Some things never change: the use of Swiss banks by crooks

While many aspects of our lives and economies have faced uncertainty and instability during the Covid-19 pandemic, some areas seem to have resisted turmoil or even thrived from it. Unfortunately, Swiss banking secrecy and its abuse by corrupt officials and dictators is one of those areas, and it appears to be alive and kicking harder than ever.

As reported by Swissinfo:

Swiss officials have discovered CHF9 billion ($10billion) in embezzled Venezuelan public funds spread across hundreds of bank accounts. One in eight Swiss banks is caught up in this latest scandal, which some experts say shows up the failure of the anti-money-laundering mechanism put in place by Switzerland.

Not an isolated case

This absolutely doesn’t surprise us. The new revelations about embezzled Venezuelan public funds are far from being the only cases of corrupt officials with money in Swiss banks. Another Swissinfo article entitled “Switzerland has ‘impressive results’ for return of dictator funds” listed a recount of Switzerland’s other crook clients. This does make us wonder if it is so “impressive” to have that many dictators hide their ill-gotten money in Switzerland to begin with:

CHF4.5 million placed in a Geneva bank by a former cabinet minister of deposed Haitian dictator Jean-Claude “Baby Doc” Duvalier… CHF321 million siphoned off by the family of Nigeria’s former dictator Sani Abacha… 570 million in the case of Egypt [Mubarak], $60 million in the case of Tunisia [Ben Ali] and about $70 million regarding Ukraine.

Yet another Swiss publication entitled “No dirty money. The Swiss Experience in Returning Illicit Assets” included other cases of government officials’ money held in Switzerland (part of which was then returned), including US$5.5 million from Mobutu (Democratic Republic of Congo), CHF 3.9 million held by Mali’s Moussa Traoré, US$93 million from Peru’s Vladimiro Montesinos, US$684 million from the Philippines’ Ferdinand Marcos, CFH 120 million held by Syria’s Bashar Al-Assad, and US$64 million related to Angolan officials and embezzlement from the sale of Angolan oil.

What neither of these articles mentions is of course, Switzerland’s role in profiting from Nazi gold (which according to the Eizenstat Report by the US Special Envoy of the Department of State, included gold taken from victims of concentration camps). The Swiss Bergier Commission and news articles, eg on Estelle Sapir, described the reluctance of Swiss banks to return the money to Holocaust survivors, until they were forced to do it by external pressure.

Is Switzerland considered a tax haven by everyone?

Based on these cases, and the prevalence of secrecy until today, it’s no wonder that Switzerland has been ranked among the top worst offenders for years on the Tax Justice Network’s Financial Secrecy Index, a global ranking of countries most complicit in helping wealthy individuals hide money from the rule of law, and the Corporate Tax Haven Index, a global ranking of countries most complicit in helping multinational corporations abuse corporate tax.

Nonetheless, some folks appear to prefer turning a blind eye. Just last year, the OECD’s Global Forum rated Switzerland as “largely compliant” on issues relating to availability, access and exchange of ownership information on entities and bank accounts, among others. If this sounds at odds with the current news story of Venezuelan money laundering in Swiss banks, hold your breath because there’s more. Switzerland held onto its old “largely compliant” rating, even though the 2020 criteria was expanded to also cover availability and access to beneficial ownership information¹A beneficial owner is the real person, made of flesh and blood, who ultimately owns, controls or receives profits from a company or legal vehicle, even when the company legally belongs, on paper, to another person or entity, like an accountant or a shell company. Identifying and registering beneficial owners is vital to making sure the wealthiest are held to the same level of transparency and accountability as everybody else. Learn more here., something that even Global Forum acknowledged not to be guaranteed in Switzerland:

It cannot be ascertained that beneficial ownership information will be available in all cases… In addition, the AML [Anti-Money Laundering] legal framework contains some deficiencies with respect to the identification, verification or updating of the beneficial owners of legal entities and arrangements that may result in the AML obliged professionals not always maintaining beneficial ownership information in line with the standard. Similarly, the obligations for companies and their shareholders to identify some beneficial owners do not allow the full identification of all beneficial owners according to the standard.

