Here’s our version of the tree-falling-in-the-forest question: If the world of banking went through a massive change at the beginning of this year, and absolutely no one seemed to notice, then did anything really change?
The U.S. government had previously set a deadline of December 31, 2013, for Swiss banks to stop being so secretive. More specifically, regulators had warned financial institutions in that picturesque nation to accept new conditions in order to gain immunity from prosecution. Those conditions included nudging those banks to in turn nudge their clients into compliance. And apparently, quite a few of them have.
It’s not clear just how many of those banks have done what they’ve been told to do—these are Swiss banks, after all, and confidentiality is their stock in trade. But it’s being reported that perhaps 40 of the banks covered by the agreement—out of some 300—have already agreed to turn over client information in exchange for escaping prosecution.
In a way, this is just another step in the always painful negotiations between regulators and financial services corporations, and we’ve all seen a raft of settlements in the past few years—big fines paid by institutions, no jail time for individuals. But it’s also the end of an era.
Swiss banks have long had a hold on the public imagination. They represent great wealth, often obtained under shady circumstances, financing an international and intriguing lifestyle. These secret accounts have fueled countless thrillers and blockbusters, not to mention some very real escapades and tragedies, from drug wars to terrorist attacks. The reality is that the vast majority of Swiss banking clients made their money quite legally and want nothing more than to shield those assets from creditors and auditors, but in the end that doesn’t matter. Banking secrecy is more Swiss than chocolate, clocks and cheese. And perhaps inevitably, it’s ending—not with a bang but the proverbial whimper.
These confidential practices may seem like they’ve been around forever, but bank secrecy was only codified in Switzerland in 1934. The privacy laws are strictly enforced, prohibiting the sharing of information with just about anyone, including foreign governments. There were some checks and balances put in place, to be sure, but even subpoenas issued by Swiss magistrates sometimes came up short. Of course, as these institutions and their code of confidentiality—symbolized by a mysterious account number—became better known, critics increasingly charged that helped lay the foundation for underground economies and money laundering
In the last few years, we’ve seen some chinks in the armor. Early in 2009, the Swiss government officially abandoned the distinction between tax fraud and tax evasion when dealing with foreign clients—a minor change with major implications. In the same year, Swiss banking giant UBS ponied up a $780 million settlement with U.S. regulators. The government has also signed numerous treaties to avoid being labeled a non-compliant tax jurisdiction.
The last nail in the coffin was pounded home in October of last year, when the Swiss government said it would sign an official agreement that, if approved by the national parliament, will bring its confidentiality practices more in line those in place elsewhere. This was seen in the country as the “end of banking secrecy.” That’s bad news for a sector that accounts for up to 10% of the country’s gross national product.
It’s easy to see how the rash of investigations, prosecutions and convictions have taken their toll on this mysterious business. It’s also easy to see that banking itself is very different from what it used to be—every change from growing institutions in developing nations to the online banking and technological advancements have radically transformed the industry. The bastions of old were destined to fall, and that’s why it’s not a surprise that this long-venerated practice is fading without much notice.
Besides, the notion of secrecy itself now seems quaint. In the era of NSA snooping, data hacking, social media oversharing and reality show posturing, nothing seems private anymore. That may be the real change; let’s hope it’s a good thing.