Bank secrecy

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Gornergrat in Wallis, Switzerland, 2012 August

Legal principle in banking

Bank secrecy, also known as financial privacy, is a legal principle that maintains the confidentiality of a customer's financial information. Under this principle, banks are prohibited from providing personal and account information to third parties, except under specific circumstances such as a court order or the customer's consent. Bank secrecy is a fundamental aspect of the relationship between a bank and its clients, ensuring trust and security in financial transactions.

History

The concept of bank secrecy dates back to the early days of banking in Switzerland, where it became a cornerstone of the Swiss banking system. The Swiss Banking Law of 1934 codified bank secrecy, making it a criminal offense for banks to disclose client information without consent. This law was enacted to protect the privacy of clients, particularly those fleeing political persecution in Europe.

Legal Framework

Bank secrecy laws vary significantly across different jurisdictions. In some countries, such as Switzerland, Luxembourg, and Singapore, bank secrecy is strictly enforced. In others, like the United States and the United Kingdom, there are more exceptions to bank secrecy, particularly in cases involving criminal investigations or tax evasion.

Switzerland

In Switzerland, bank secrecy is governed by the Federal Act on Banks and Savings Banks. The law imposes strict confidentiality requirements on banks, with severe penalties for breaches. However, in recent years, Switzerland has faced international pressure to relax its bank secrecy laws to combat tax evasion and money laundering.

United States

In the United States, the Bank Secrecy Act (BSA) of 1970 requires financial institutions to assist government agencies in detecting and preventing money laundering. The BSA mandates record-keeping and reporting requirements for banks, including the filing of Suspicious Activity Reports (SARs) and Currency Transaction Reports (CTRs).

Controversies

Bank secrecy has been a subject of controversy, particularly in relation to tax evasion, money laundering, and other financial crimes. Critics argue that strict bank secrecy laws facilitate illegal activities by providing a safe haven for illicit funds. Proponents, however, contend that bank secrecy is essential for protecting individual privacy and financial security.

International Cooperation

In response to global concerns about financial crimes, many countries have agreed to share financial information under various international agreements. The Common Reporting Standard (CRS) developed by the Organisation for Economic Co-operation and Development (OECD) is one such initiative aimed at increasing transparency and combating tax evasion.

See also

• Banking
• Money laundering
• Tax evasion
• Financial privacy
• Swiss Banking Law of 1934
• Common Reporting Standard
• Bank Secrecy Act