2009,
http://news.bbc.co.uk/2/hi/business/7901832.stm
3
Lynnley Browning, Swiss Approve Deal for UBS to Reveal U.S. Clients Suspected of Tax Evasion, New
York Times, 17 June 2010, http://www.nytimes.com/2010/06/18/business/global/18ubs.html
4
Ashby Jones, Are Reports of the Demise of Swiss Banking Secrecy Premature?, The Wall Street Journal
Blogs, 25January 2010, http://blogs.wsj.com/law/2010/01/25/are-reports-of-the-demise-of-swiss-banking-
secrecy-premature/

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 Farewell to the Swiss Bank Secrecy Tradition and Principle
by Sando Sasako

UBS shall disclose accounts for which holders did not file a special disclosure document,
called a W-9, over at least three years since 1998, and for which the accounts generated
annual revenue to the client of at least 100,000 Swiss francs. For accounts involving the
concealment of funds, the submission of incorrect or false documents to UBS or the IRS, and
what the IRS terms a scheme of lies, the balance must be at least 250,000 Swiss francs,
about $247,000.

In 2009, UBS paid a $780 million fine, turned over several hundred client names and entered
into a deferred-prosecution agreement with the United States over activities in its offshore
private bank. Switzerland, one of the worlds largest offshore jurisdictions, holds nearly one-
third of the estimated $7 trillion in global wealth kept offshore.

Switzerland: The Country Background5

The Swiss Confederation was started in 1291. Its original purpose was to provide for the
common defense of three cantons. (Cantons are roughly equivalent to states or provinces.) In
later years, other cantons joined the initial three. In 1499, Switzerland acquired its
independence from the Holy Roman Empire.

The sovereignty and independence of the country have been well respected by European
countries. The country was not involved in either World War one or two. Became a member
of the UN in 2002. Country remains committed to neutrality and has not, as of this writing,
become a member of the EU.

Switzerland is a peaceful, stable and wealthy country with a modern economy and low
unemployment. The per capita incomes of its workers are larger than the big Western
European nations. Establishing a Swiss bank account remains common for many individuals
and companies worldwide because of the Swiss bank secrecy laws and the long-term stability
and value of the Swiss franc. Unemployment remains less than one half the average in the
EU.

The Swiss truly know what luxury matters in life: time (swiss army watches), money (banks),
no drama (neutrality, ICRC, geneve conventions), multitasking (victorinox knives), cheese
(kraft, nestle), chocolate (toblerone, kit kat), and corporatocracy. Chocolates and cheese are
synonymous with secrecy? Ssstt, eat this cheese, but be quiet.6

Switzerland is ranked number one as the world's largest private banking center with over 500
major banking institutions. It is estimated that around 35% of all the private wealth globally
is held in Switzerland. services market has moved to sophisticated services a competitive
prices for large professional clients.7

5
Offshore Corporation, Swiss Bank Account-Switzerland Banks, http://www.offshorecorporation.com/swiss
-bank-accounts/swisshistory.aspx
6
http://digg.com/business_finance/A_Short_History_of_Swiss_Banks_Secrecy
7
OffshoreLegal.org, History of Switzerland Banking, http://www.offshorelegal.org/offshore-banking/swiss-
switzerland-offshore-banking/history-of-switzerland-banking.html

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As the result of new legislation and market forces combined, the Swiss banking had changed
its basic traditional smaller sized private accounts. In the meantime, the legislative changes is
partly down to the Swiss desire to be seen as a major player in the war against organized
crime and money laundering within the international community. The Money Laundering Act
1998 and the Federal Act on International Mutual Assistance in Criminal Matters 1983 are
the key new pieces of legislation.

Swiss Banking8

Because of the peace, stability, financial strength and conservative business nature of the
Swiss, the country has been a respectable banking center for many years. Very strict privacy
laws were put into place in 1934 making it a crime to reveal information about a clients bank
account.

