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Banking secrecy, alternately known as financial privacy, banking discretion, or bank safety,Guex (2000), p. 240 is a conditional agreement between a bank and its clients that all foregoing activities remain secure, confidential, and private. Most often associated with banking in Switzerland, banking secrecy is prevalent in Luxembourg, Monaco, Hong Kong, Singapore, Ireland, and Lebanon, among other off-shore banking institutions. Otherwise known as bank–client confidentiality or banker–client privilege, the practice was started by
Italian merchants Italian(s) may refer to: * Anything of, from, or related to the people of Italy over the centuries ** Italians, an ethnic group or simply a citizen of the Italian Republic or Italian Kingdom ** Italian language, a Romance language *** Regional Ita ...
during the 1600s near
Northern Italy Northern Italy ( it, Italia settentrionale, it, Nord Italia, label=none, it, Alta Italia, label=none or just it, Nord, label=none) is a geographical and cultural region in the northern part of Italy. It consists of eight administrative regions ...
(a region that would become the Italian-speaking region of Switzerland). Geneva bankers established secrecy socially and through civil law in the French-speaking region during the 1700s.
Swiss Swiss may refer to: * the adjectival form of Switzerland * Swiss people Places * Swiss, Missouri * Swiss, North Carolina *Swiss, West Virginia * Swiss, Wisconsin Other uses *Swiss-system tournament, in various games and sports *Swiss Internation ...
banking secrecy was first codified with the Banking Act of 1934, thus making it a crime to disclose client information to third parties without a client's consent. The law, coupled with a stable Swiss currency and international neutrality, prompted large capital flight to private Swiss accounts. During the 1940s, numbered bank accounts were introduced creating an enduring principle of bank secrecy that continues to be considered one of the main aspects of private banking globally. Advances in financial cryptography (via public-key cryptography) could make it possible to use anonymous electronic money and anonymous digital bearer certificates for financial privacy and anonymous Internet banking, given enabling institutions and secure computer systems. While some banking institutions voluntarily impose banking secrecy institutionally, others operate in regions where the practice is legally mandated and protected (e.g. off-shore financial centers). Almost all banking secrecy standards prohibit the disclosure of client information to third parties without consent or an accepted criminal complaint. Additional privacy is provided to select clients via
numbered bank account Numbered bank accounts are bank accounts wherein the identity of the holder is replaced with a multi-digit number known only to the client and selected private bankers. Although these accounts do add another layer of banking secrecy, they are not c ...
s or underground bank vaults.


Switzerland


United States


Europe


Overseas territories


Links to financial crime

Numbered bank accounts, used by Swiss banks and other offshore banks located in tax havens, have been accused by the international community of being a major instrument of the underground economy, facilitating tax evasion and money laundering. After
Al Capone Alphonse Gabriel Capone (; January 17, 1899 – January 25, 1947), sometimes known by the nickname "Scarface", was an American gangster and businessman who attained notoriety during the Prohibition era as the co-founder and boss of the ...
's 1931 condemnation for tax evasion, according to journalist Lucy Komisar:
mobster Meyer Lansky took money from New Orleans slot machines and shifted it to accounts overseas. The Swiss secrecy law two years later assured him of G-man-proof-banking. Later, he bought a Swiss bank and for years deposited his Havana casino take in Miami accounts, then wired the funds to Switzerland via a network of shell and holding companies and offshore accounts.
Economist and Nobel Prize laureate
Joseph Stiglitz Joseph Eugene Stiglitz (; born February 9, 1943) is an American New Keynesian economist, a public policy analyst, and a full professor at Columbia University. He is a recipient of the Nobel Memorial Prize in Economic Sciences (2001) and the Joh ...
, told Komisar:
You ask why, if there's an important role for a regulated banking system, do you allow a non-regulated banking system to continue? It's in the interest of some of the moneyed interests to allow this to occur. It's not an accident; it could have been shut down at any time. If you said the US, the UK, the major G7 banks will not deal with offshore bank centers that don't comply with G7 banks regulations, these banks could not exist. They only exist because they engage in transactions with standard banks.


See also

* Numbered bank accounts * Safe deposit box * Financial privacy laws in the United States


References


Bibliography

* Guex, Sébastien. 2000.
The Origins of the Swiss Banking Secrecy Law and Its Repercussions for Swiss Federal Policy
. ''
The Business History Review The ''Business History Review'' is a scholarly quarterly published by Cambridge University Press for Harvard Business School. ''Business History Review'' is a peer-reviewed academic journal covering the field of business history. It was establishe ...
.'' pp. 237-266. {{Authority control Banking Privacy Swiss inventions Secrecy Ethically disputed business practices Personal finance