In contrast, more than 80 jurisdictions already had a law by April 2020 requiring the disclosure of beneficial ownership data to government authorities. Even the United States approved a law requiring beneficial ownership registration in January this year (although some the law has some loopholes that should be fixed).

Switzerland secrecy problems don’t stop there. One of the biggest obstacles to transparency are bearer shares, a type of certificate that gives ownership of shares whoever physically holds the certificate. Most countries have prohibited bearer shares or have at least immobilised them. According to the Global Forum report, based on recent laws, Switzerland will allow non-compliant holders of bearer shares (who fail to convert the bearer shares on time) to reinstate their rights up to October 2024 (more than three years from now). In addition, non-compliant holders of bearer shares will have until 2034 (almost 13 years!) to claim economic compensation for the loss of their bearer shares.

As for banking secrecy, although Switzerland is now engaging in the OECD’s Common Reporting Standard (CRS) for “automatic” exchange of banking information, it originally showed strong resistance, and then managed to include obstacles to prevent others from obtaining information. First, as described here (see box 4), Switzerland tried to prevent automatic exchanges altogether, offering instead their alternative, known as Rubik agreements. Under these agreements, Switzerland would collect the owed taxes and give it to each corresponding country, instead of disclosing the identity of those with secret accounts in Switzerland. Those countries that signed the Rubik agreements, such as the UK, failed miserably to obtain the expected tax revenues.

When automatic exchange of information²Automatic exchange of information is a data sharing practice that prevents corporations and individuals from abusing bank accounts they hold abroad to hide the true value of their wealth and pay less tax than they should at home. Under automatic exchange of information, a country takes the information it has on the financial activity of individuals and businesses who are operating within its borders but are resident in, aka permanently living in or headquartered in, another country and shares that information with that country. Learn more here.  was finally endorsed, Switzerland managed to get its hands on the design of the OECD standard to protect Swiss financial interests. As described here and here, the Swiss requests for full reciprocity from developing countries and the initial allowance for Switzerland and other tax havens to cherry-pick countries to exchange information with, resulted in many countries being excluded from the system, or failing to receive information from Switzerland until later in the future (giving enough time for tax abusers to rearrange their affairs).

By 2020, there were also concerns with Switzerland’s compliance with the old (but surviving) standard of exchanges of information “on request” (when a foreign authority makes a specific request for detailed banking information). The Global Forum report wrote that, despite some recent changes, it appears that Switzerland will not respond to a foreign request of banking information if it’s based on “stolen data” (eg a leak) and if the requesting authority “actively sought out” the information outside of an administrative assistance procedure.

There are also concerns with the delays to respond to information requests (sometimes more than two years) and with the excessive information that Switzerland shares with the investigated person about the foreign authority’s request for information about the person’s financial affairs

The 2016 Report noted that the persons entitled to notification have a right to see the EOI [exchange of information] file, including the request letter, subject to exceptions. The legal framework has not changed and the recommendation to ensure that it does not exceed the confidentiality requirements as provided for under the international standard remains… In addition, the publication of the notification in the federal gazette specifically relates to administrative assistance, and in the case of group requests, provides information about the requesting authority, the date of the letter and the legal basis. Switzerland is recommended to ensure that it only discloses the minimum information necessary for the notification.

Conclusion

Unfortunately, corruption and money laundering cases keep popping up be it the Moldova Laundromat, Danske Bank or now the Venezuelan case. Embarrassingly, these cases keep using the same secrecy strategies, the same enablers (banks, lawyers, accountants, etc) and the same tax havens. Yet these tax havens continue to earn “largely complaint” ratings from the body supposedly best placed to tackle tax havens. We keep assessing countries in our indexes, proposing how to verify beneficial ownership information and how to use SWIFT data to detect money laundering. What else is needed to get governments to react?