The only exception to this is if the accountholder has committed a crime that is also a crime
in Switzerland and the proceeds of the crime are in the bank. It first must be brought before a
Swiss judge and ruled upon by a Swiss court. Tax evasion is not a crime in Switzerland and
account information is not revealed in the event of a tax crime conviction. However, as a
responsible company, we highly recommend that you follow the tax laws of the jurisdictions
in which you are legally required.

Swiss banks do not accept small deposits or those to intend to quickly open and close their
accounts. Most banks have deposit requirements of $1 million (US) or more. Some banks will
accept as little as $200,000. If less than this amount is available, there are some very strong,
safe banks in the Caribbean that will accept less than this amount.

For privacy, all Swiss accounts should be opened in an offshore company name and not a
personal name. So, first establish and offshore company. Then open an offshore account. A
company in the Caribbean Island of Nevis offers the best privacy. A Nevis limited liability
company (LLC) offers both privacy of ownership and legal asset protection.

In a personal account, all wire transfers and checks would leave an indelible paper and/or
electronic trail. In a corporate account, on the other hand, the wire transfers and checks are in
the name of the privately owned company.

So there is significantly more privacy when a Swiss account is opened in an offshore

company name (such as a Nevis LLC) than making the privacy-penetrating mistake of
opening an account in ones own name. So, open the account in the name of a Nevis LLC,
not your name.

The Financial Discretion Tradition

In 1984, the people of Switzerland once again elected by overwhelming majority, with over
73% of voters in favor of maintaining bank secrecy. Swiss bank secrecy has protected funds
deposited in Swiss banks for over 300 years.9

8
Offshore Corporation, Swiss Bank Account-Switzerland Banks, http://www.offshorecorporation.com/swiss
-bank-accounts/swisshistory.aspx

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 Farewell to the Swiss Bank Secrecy Tradition and Principle
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It means that Switzerland's tradition of financial discretion goes back at least to the 17th
century. Genevan bankers were the French king's bankers, and the first known text on bank
secrecy dates back to 1713. Louis XVI even had a Swiss banker, Jacques Necker, as director
general of French finances.

In the wake of World War I, as many European currencies became unstable, the consistent
(not to mention neutral) Swiss franc attracted depositors. Until 1934, bank secrecy was
covered by various provisions in the Swiss civil code and the labor code. Federal court
jurisprudence fixed bank secrecy firmly in actual practice, so that a client who fell victim to
violation of bank secrecy could henceforth obtain damages from the bank.

After France, incensed by the loss of revenue, raided a Swiss bank's office in Paris and
revealed the names on its accounts, the Swiss passed a law in 1934 making such disclosures
criminal.10

The federal law on banking passed in 1934 clearly stated that bank secrecy fell within the
criminal domain. A banker who infringed bank secrecy was henceforth punishable by
imprisonment, thus reinforcing the depositor's protection of the private sphere.

There are two reasons why this protection was reinforced:

1. Nazi spies: The 1931 crisis led to intensified foreign exchange control in Germany.
Hitler promulgated a law whereby any German with foreign capital was
to be punished by death, and the Gestapo began espionage on Swiss
banks. When three Germans were put to death, the Swiss government
was convinced of the necessity to reinforce bank secrecy.
2. French Pressure: In 1932, the Basler Handelsbank affair revealed that over 2,000 members
of the French elite had accounts in Switzerland. French Leftists took
advantage of this to denounce the austerity program of the Herriot
government. It called for legal authority over French accounts in
Switzerland, but to no avail.

By June 1941, Switzerland's neutrality became a beacon of hope. It was as Hitler swiftly
conquered country after country within Europe, beginning in September 1939. Thousands of
Jews tried to hide themselves as well as their money in Switzerland. Switzerland did accept
65,000 civilian refugees of Jews, while tens of thousands were turned away.

