The Birth of Swiss Banking

Between the 1500-1600’s, France had a religious conflict between the Catholics and the Protestants. Feeling like they were losing the battle, the Protestants, or Huguenots, as they like to refer to themselves, did not want their wealth in the French banks. The Huguenots were nervous that the banks might seize their money and property. Huguenots heard banks in Geneva had an unspoken rule that none of them would expose who their clients were. Once the word got out, people began moving their money into Switzerland to protect it.

Over the next few centuries, the Swiss began to realize their banking was doing just as well as their Swiss chocolates and cheese. It was helping them flourish as a country. The only issue was that there would be leaks, which jeopardized the bank’s business and reputation for secrecy. That’s when the Swiss decided to codify the banking rules. They made it a crime for anyone to share information about their clients without permission, making it a criminal offense. This law not only decreased leaks but helped many wealthy people avoid paying taxes in their country or hide illegal money. These were called tax shelters.

In the 20th century, Swiss lenders became very popular with citizens from other countries. France had increased their inheritance taxes, so wealthy families began to use the Swiss banks to avoid them. Once the Swiss bankers caught on to this, they started seeking clients from many other countries by heavily marketing to affluent families from all over the world.

The laws in Switzerland are different from the laws in the United States. For example, US citizens have to pay worldwide taxes on their income. Both tax evasion and tax fraud are criminal acts, but in Switzerland, tax evasion is not a crime, just tax fraud. Of course, this made governments from other countries want more information about the citizens who had accounts there.

In 2018, Switzerland signed on to CRS or Common Reporting Standard. This network ensures that the country is given account information about its taxpayers. Even though they joined the network, “the country’s financial system is the third-most secretive in the world after the Cayman Islands and the US, according to the Tax Justice Network, and accounts for $21bn in lost tax

revenue for foreign countries every year.” (Makortoff) Some people believe the old secretary of banks is gone, but people still find ways to skirt paying taxes. There are loopholes like dual citizenship, shell banks, or using a tax ID number from a country not in the CRS network. There’ll always be people trying to get out of paying their taxes; it's just a little bit harder now.

The Swiss Secret: References

Dorsey, Avera. (2021). Shh–It’s a Secret! The Evolution of the Swiss Banking System &

International Tax Implications. University of Chicago Law School.

https://chicagounbound.uchicago.edu/cgi/viewcontent.cgi?article=1124&context

=international_immersion_program_papers

Korducki, Kelli María. (2023, March 21). Don’t Call It a Global Banking Crisis. The

Atlantic.

https://www.theatlantic.com/newsletters/archive/2023/03/credit-suisse-global-ban

king-crisis/673466/

Makortoff, Kalyeena. (2022, February 22). How Swiss banking secrecy enabled an

unequal global financial system. The Guardian.

https://www.theguardian.com/news/2022/feb/22/how-swiss-banking-secrecy-glob

al-financial-system-switzerland-tax-elite

Tax Notes Staff. (2023, April 11). Bad Credit: A Look at Switzerland’s Bank Secrecy.

Forbes.

https://www.forbes.com/sites/taxnotes/2023/04/11/bad-credit-a-look-at-switzerlan