PHENOMENON OF SWISS BANKING

Švajcarsko bankarstvo je „generičko ime“ za sistem koji počiva na privatnom bankarsvo uz bankarsku tajnost. U uvodnom delu naglašena je razlika između švajcarskog bankarstva i bankarstva u Švajcarskoj. U drugom delu detaljnije je opisana institucija bankarske tajnosti, a u trećem izuzeci od nje. U četvrom delu raspravlja se o sadašnjosti i budućnosi švajcarskog bankarstva. Razmotreno je da li je institucija bankarske tajne postala smetnja u novim uslovima za dalji razvoj švajcarskog bankarstva i švajcarskih banaka, kao i da li će u budućnosti tzv. švajcarsko bankarstvo nestati.


Swiss banking ≠ banking in Switzerland
Swiss banking is often incorrectly regarded as synonymous with banking in the country of Switzerland. Swiss banking is a "generic name" for a system based on private banking implying banking secrecy. Swiss banking is closely related to the concept of banking secrecy. It is important to emphasize that banking secrecy is not the only factor that has made Switzerland one of the most important global financial centres. Instead, there are many factors which interact. Nevertheless, banking secrecy is still important to the success of the Swiss banking sector. Given that this feature has significantly marked all Swiss banks, i.e. given that so many Swiss banks recognized that the phenomenon of Swiss banking has become virtually synonymous with personal banking with strong banking secrecy hereinafter we shall focus on the importance of banking secrecy.
In order to eliminate false end synonymous consideration of Swiss banking, as a specific form of international banking, and banking in Switzerland, one of the most developed and best regulated countries in the world, we will first describe the basic elements of banking in Switzerland, and then thoroughly analyze the phenomenon of banking secrecy.
Switzerland is one of the world's leading financial centres. Although it accounts for less than 0.1% of the world population, its banks cover more than 1/3 (35%) of the world's private equity (capital of individuals), which makes it a superpower in international banking. UBS and Credit Suisse are among the top global megabanks. These are the reasons why Switzerland is a leader in the international offshore private banking and one of the world's leading financial centres.
Switzerland is specific due to its quite isolated geographical position (landlocked county in Europe located in the Alps). This isolation probably represents the root to the fact that Switzerland is a neutral country which is not a member of the European Union, the IMF nor the World Bank Group, and only recently, in the XXI century, became a member of the United Nations.
war debts, and government agents from both France and Germany attempted to infiltrate Swiss banks to discover what assets their own citizens had placed in the Swiss banks. Notable incidents include the 1932 'Paris Affair' when the French authorities acquired the names of 1,000 politically prominent clients of Basler Handelsbank after two members of its staff were arrested in Paris as they were trying to help some French citizens to avoid paying the coupon tax. This caused a scandal which erupted in France (Thome, 2009, pp. [5][6]. At the end of the War, the Law on banking and banking secrecy had been in force for ten years. More than half of this period had been taken up by the War, during which time there was little chance for the new Swiss law to exert much positive effect. But what can explain the increasing appeal of Switzerland as a financial centre, built up over many long years to the present day, if not banking secrecy? It is interesting in this context to revisit the view of the Independent Commission of Experts Switzerland -Second World War (ICE). In 2001 it stated the following: "Out of fear of currency devaluation, political insecurities, foreign exchange controls, dispossession or war, many Europeans transferred some of their liquid assets to Switzerland during the 1920s and early 1930s. Switzerland's traditional neutrality, the Swiss financial centre's international reputation, its easy accessibility in the centre of Europe, the lack of foreign exchange controls and the strong Swiss franc made Switzerland a popular haven." (Vogler, 2006, p. 29).
The real internationalization of the Swiss banking sector (in the sense that Swiss banks are starting to operate globally) occurred only during the 1970s.
Switzerland earned the reputation of a safe haven due to its long-standing economic, political, legal and social stability. Thanks to its economic clout, Switzerland will continue to benefit from a strong currency and a low level of national debt. The business environment is characterized by very little corruption and arbitrariness as well as a low risk of expropriation. Furthermore, the high average standard of living and the social security system will play a major role in ensuring social stability. And last but not the least, the political system in Switzerland is based on the principles of direct democracy, which in itself guarantees a high degree of continuity. As long as there is political and social turmoil or economic downturn in other regions of the world, Switzerland can rely on its safe haven status as the key success factor for its private banking industry (PWC, 2013, p. 19-20).