In the summer of 1942, when the mass deportations had begun taking millions to their deaths
in camps, Switzerland closed its borders completely to all refugees. Switzerland was not the
only nation to close their borders to Jews during the war as the United States and Great
Britian are prime examples.

Years later, Swiss banks both sheltered the assets of German Jews and accepted looted Nazi
gold (and later set up a $1.25 billion compensation fund for Holocaust victims). Corrupt

9
Micheloud & Cie, Historical origins of Swiss bank secrecy, http://www.isyours.com/e/banking/secrecy/
history.html
10
Kate Pickert, A Brief History Of: Swiss Banks, Time, 26 Feb. 2009, http://www.time.com/time/magazine/
article/0,9171,1881977,00.html

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leaders ranging from the Philippines' Ferdinand Marcos to Nigeria's Sani Abacha have used
Swiss banks to hide ill-gotten gains.

Faced with criticism from foreign governments, Switzerland has changed some of its ways. It
added laws to combat money-laundering and cracked down on numbered accounts in the
1990s. But that doesn't mean the banks open their vaults for just anyone.

Many Jews who opened these accounts perished in the Holcocaust. For several decades after
the war, individual survivors petitioned and requested information about these accounts with
little to no success. In 1974, the Swiss announced that they found 4.68 million Swiss francs in
dormant accounts. This money was divided between two Swiss relief agencies and to the
Polish and Hungarian governments.

The questions concerning the morality of the Swiss during the war came into the public
limelight when a security guard at a Swiss bank noticed on 14 January 1997 a pile of
documents pertaining to Nazi and wartime accounts waiting to be shredded. The Swiss claim
that these were of no interest to the hearings.

On 29 January 1997, the city of New York considered boycotting Swiss banks. Eight days
later, three Swiss banks announced that they would create a humanitarian fund of 100 million
Swiss francs (U.S. $70 million). In June 1997, the Swiss government announced that it would
establish a $5 billion humanitarian foundation.

But what about the survivors of the Holocaust whose families' entire fortunes were stored in
Swiss accounts? As of 23 July 1997, the Swiss have produced a list of dormant accounts that
will be accessible to the public. Any person with a valid claim on these accounts will go
through an accounting firm and then an international panel will decide whether or not there is
reasonable evidence to award the claims.

When the U.S., which loses an estimated $100 billion in tax revenues every year on assets
stashed overseas, demanded that UBS release information on an additional 52,000 accounts,
the bank refused, saying the move would violate Swiss law. Of course, with some 27,000
UBS employees working in U.S. offices, Switzerland might not be the jurisdiction it should
worry about.

It is in contrast effort of to the EU which began negotiating with Switzerland in early 2001 in
an attempt to reach an agreement for sharing information as required by the EU's own
withholding tax directive. The Savings Tax Directive and Bilaterals II (security co-operation
and tax fraud) agreement is dependent on dilution of the Swiss banking secrecy throughout
negotiations between Brussels and Switzerland.

A compromise over the requirement for information exchange and judicial co-operation in
regards to international crime was eventually reached in May 2004. The Swiss managed
crucially to stay exempt from providing any assistance in cases revolving around fraud of
direct taxation. For all other matters, Switzerland had agreed to provide legal assistance (the
terms of which were contained in the Schengen agreement) for cases relating to indirect
taxes, for example customs, VAT and alcohol and tobacco levies.

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 Farewell to the Swiss Bank Secrecy Tradition and Principle
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By November 2004, Switzerland indicated that a referendum regarding the Savings Tax
Agreement was unlikely but the legislation necessary to approve incorporating the Directive
and the Bilaterals II agreements was proceeding.

