From UPSC perspective, the following things are important :
Prelims level : Swiss Banks
Mains level : Corruption and money laundering
A whistleblower has leaked information on more than $100 billion held in 30,000 accounts of Zurich-headquartered Credit Suisse, one of the world’s most infamous banks which hold black money.
What is the news?
- The investigation refocused attention on Swiss banks and their famous, century-old culture of secrecy.
- This swiss tradition is under pressure as countries around the world try to get their super-rich to pay legitimate taxes on their wealth.
Swiss Banks: Defined by Secrecy
- Since at least the beginning of the 18th century, Geneva had become a favoured destination of French royalty and other European elites seeking discreet havens to stash their wealth.
- In 1713, Swiss government authorities announced laws prohibiting bankers from giving out information about their customers.
- Thus began a powerful culture of silence and secrecy that went on to become the defining feature of Swiss banking.
- In 1934, Switzerland passed the Federal Act on Banks and Savings Banks, commonly known as the Banking Law of 1934 or the Swiss Banking Act.
What’s behind this upmost secrecy?
- Article 47 made it a crime to reveal details or information of customers to almost anyone — including the government — without their consent and in the absence of a criminal complaint.
- Violators can get five years in prison; Article 47 lies at the heart of some of the most stringent banking secrecy laws anywhere.
Why are they favourite destination to park black money?
- As wealth became easily mobile across international borders, the safety and stability of Swiss banks, located in a peaceful country presented an irresistible attraction for the super-rich.
- Switzerland itself is a politically neutral country.
- Swiss bank accounts are attractive to depositors because they combine low levels of risk with very high levels of privacy.
- The Swiss economy is extremely stable, and the banks are run at very high levels of professionalism.
- Almost any adult in the world can open an account in a Swiss bank. Opening an account is not difficult, and requires not much more than basic KYC, including a proof of identity such as a passport.
Question of ‘black money’
- “Black money” allegedly stashed away by Indians in Swiss banks is a political issue in India, and parties and political functionaries have often made promises to “bring it back”.
- Swiss authorities have maintained that they cooperate with the Indian government to fight tax evasion and fraud.
Indian motives and moves
- The two countries have had a system of automatic exchange of information in tax matters since 2018.
- Under this, detailed financial information on all Indian residents with accounts in Swiss financial institutions was provided for the first time to Indian authorities in September 2019.