The political stabilization of Europe, the creation of the European economic area based on free movement of goods, capital and people, as well as the introduction of the Euro affected the traditional advantage of Switzerland in terms of its location. The neighbouring countries have made efforts to return the funds invested abroad through low taxes and tax amnesties. At the same time, the Swiss banking secrecy has repeatedly been brought into question at the international level, which upset the offshore clients of Swiss banks. Many wealthy clients find that untaxed money is worth less than taxed because untaxed money causes a higher risk and cannot be used freely. As a result there is a tendency that a new generation of wealthy people in Europe prefers the use of legal taxoptimized options to ordinary tax evasion.
Švajcarska je poznata je po sigurnim bankama, što je imidž građen desetlećima. Najznačajniji faktori koji su doprineli takvom stanju su: The position of banking industry in Switzerland as a world leader in private banking is built upon the outstanding country fundamentals both at the macro-economic and micro-economic levels. Being exceptional among the developed countries, Switzerland maintains its stability as the optimal financial centre through low public debt and positive budget balance. This, along with its abundance of expertise and talent, enables Switzerland to be the most innovative and competitive country worldwide, thus strengthening its position of a global and world-class financial centre. The Swiss banking sector has been fully playing its role of allocating capital to the rest of the economy, thereby supporting growth and job creation. Indeed, since the financial crisis, corporate lending has increased by 6% whereas it has shrunk by 7% on average in the 3 largest EU economies. Furthermore, loans are available at one of the lowest rates in the world -only 2.1% (SFI Knowledge Transfer, 2012, pp. 2-3), which could not happen without a sound and solid banking sector. Last but not least, Swiss banks are comparatively the best capitalized in the world and as such will continue to operate Sve zemlje u principu imaju bankarsku tajnu odnosno norme, pravila i propise koji štite informacije klijenata, koje ne bi smele da budu deljene od strane banke sa bilo kim. Razlika je jedino među zemljama u nivou tajnosti koji se održava u toj zemlji, ali ona je najviše izražena u Švajcarskoj. Švajcarske banke su kroz istoriju jako držale do bankarske tajne, iako su samu tu instituciju "legalizovale" (tj. pravno u nacionalni sistem ugradile) tek 1934. god. Do tada je bankarske tajnovitost bila pravno neregulisana, ali je bila prisutna u poslovanju. Za ovo postoje istorijski razlozi. Najpre, već spomenuti izolovani geografski položaj i neutralnost. Geografski položaj je uticao i na činjenicu da se švajcarski bankarski sektor nije razvijao kao bankarski sektori u ostalim zemljama -kao podrška privredi posle industrijske revolucije. Nasuprot tome švajcarska privreda ima tradiciju zanatstva, pa se švajcarski bankarski sektor razvio ne oko investicionog, već oko ličnog bankarstva. Kasnije, kao logičan nastavak tog istorijskog as safe havens to clients, especially during these turbulent times.
Switzerland is well known for its safe banks, which is an image built for decades. The most important factors that contributed to such an image are: • political stability due to the fact that Switzerland has been military neutral for about 150 years, • economic stability as well as stability of the juridical system, • the highest known level of central bank independence, strong and convertible currency, • stabile banking system with professional services, • banking secrecy.

Banking secrecy in Swiss banking
Swiss banking is virtually synonymous with a national banking system with extensive presence of banking secrecy. Banking secrecy is a practice which implies that the client's data are kept secret from all third parties, regardless of whether these are private individuals or state authorities. Banking secrecy is based on the fact that each bank's client has the right to confidentiality of information and data about his operations with a bank, and this confidentiality excludes the possibility for a third party to find out any information from the bank. Banking secrecy is an extension of the concept of banking discretion, that puts bankers under a professional obligation to keep the client's personal and financial information in strict confidence. Bank secrecy implies that this information is not accessible to anyone, because otherewise there may be negative consequences for the client. This information may be related to the transaction (amount, frequency) or the very existence of the account.