The Swiss Biggest Single-Year Loss

At the time of this writing, there are at least seven major shareholders of UBS AG. They are
Government of Singapore Investment Corp., Capital Group Companies, BlackRock, Mellon
Bank, Chase Nominees, DTC, and Nortrust Nominees.11 The Swiss government also stepped
in providing the necessary financial aid to restore the shaken trust in UBS.12

Shareholders registered in the UBS share register with 3% or more of shares issued
Shareholder June 2010 March 2010 December 2009 December 2008
Chase Nominees Ltd, London n.a. 10,41% 11.63% 7.19%
DTC (Cede & Co.), New York* n.a. 7,80% 8.42% 9.89%
Government of Singapore Investment 6,45% 6,42% less than 3% less than 3%
Corp., Singapore**
The Capital Group Companies, Inc., 4,90% n.a. n.a. n.a.
Los Angeles***
BlackRock Inc., New York 3,21% 3,45%
Nortrust Nominees Ltd, London n.a. 3,08% 3.07% less than 3%
Mellon Bank N.A., Everett n.a. less than 3% 3.21% less than 3%
* DTC (Cede & Co.), New York, "The Depository Trust Company" is a US clearing organization.
** Beneficial owner as of 12 March 2010.
*** as of 8 June 2010.
as of 11 March 2010.
as of 17 December 2010.

On 16 October 2008, UBS announced they had CHF 6 billion of new capital through
mandatory convertible notes, fully placed with Swiss Confederation. The SNB (Swiss
National Bank) and UBS made an agreement to transfer approximately USD 60 billion of
currently illiquid securities and various assets from UBS to a separate fund entity.13 The
Swiss government announced it was selling its CHF 6 billion stake in UBS on 20 August
2009, making a significant profit; it had purchased 332.2 million mandantory convertible
notes in 2008 to help UBS clear its balance sheets of toxic assets.14

The Government of Singapore entered as UBS shareholder as it incurred a very huge loss in
2007.15 As of 1 April 2008, UBS AG reported that it expected to post net losses of 12 billion

11
UBS Significant Shareholders, UBS, 8 June 2010, http://www.ubs.com/1/e/investors/share_information/
shareholder_details/significant.html
12
UBS-Aktionre stimmen der Finanzspritze zu (Wirtschaft, Aktuell, NZZ Online). Nzz.ch.
http://www.nzz.ch/nachrichten/wirtschaft/aktuell/ubs_generalversammlung_1.1318850.html
13
Miles Costello, 2008-10-17. Times Online - UBS and Credit Suisse secure $70bn. London:
Timesonline.com. http://business.timesonline.co.uk/tol/business/industry_sectors/banking_and_finance/article49
59175.ece
14
Switzerland Selling UBS Stake After U.S. Tax Accord (Update4). Bloomberg, 2009-08-20.
http://www.bloomberg.com/apps/news?pid=20601087&sid=aVh0D6cQFqx4
15
Citigroup Still in Talks with GIC; Seeks $5 Billion From Singapore Fund - WSJ.com. Online.wsj.com.
2008-01-15. http://online.wsj.com/article/SB120038661655190977.html?mod=googlenews_wsj. See also
Robinson, Gwen (2007-12-11). UBS turns to Singapore state fund for capital. FT Alphaville.
http://ftalphaville.ft.com/blog/2007/12/11/9539/ubs-turns-to-singapore-state-fund-for-capital/

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Swiss francs (US$12.1 billion) for the first quarter of 2008 and would seek 15 billion Swiss
francs (US$15.1 billion) in new capital.

UBS, hard hit by the U.S. Subprime mortgage crisis, also said it sees losses and writedowns
of approximately US$19 billion on U.S. real estate and related credit positions.16 As of 9
February 2009, UBS announced that it lost nearly 20 billion Swiss francs (US$17.2 billion) in
2008, the biggest single-year loss in the history of Switzerland.17 On March 11, 2009 UBS
AG posted a revised FY 2008 reported 20.9 billion CHF ($18 billion) loss. It was reported
UBS was extremely cautious about the outlook for 2009.18

About UBS AG

The official company name in various languages was: German: Schweizerische

Bankgesellschaft (SBG), Italian: Unione di Banche Svizzere (UBS), French: Union de
Banques Suisses (UBS), Spanish: Unin de Bancos Suizos (UBS), Japanese: Swiss Union
Ginko (UBS), Arabic: Bank Al Ittihad Al Swissri (UBS) () ,
Portuguese: Unio de Bancos Suos (UBS), Chinese: Ruishi Lianhe Yinhang
()(UBS).

