Exclusive: Swiss prosecutors seek widening of secrecy
law to bankers abroad
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[October 31, 2017]
By Brenna Hughes Neghaiwi and Anjuli Davies
ZURICH/LONDON (Reuters) - Swiss prosecutors
are seeking a court ruling that would make it easier to convict
whistleblowers for breaking the country's bank secrecy law wherever they
are in the world, legal documents show.
The Swiss Banking Act requires employees of Swiss-regulated banks to
keep client information confidential, but a number of staff have leaked
account details to foreign authorities in the past decade as Western
governments crack down on tax evasion.
In the unpublished documents reviewed by Reuters, Zurich prosecutors
have asked the country's highest court to interpret the law so that the
secrecy obligation is widened to include people with looser working
relationships to Swiss banks and their subsidiaries abroad.
The documents, dated Nov. 21 2016, form the basis for an appeal by the
prosecutors to the Swiss Federal Supreme Court against the acquittal
last year of former private banker Rudolf Elmer on charges brought under
the secrecy law.
Elmer, who headed the Cayman Islands office of Swiss private bank Julius
Baer BAER.S until he was dismissed in 2002, later sent documents
revealing alleged tax evasion to the anti-secrecy group WikiLeaks and to
tax authorities across the globe.
Zurich's upper court ruled last year that the bank secrecy law did not
apply to him as an employee of the Caribbean subsidiary, rather than of
the parent bank in Zurich.
In their appeal, the prosecutors argue that if they cannot apply the law
to people connected to Swiss banks outside the country, this deprives
banking secrecy of its substance "with far-reaching consequences that
cannot be accepted".
Under Swiss law, no public hearing will be held but the documents show
the Federal Supreme Court is considering the written appeal. On June 9,
2017, it invited Elmer's side to make a written response, which his
lawyer has since submitted. The court is expected to issue a written
judgment next year.
A spokeswoman for Zurich's senior prosecutors declined to comment beyond
noting: "It's up to the supreme court to decide on open questions."
Julius Baer also declined to comment.
"DEFAMED, CRIMINALIzED AND ISOLATED"
Elmer was arrested twice in Switzerland, in 2005 and in 2011, and spent
over seven months in investigative custody.
"I was defamed, criminalized and isolated," he told Reuters, adding that
the prosecutors were trying to set an example of what could happen to
people who speak out and to their families. "The law in this case has
been bent, stretched and, most importantly, abused by the judicial
system of Zurich in order to protect its money-making machine."
Switzerland is the world's largest center for overseas wealth management
and in recent years has responded to international pressure, especially
from the European Union and United States, for greater transparency.
This includes participation in the Automatic Exchange of Information
program, an agreement among developed economies which aims to ensure
that offshore accounts are known to tax authorities in the account
holders' country of residence.
If the appeal is successful, the ruling would have no legal basis in
most countries as they have no bank secrecy rules, so Switzerland could
not extradite people from the likes of Britain or the United States on
such charges. However, accused people would be vulnerable to arrest if
they entered Switzerland or could face the stigma of being charged with
a crime in their absence.
Some lawmakers in the EU are worried that the prosecutors' move, if
successful, may deter potential whistleblowers from supplying
information on people accused of shifting their wealth to tax havens
through accounts protected by secrecy laws.
In the appeal, prosecutors called for Elmer to receive a 36-month jail
sentence, 24 of which would be suspended. Last year the Zurich upper
court gave him a suspended sentence for forging documents and
threatening Julius Baer following his dismissal. Elmer denies all
[to top of second column]
Attorney Ganden Tehtong is pictured at her office in Zurich,
Switzerland October 26, 2017. Picture taken October 26, 2017.
One European lawmaker expressed concern over the lack of protection for
whistleblowers in Switzerland, saying the aggressive prosecution of Elmer and
others confirmed the country had not really changed its ways regarding tax
crimes and money laundering.
"We're going to be paying very close attention to this case," said Ana Gomes,
who co-chairs the European Parliament's Committee of Inquiry into money
laundering, tax avoidance and tax evasion. "We'll be putting pressure on our
authorities in the way they deal with Switzerland, and of course the way the
Swiss deal with whistleblowers is extremely relevant for us."
Swiss banks employ large numbers of people in London, as well as New York, and a
British lawmaker said employees of bodies under UK jurisdiction cannot be
subject to an extraterritorial law.
"This would be unacceptable," John Mann, a Labour Party member of parliament's
Treasury Select Committee, told Reuters. "We need a position whereby people feel
confident to whistle blow wherever they are based. There's a danger this could
have ramifications for the Swiss banks in Britain."
SENDING A MESSAGE
The prosecutors argued that a legal precedent is needed to send a message to
disgruntled people laid off from Swiss banking groups across the globe.
Referring to Elmer in the appeal, they said: "A former banker, disappointed and
embittered by his career, perceived himself to be in lawless territory ... and
caused great damage."
The law, they argued, does not require that "the contractual activity be
exercised under Swiss law" for Swiss bank secrecy to apply. Even contractors,
lawyers and consultants who perform work for a Swiss bank internationally should
fall under the obligation, they added.
Anti-corruption expert Mark Pieth disputed this in documents submitted by
Elmer's lawyer to the court. Should Switzerland extend the Banking Act beyond
lenders regulated by the country's FINMA financial watchdog or expand the
definition of staff covered, parliament would have to change the law, Pieth said
in a legal opinion seen by Reuters.
EROSION OF BANK SECRECY
Bank secrecy has been eroded since Switzerland agreed, beginning in 2008, to
transfer details of thousands of UBS UBSG.S clients to U.S. tax authorities. In
return, the U.S. government dropped charges against the bank for helping wealthy
Americans to dodge taxes.
The scandal was set off by former UBS employee Bradley Birkenfeld, who in 2007
gave U.S. authorities information exposing the methods Swiss bankers used to
help clients conceal assets.
In the aftermath, Swiss laws and bilateral treaties were amended to allow
greater information-sharing on tax matters. At the same time, however, prison
sentences for breaching bank secrecy were increased from a maximum of six months
to up to five years.
Whistleblowers and new disclosure standards have proven costly for Swiss banks,
which have suffered hundreds of billions of dollars in outflows as a result and
become the subject of tax inquiries in a number of countries. Over a third of
Swiss private banks have permanently closed.
An attempt to apply bank secrecy to the thousands of people working for Swiss
bank subsidiaries abroad would be "way too broad", said Luc Thevenoz, who heads
the University of Geneva's Center for Banking and Financial Law.
But if Elmer were found on appeal to have been employed directly by Julius Baer
rather than its Caribbean subsidiary, it would be admissible to convict him
regardless of where he was based.
"They want to persuade the court that Elmer was an employee of the Swiss
entity," Thevenoz said. "If they succeed, I have no problem with the conclusion
that Elmer would have been bound by Swiss banking secrecy. If they fail, I don't
see how the court can convict him."
(Additional reporting by Mark Hosenball, Oliver Hirt and Joshua Franklin;
editing by Rachel Armstrong and David Stamp)
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