Banking secrecy in Switzerland has a long tradition that goes back to the past for over three hundred years. One of the first laws regulating bank secrecy dates back to the beginning of the eighteenth century: in 1713, the Grand Assembly in Geneva adopted a banking regulation which prescribed that bankers have an obligation to maintain a register of their clients and their transactions. They were forbidden to reveal this information to anyone other than the client, except with the consent of the City Council. The right to privacy has been a rich tradition and a hallmark of the Swiss banking system for centuries. Originally established to protect French Huguenots fleeing from religious persecution in the 17 th century, the Swiss banking secrecy laws later evolved to assist the European Jews and others to protect assets from the Nazis. Although recently relaxed, Switzerland's unique bank secrecy laws are protected in numerous legal codes as well as in the bank-client relationship. The historic importance of customer secrecy, along with a heavy focus on investment management and private banking for the wealthy rather than large-scale retail banking, has led Switzerland to help develop and underscore the importance of the 'Know Your Customer' (KYC) principle (Rowe, 2012(a), p. 1).
In modern times the Swiss banking secrecy originates from the Swiss Banking Act of 1934, and has led to the evolution of the famous Swiss banks. When the money gets deposited in Swiss bank accounts, bankers are required to keep this information strictly confidential. They are not allowed to disclose the existence of the person's account even with the consent of the very depositor. Cessation of banking secrecy is allowed in the cases of the suspicion of money laundering, illegal activities, or insider trading.
Not only is Switzerland's bank-customer confidentiality codified into the Swiss law, but it is also protected by the constitution of Switzerland. Art. 13 of the Swiss Constitution grants every person 'the right to receive respect for his/her private and family life, including that related to income and assets'. Art. 47 of the Swiss Banking Act essentially requires for anyone acting as a banker or related to banking to be strictly banned from revealing customer information (Rowe, 2012, p. 3).
In every country technically there is banking secrecy, i.e. norms, rules and regulations that protect customers' information, which should not be shared by the bank with anyone. The only difference between countries is in the level of secrecy, which is most pronounced in Switzerland. Swiss banks have historically held strong to banking secrecy, although it was not "legalized" (i.e. incorporated into the national i kulturološkog trenda, bankarski sektor u švajcarskoj radio je u relativno većoj meri nego u ostalim zemljama hipotekarne poslove i, još kasnije, portfolio menadžment. Pošto je u svim tim poslovima poverljivost jako važna, to je i razlog za razvoj i važnost bankarske tajne.
Godine Najznačajniji argument protiv bankarske tajne i onaj koji stvara mnogo polemike, odnosi se na poresku evaziju. Tvrdi se da zbog činjenice da zemlje kao što su Švajcarska ne otkrivaju informacije u vezi sa svojim klijentima, omogućava se stanovništvu drugih zemalja da svoja sredstva ulažu u te zemlje legal system) until 1934. Until then, the banking secrecy was not legally regulated, but was present in the everyday operations. For this there are historical reasons. First, it was due to the aforementioned isolated geographic position of Switzerland and its neutrality. Furthermore, the geographical position also affected the Swiss banking industry's direction of development: it did not develop as the banking sectors in other countries -to support the economy after the industrial revolution. On the contrary, the Swiss economy has a traditionally welldeveloped craftsmanship sector, and the Swiss banking sector developed not in the direction of investment banking, but in the direction of private banking. Later, as a natural continuation of the historic and cultural trends, the banking sector in Switzerland was involved relatively more extensively than in other national economies in mortgage operations and, later still, portfolio management. Since in all these transactions confidentiality is very important, this is the origin of the development and importance of banking secrecy.
The term "banking secrecy" covers all business relationships between bank clients and the bank itself. This includes all information, whether professional or personal in nature, obtained related to business transactions with the client or in consultations with him. It also covers all clients' contacts with the bank in the process of opening an account, even if the account does not get opened in the end. According to the actual Swiss Law on Banks, only the client can authorize the bank to disclose information. However, Article 273 of the Swiss Criminal Code extends the coverage and turns into a criminal offense the disclosure of information by banks, even if approved by the client in a special agreement. In addition, the coverage of the Swiss banking secrecy lasts indefinitely, even after closing the account and after the fulfillment of contractual obligations. Also, all banks' employees, as well as those contacted by banks, are required to keep all client information confident. Just like companies, banks need to protect data directly linked to their clients, but also just like any other non-banking company, banks needs to ensure confidentiality and safety of operational and strategic information of clients, which may be the least important for the management of aforementioned client-companies. It is vital that this information gets classified and processed properly. These data are often important for the company only until they become available to competition and the public.
Violation of banking secrecy in Switzerland, whether intentional or not, is strictly forbidden. Accordingly, a Swiss banker who discloses information about a client without his consent can be fined up to 50,000 CHF. Double punishment principle is being applied. If an indiscretion was made by negligence, the maximum fine is 30,000 CHF.