UBS AG was the result of the merger of the Union Bank of Switzerland and the Swiss Bank
Corporation (SBC) in June 1998. UBS is no longer an acronym but is the company's brand,
like 3M. Its logo of three keys, carried over from SBC, stands for confidence, security, and
discretion.19

Following the merger to UBS, the first chairman of the merged bank had to step down in
October 1998 due to the Long-Term Capital Management crisis, which affected the Union
Bank of Switzerland.

The company was initially formed in 1912 when the bank of Toggenburger (founded in 1862)
merged with Toggenburger Bank (founded in 1863). The bank then continued to grow
through acquisitions, including Aargauische Kreditanstalt in 1919, Eidgenssische Bank in
1945, Interhandel Basel in 1967, Phillips & Drew London in 1986, and Schrder
Mnchmeyer Hengst & Co in 1997.

The history of the Swiss Bank Corporation ("SBC") dates to 1856 and the constitution of an
underwriting consortium, or "Bankverein," by six private banks in Basel--Bischoff zu St

16
http://edition.cnn.com/2008/BUSINESS/04/01/ubs.losses.ap/index.html
17
UBS expected to post biggest Swiss loss ever. Taipei Times. 2009-02-09. http://www.taipeitimes.com/
News/worldbiz/archives/2009/02/09/2003435611
18
UBS Has SF20.9 Billion 2008 Loss, Extremely Cautious Outlook. Bloomberg. 2009-03-11.
http://www.bloomberg.com/apps/news?pid=20601087&sid=aYWGvA0irRxY&refer=home
19
History of UBS (1937-1939). http://www.ubs.com/1/e/investors/history/1900_1939/1937.html

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Alban, Ehinger & Cie., J. Merian-Forcart, Passavant & Cie., J. Riggenbach and von Speyr &
Cie., who formed an underwriting consortium in Basel, Switzerland. The company was
formally organized as Basler Bankverein in 1872. It later joined forces with Zrcher
Bankverein in 1895 to become Basler & Zrcher Bankverein. The next year, Basler
Depositenbank and Schweizerische Unionbank were acquired.

Following these acquisitions in 1896, the company changed its name to Schweizerischer
Bankverein (Swiss Bank Corporation). The company grew through a series of mergers
including Basler Handelsbank in 1945, O'Connor & Associates in 1992, Brinson Partners
Chicago in 1994, S. G. Warburg & Co in 1995, and Dillon, Read & Co. in 1997.

Swiss Bank Corporation (SBC) was the name of a bank that existed between 1856 and 1998,
when it merged with Union Bank of Switzerland (UBS/SBG) to form UBS AG. Before the
merger, the UK arm of SBC was housed in a building in the heart of the City of London just
down from St Paul's Cathedral and overlooking the River Thames.

The SBC official company name in various languages was: German: Schweizerischer
Bankverein (SBV), French: Socit de Banque Suisse (SBS), Italian: Societ di Banca
Svizzera.

As of 13 January 2010, UBS issued a new code of conduct and business ethics which all
employees are asked to sign. The code addresses issues such as financial crime, competition,
confidentiality, as well as human rights and environmental issues. The eight-page code also
lays out potential sanctions against employees who violate it, including warnings, demotions
or dismissal. According to Kaspar Villiger, Chairman of the Board and Oswald J. Grbel,
Group CEO, the code is "an integral part of changing the way UBS conducts business".20

Jakarta, 20 June 2010, 13.31

20
UBS Lays Out Employee Ethics Code. Lundquist. 2010-01-13. http://online.wsj.com/article/SB1000142
4052748704586504574653901865050062.html

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