Swiss Secrets Are Put to a Vote

By Alexander L. Taylor III.

Zurich's gnomes campaign to keep money matters private

Although there are several good reasons for opening a Swiss bank account--safety and prestige among them--one of the most important is secrecy. Any bank employee who reveals, even inadvertently, information about a client's account can be fined up to $22,000 or sent to jail for as long as six months. Switzerland's reputation for discretion is one reason it has attracted an estimated $300 billion from depositors all over the world, including Mafia dons and military dictators. This past weekend, however, residents voted on a referendum that would have taken some of the veils off their bank-secrecy laws. Despite a spirited campaign, the measure was defeated.

The referendum grew out of a scandal seven years ago involving foreign deposits. An officer at a Credit Suisse branch in Chiasso, near the Italian border, was convicted of illegally diverting more than $800 million in customer funds into speculative investments. Most of the money had come from Italians seeking a haven from inflation and high tax rates.

The proposal would have given foreign governments more leeway in chasing those who hide their proceeds in secret accounts. Whenever tax and currency violations are suspected, authorities from other countries could obtain information about an account. Switzerland has long contended it is not obliged to help governments investigate cases involving currency transactions or tax evasion, since these are not crimes in Switzerland.

The country's Social Democratic Party led the campaign in favor of the referendum, and its leaders held debates with bank supporters on prime-time television. The Socialists also had the backing of labor unions and religious organizations. Said Tobias Bauer, who runs a Bern organization aimed at stemming the flow of capital from less developed nations to Switzerland: "The country of the Red Cross should not be a pension fund for Third World dictators."

That is a reputation that has plagued Switzerland for years. Argentina's Juan Peron, the Shah of Iran and Nicaragua's Anastasio Somoza had large Swiss accounts in the past. Among current world leaders, Zaire's Mobutu Sese Seko is believed to have substantial holdings on deposit. Swiss banks have been a haven for foreign capital since the French Revolution. The current rules on confidentiality were set up in 1934 to protect Jews fleeing Nazi Germany.

In order to campaign against the resolution, the well-known gnomes of Zurich were forced to forgo their normally reclusive ways. At endless town and village meetings, they argued that passage would seriously threaten Switzerland's position as the world's third leading banking center, behind New York City and London, and cause economic catastrophe. Nikolaus Senn, head of the Union Bank, Switzerland's largest financial institution, maintained that foreign funds would flee the country, leading to a collapse in Swiss stock prices, a jump in interest rates and the loss of thousands of jobs.

The bankers had tried to head off the referendum by tightening their procedures over the past few years. They agreed not to encourage the deposit of funds fleeing other countries. Moreover, new customers were required to go through a thorough identification process intended to discourage unsavory characters. But the gnomes have done little to change an old German saying: "Money alone does not bring happiness. You must have it in a Swiss bank." On Sunday, it appeared that the Swiss had voted by a 70% margin to keep their accounts both happy and secret.

--By Alexander L. Taylor III.

Reported by Margaret Studer/Zurich

With reporting by Margaret Studer