Exceptions to the principle of banking secrecy and reasons against banking secrecy
Today, however, the principle of banking secrecy in Switzerland is not implemented indiscriminately, as was the case in the past. There are exceptions to the rule of banking secrecy in specific cases such as: Organizacija za ekonomsku saradnju i razvoj (OECD) je tvrdila da je prisustvo centara sa bankarskom tajnom dovodi do veoma nezdravih oblika poreske konkurencije koja ograničava sposobnosti zemalja da oporezuju sopstvene državljane. Argument je da će svaki takav potez dovesti do priliva sredstava u ove centre i tako ublažiti poresku osnovicu kod kuće. Sa postojanjem bankarske tajne, teško je čak i dokazati postojanje tih prihoda, a kamoli oporezovati ih.
Postavljaju se pitanja da li je institucija bankarske tajne postala smetnja u novim uslovima za dalji razvoj švajcarskih banaka i da li će u budućnosti tzv. švajcarsko bankarstvo nestati. Da bi odgovorili na ova pitanja treba razumeti da je u današnjem međunarodnom bankarstvu relativno veći finansijski kriminal (računajući i pranje novca) nego u prošlosti, proceedings (when a third party claims the client's deposit). However, in practice it is very difficult to eliminate bank secrecy, since it must be proved to the court that the account exists, which is much more complicated in Switzerland. Bank secrecy in Switzerland is limited by the special provisions of the private law contained in the Swiss Civil Code, as well as by a number of obligations under the public law. These exceptions have not provided any assistance to insider trading investigation that aspire to avoid the banking secret. Part of the problem is due to the fact that insider trading is not a crime in Switzerland. • if a bank or firm is facing bankruptcy.
The most important argument against banking secrecy and the one that creates a lot of controversy relates to tax evasion. It is argued that due to the fact that countries like Switzerland do not disclose information relating to their clients, it is possible for the population of other countries to invest their funds in the country and thus evade taxes on these funds. The reason that allows this kind of activity is that Switzerland does not consider tax evasion a criminal offense and therefore, unlike tax fraud, when it discloses information related to the client if there is a case against that individual, it will not do so in the event of proven tax evasion. The Swiss legal system differentiates between tax evasion and tax fraud. This differentiation is based on the concept of self-declaration and serves to protect individuals. Unintentional errors and omissions in an individual's declaration of income and assets are deemed tax evasion. In Switzerland, they do not constitute a criminal act, but are punishable with a fine which may be several times the amount that was not declared. On the other hand, situations in which tax payers intentionally use irregular documents or forge the data on official documents, in order to deceive tax authorities and thereby evade the tax, are deemed tax fraud and a criminal act subject to criminal proceedings (Swiss Bankers Association, 2010, str. 69-70).
Organisation for Economic Co-operation and Development (OECD) has argued that the existence of centres with bank secrecy causes very unhealthy forms of tax competition, limiting the ability of countries to tax their own citizens. The argument is that it leads to an inflow of funds to these centres and thus alleviates the tax base in resident countries. Given the existence of banking secrecy, it is difficult to even prove the existence of these revenues, let alone tax them.

Present situation and the future of Swiss banking
In order to achieve a more efficient level of keeping the clients' private information confidential, all Swiss banks have a private banking account network (PBAN) which provides a secure method of accessing private bank information. In some Swiss banks there are three levels of security in accessing numbered accounts through computer password entry. This is complemented by sophisticated surveillance and auditing systems which are designed to prevent unauthorized access to the computer of the PBAN. Another protective measure for private banking accounts is the imposition of limitations on computer access to private banking information in both Switzerland and overseas. For example, one of the Switzerland's leading banks claims that US branches of Swiss banks have no computer access to Swiss banks' headquarters PBAN. It is not clear what this means, for example, whether it is technologically impossible to penetrate the PBAN from foreign countries, or that the relevant passwords etc. are not available to US-based employees of the Swiss bank. Finally, Swiss banks insulate the identity of specific bank accounts by installing different search systems in relation to different branches of the same bank. Employees of a Swiss bank at one branch cannot carry out a search of other branches to determine whether a person has a Swiss bank account. Financial privacy is further cemented by the practice of using different numbering systems in relation to bank accounts located in different branches. This led in one case to a Swiss bank misleading the District Attorney of Zurich by denying that it had a specific account number of a client in circumstances where the Swiss bank carried out a search of the Zurich branches, but not the Lugano branches of the bank (Chaikin, 2005, pp. 102-103). što je u kombinaciji sa i dalje prisutnim institutom bankarske tajne predstavlja opasnost u poslovanju. Takođe, pitanje izbegavanje poreza kao motiv stranaca 1 da otvaraju račune u švajcarskim bankama nameće bankarsku tajnu kao potencijalnu opasnost i smetnju u poslovanju. To je spoznala i švajcarska država dopustivši nedavno mogućnost da američke vlasti imaju uvid u visinu računa svojih državljana u švajcarskim bankama, čime su državljani te zemlje izuzeti iz zaštite koju pruža primena bankarske tajnosti.
