Bank secrecy

{{Short description|Agreement between a bank and its clients that activities remain private}} {{Redirect|Bank–client confidentiality|its scope as a confidentiality agreement|Non-disclosure agreement}} {{Redirect|Financial secrecy|the index measuring banking secrecy|Financial Secrecy Index}}[[File:Gornergrat in Wallis, Switzerland, 2012 August.jpg|thumb|279x279px|Switzerland is known for its bank secrecy and strict bank–client confidentiality. ''Pictured'': the Swiss Alps, the location of many underground storage bunkers for gold.{{clarification needed|reason=Gornergrat is a hotel not a bunker|date=August 2022}}]]{{Banking |terms}} '''Banking secrecy''',<ref>{{Cite news|url=https://www.reuters.com/article/us-finance-secrecy-index/global-study-names-switzerland-as-capital-of-bank-secrecy-idUSKBN1FJ2I0|title=Global study names Switzerland as capital of bank secrecy|last=O'Donnell|first=John|date=January 30, 2018|work=Reuters|access-date=June 4, 2016|language=en-US}}</ref><ref>{{Cite news|url=https://www.forbes.com/sites/taxanalysts/2017/04/05/switzerland-their-lips-say-yes-but-their-eyes-say-no/#426d756c5783|title=Swiss Bank Secrecy—Their Lips Say Yes, But Their Eyes Say No|last=Gibson|first=Stuart|date=April 5, 2017|work=Forbes|access-date=June 1, 2018|language=en}}</ref> alternatively known as '''financial privacy''', '''banking discretion''', or '''bank safety''',<ref name=":02">Guex (2000), p. 240</ref><ref>{{Cite web|url=https://www.bloomberg.com/news/videos/2018-01-24/tidjane-thiam-says-markets-and-volatility-are-going-up-video|title=Tidjane Thiam Says Markets and Volatility Are Going Up|last=Bloomberg Surveillance|website=Bloomberg News |date=January 24, 2018|access-date=January 24, 2018}}</ref> is a conditional agreement between a bank and its clients that all foregoing activities remain secure, confidential, and private.<ref>{{Cite news |date=November 17, 2008 |title=Financial Privacy |language=en-US |work=Investopedia |url=https://www.investopedia.com/terms/f/fianancial-privacy.asp |url-status=deviated |access-date=June 16, 2018 |archive-url=https://web.archive.org/web/20180618125619/https://www.investopedia.com/terms/f/fianancial-privacy.asp |archive-date=June 18, 2018 |quote=It also prohibits the sharing of client information to affiliates of the institution as well. For example: A customer holds a checking account at a bank. The bank has an investment division as well as an insurance division. The bank may give information to the client about the other needs served by their external divisions, but not vice versa.}}</ref> 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''',<ref name=":17">{{Cite news|url=https://www.reuters.com/article/us-swiss-banks-specialreport/special-report-the-battle-for-the-swiss-soul-idUSBRE93H07620130418|title=Special Report: The battle for the Swiss soul|last=Thomasson|first=Emma|date=April 18, 2013|publisher=Reuters|access-date=May 19, 2018|language=en-US}}</ref><ref name=":45">{{Cite book|title=The Fall of UBS: The Forces that Brought Down Switzerland's Biggest Bank|last=Schütz|first=Dirk|date=2000|publisher=Pyramid Media Group|isbn=9780944188200|language=en}}</ref> the practice was started by Italian merchants during the 1600s near Northern Italy (a region that would become the Italian-speaking region of Switzerland).<ref>Guex (2000), p. 237</ref> Geneva bankers established secrecy socially and through civil law in the French-speaking region during the 1700s. Swiss 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.<ref>{{Cite book |last1=Enzmann |first1=Matthias |last2=Fischlin |first2=Marc |last3=Schneider |first3=Markus |title=Financial Cryptography |chapter=A Privacy-Friendly Loyalty System Based on Discrete Logarithms over Elliptic Curves |date=2004 |editor-last=Juels |editor-first=Ari |chapter-url=https://link.springer.com/chapter/10.1007/978-3-540-27809-2_4 |series=Lecture Notes in Computer Science |volume=3110 |language=en |location=Berlin, Heidelberg |publisher=Springer |pages=24–38 |doi=10.1007/978-3-540-27809-2_4 |isbn=978-3-540-27809-2}}</ref>

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 accounts or underground bank vaults.

Recent research has indicated that the use of offshore financial centers has been of concern because criminals get involved with them. It is argued that these financial centers enable the actions of criminals. However, there have been attempts by global institutions to regulate money laundering and illegal activities.<ref>{{Cite journal |last=Young |first=Mary Alice |date=2013-07-05 |title=The exploitation of offshore financial centres: Banking confidentiality and money laundering |url=https://www.emerald.com/insight/content/doi/10.1108/JMLC-01-2013-0004/full/html |journal=Journal of Money Laundering Control |language=en |volume=16 |issue=3 |pages=198–208 |doi=10.1108/JMLC-01-2013-0004 |issn=1368-5201|url-access=subscription }}</ref>

==Switzerland == {{Main|Banking in Switzerland#Banking secrecy}}

== United States == {{Main|Banking in the United States#Banking privacy }}

== Europe == {{Main|Economy of Europe#Investing and banking|Offshore financial centre#EU withholding tax|Tax evasion#By country|Tax evasion#Government response}}

== Overseas territories == {{Main|Offshore financial centre#Confidentiality|Offshore financial centre#Taxation|Offshore financial centre#Offshore financial structures|}}

== Links to financial crime == {{Further|Financial crime|Numbered bank account|Tax evasion}} [[File:Al Capone in 1930.jpg|thumb|185x185px|Mobster Al Capone was charged with and prosecuted for income tax evasion in the 1930s.]] 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.<ref name=":0" /> After Al Capone's 1931 condemnation for tax evasion, according to journalist Lucy Komisar:

<blockquote>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.<ref name=":0" /> 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.<ref name=":0">{{Cite web |last=Komisar |first=Lucy |date=April 4, 2003 |title=Offshore Banking: The Secret Threat to America |url=https://www.thekomisarscoop.com/2003/04/offshore-banking-the-secret-threat-to-america/ |access-date=May 18, 2018 |website=The Komisar Scoop}}</ref></blockquote>

Economist and Nobel Prize laureate Joseph Stiglitz, told Komisar:

<blockquote>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.<ref name=":0" /></blockquote>

A 2024 opinion piece of the Philippine Daily Inquirer opines that the highly restrictive provisions of the bank secrecy law of the Philippines, the Republic Act No. 1405 of 1955, is responsible for the prevalence of corruption in the country and the country's inclusion in the "gray list" of the Financial Action Task Force.<ref>{{cite news |url=https://opinion.inquirer.net/177776/strict-bank-secrecy-rules-protect-the-corrupt |title=Strict bank secrecy rules protect the corrupt |date=October 23, 2024 |website=Inquirer.net |access-date=September 7, 2025}}</ref>

==References== {{Reflist|colwidth=40em}}

== Bibliography == * Guex, Sébastien. 2000. "[https://www.jstor.org/stable/3116693 The Origins of the Swiss Banking Secrecy Law and Its Repercussions for Swiss Federal Policy]". ''Business History Review''. pp. 237–266. {{Privacy}} {{Authority control}} Category:Banking Category:Privacy Category:Swiss inventions Category:Secrecy Category:Personal finance