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Bank secrecy (or bank privacy) is a legal principle under which banks are allowed to protect personal information about their customers, through the use of numbered bank accounts or otherwise. Effective bank secrecy is better achieved in certain countries, such as Switzerland or in tax havens, where offshore banks adhere to voluntary or statutory levels of privacy.

Created by the Swiss Banking Act of 1934, which led to the famous Swiss bank, the principle of bank secrecy is sometimes considered one of the main aspects of private banking. It has also been accused by NGOs and governments of being one of the main instruments of underground economy and organized crime, in particular following the class action suit against the Vatican Bank in the 1990s, the Clearstream scandal and the terrorist attacks of September 11, 2001.

Advances in financial cryptography (e.g. public-key cryptography) could make it possible to use anonymous electronic money and anonymous digital bearer certificates to achieve financial privacy and anonymous internet banking, given enabling institutions (e.g. issuers of such certificates and digital cash) and computer systems that are secure against attackers.

Swiss Banking Act of 1934

Bank secrecy was codified by the 1934 Swiss Banking Act following a public scandal in France, when MP Fabien Alberty denounced tax evasion by eminent French personalities, including politicians, judges, industrialists, church dignitaries and directors of newspapers, who were hiding their money in Switzerland. He called these men of "a particularly ticklish patriotism", who "probably are unaware that the money they deposit abroad is lent by Switzerland to Germany". The Peugeot brothers and François Coty, of the famous perfume family, were on his list. Since then, Swiss banks have acquired worldwide celebrity due to their numbered bank accounts, which critics such as ATTAC NGO alleged only help legalized tax evasion, money laundering and more generally the underground economy.^[1]

Under the principle of bank secrecy, privacy is statutorily enforced, with Swiss law strictly limiting any information shared with third parties, including tax authorities, foreign governments or even Swiss authorities, except when requested by a Swiss judge's subpoena ^{[citation needed]}. However anonymous banking is not strictly true as a term as all Swiss bank accounts, including numbered bank accounts, are linked to an identified individual under Swiss banking law. This law only permits a bank to share information with others in cases of severe criminal acts, such as identifying a terrorist's bank account.^{[citation needed]} Any bank employee violating a client's privacy is punished quite severely by law. Many offshore banks, located in tax havens such as in the Cayman Islands and Panama, also have strict privacy laws.

United States Legislation in Response to Bank Secrecy

U.S. Bank Secrecy Act of 1970

The United States' Bank Secrecy Act (or BSA) requires financial institutions to assist government agencies to detect and prevent money laundering. Specifically, the act requires financial institutions to keep records of cash purchases of negotiable instruments, file reports of cash transactions exceeding $10,000 (daily aggregate amount), and to report suspicious activity that might signify money laundering, tax evasion, or other criminal activities.

U.S. Terrorist Finance Tracking Program

A series of articles published on June 23, 2006, by The New York Times, The Wall Street Journal and the Los Angeles Times revealed that the United States government, specifically the Treasury Department and the Central Intelligence Agency, had a program to access the SWIFT transaction database after the September 11th attacks rendering bank privacy severely compromised.

Criticisms

Numbered bank accounts, used by Swiss banks and other offshore banks located in tax havens, have been accused by NGOs such as ATTAC of being a major instrument of the underground economy, facilitating tax evasion and money laundering. After Al Capone's 1931 condemnation for tax evasion, "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", according to journalist Lucy Komisar. Joseph Stiglitz, 2001 Nobel laureate for economics, 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." ^[1]

In 1999, a class action suit against the Vatican Bank criticized the role of Switzerland during World War II. Governments of developing countries accused Swiss banks of detaining most of the money stolen by corrupt dictators, which Oxfam International estimate to about $50 billion a year deposited in offshore tax havens, nearly the size of the $57 billion annual global aid budget.

Also in 1999, according to Lucy Komisar, banks "orchestrated a successful e-mail campaign to Congress" to "sink a 'know your customer' regulation proposed by the Federal Deposit Insurance Corporation".

In 2001, the United States learned that the Swiss had protected the bank that handled finances for Osama Bin Laden. One of them, the Bahrain International Bank, had funds transiting through non-published accounts of Clearstream, which has been qualified as a "bank of banks" and was involved in one of Luxembourg's major financial scandals.

The 2001 USA Patriot Act has created many new rules for US banks in an attempt to defeat bank secrecy. A list of such banks or shell banks are given to the US banks who are not allowed to wire money to them. All new customers to US banks must now be asked if they are US citizens. If not, they must state their occupation and whether they expect to be wired foreign moneys.^{[citation needed]}

Endnotes

^ ^a "Offshore banking, the secret threat to America". Hound Dogs. 2003.

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 {{seealso|Tax evasion in Switzerland}}
-Bank secrecy was invented by the 1934 Swiss ''Banking Act'' following a public scandal in France, when MP [[Fabien Alberty]] denounced [[tax evasion]] by eminent French personalities, including politicians, judges, industrialists, church dignitaries and directors of newspapers, who were hiding their money in Switzerland. He called these men of "a particularly ticklish [[patriotism]]", who "probably are unaware that the money they deposit abroad is lent by Switzerland to [[Germany]]". The [[Peugeot]] brothers and [[François Coty]], of the famous perfume family, were on his list. Since then, [[Swiss bank]]s have acquired worldwide celebrity due to their [[numbered bank accounts]], which critics such as [[ATTAC]] NGO alleged only help legalized tax evasion, [[money laundering]] and more generally the [[underground economy]].{{ref|Komisar}}
+Bank secrecy was codified by the 1934 Swiss ''Banking Act'' following a public scandal in France, when MP [[Fabien Alberty]] denounced [[tax evasion]] by eminent French personalities, including politicians, judges, industrialists, church dignitaries and directors of newspapers, who were hiding their money in Switzerland. He called these men of "a particularly ticklish [[patriotism]]", who "probably are unaware that the money they deposit abroad is lent by Switzerland to [[Germany]]". The [[Peugeot]] brothers and [[François Coty]], of the famous perfume family, were on his list. Since then, [[Swiss bank]]s have acquired worldwide celebrity due to their [[numbered bank accounts]], which critics such as [[ATTAC]] NGO alleged only help legalized tax evasion, [[money laundering]] and more generally the [[underground economy]].{{ref|Komisar}}
 Under the principle of bank secrecy, [[privacy]] is statutorily enforced, with Swiss law strictly limiting any information shared with third parties, including tax authorities, foreign governments or even Swiss authorities, except when requested by a Swiss judge's [[subpoena]] {{Fact|date=February 2007}}.  However ''anonymous banking'' is not strictly true as a term as all Swiss bank accounts, including [[numbered bank account]]s, are linked to an identified individual under Swiss banking law.  This law only permits a bank to share information with others in cases of severe criminal acts, such as identifying a terrorist's bank account.{{Fact|date=February 2007}} Any bank employee violating a client's privacy is punished quite severely by law.  Many [[offshore bank]]s, located in [[tax haven]]s such as in the [[Cayman Islands]] and [[Panama]], also have strict privacy laws.