Kao rezultat zaključenja novijih poreskih sporazuma i poreske amnestije, tajnost švajcarskog bankarstva postaje sve krhkija. Ovakav proces vodi do regulisanja ranije neoporezovanih sredstava koji su u prošlosti In recent years Switzerland has adopted many laws on illegal financial activities. The adoption of these laws extended cooperation with other countries. Swiss banking has lately changed its status. Switzerland believes that the practice of banking secrecy does not protect those who operate illegally, since Switzerland provides assistance to foreign countries in addressing financial fraud. This law is considered to be stricter than in other developed economies. There are some questions whether the institution of bank secrecy has become a nuisance in the new circumstances for further development of Swiss banks and whether Swiss banking will disappear in the future. To answer these questions it should be understood that in today's international banking financial crime, including money laundering, is relatively more present than in the past, which, combined with the still present institute of banking secrecy, poses a risk to the business. Also, the issue of tax evasion as a motive for foreigners 1 to open accounts in Swiss banks imposes banking secrecy as a potential threat and obstacle in business. The Government of Switzerland realized this, and recently allowed the possibility for the US authorities to have access to data on the US citizens' account balance in Swiss banks, which excluded US nationals from the protection granted by banking secrecy to all other nations.
To reveal information on a bank client's account to law enforcement agencies in a particular country, it is necessary to formally address a request to the Swiss judiciary, assuming that the account holder's money originates from illegal activities, recognized as such in the Swiss legislation. At this moment the issue of property tax of foreigners owning property in Switzerland is ongoing. In Switzerland it is allowed to file a private lawsuit against the bank if it reveals confidential information about the customers' accounts. In addition to criminal penalties, the aggrieved bank's client can initiate civil action and sue the bank in order to compensate the damages.
Offshore In comparison with other European countries, Switzerland applies much lower tax rates on income taxation not only to business, but also to individuals. Concerning international information exchange, Switzerland has hesitated regarding Article 26 of the OECD Model Convention. Therefore, Switzerland shares with other countries' tax authorities only the information necessary for the application of the Convention properly, while it retains the right to withhold information that would help other countries' national legislation. The exceptions are in case of information exchange with the authorities of the United States, Germany and Norway, countries with which Switzerland has signed tax treaties. Similar is the situation with regards to the provision of information in the banking industry: only information strictly listed in the signed tax treaties is being exchanged. However, when it comes to information that is necessary to provide foreign tax authorities to prevent and detect tax evasion and fraud committed abroad, support is provided by the Act of Multiple International Assistance (1981). As in the information exchange hesitation to the OECD Model Convention, Switzerland also does not consistently follow the OECD recommendations in terms of non-concluding, i.e. cancellation of existing contracts with the tax haven countries. In order to exempt revenues made abroad from taxes paid to the budget of Switzerland, it is necessary to consider whether it is economically justified, regardless of whether the headquarters of the company are in the country having high tax rates or is a tax haven. This is why actions against tax evasion are not based on some specific rules, but on the general rules related to the prohibition of abuse of rights (Stojanović, 2010, str. 273-275).
The existence of centers with banking secrecy causes such forms of tax competition, which limits the ability of countries to tax their own citizens. This would cause inward flows of funds to these centers and thus alleviate the tax base in their country of residence. The reason why existence of banking secrecy could make problems is because some countries with lower taxes (i.e. tax havens) which are willing to share information about the funds of non-residents, generate the possibility for the countries of these non-residents to find a way to tax the income earned by their citizens abroad. With the existence of banking secrecy, it is difficult even to prove the existence of these revenues, let alone to tax them. Međutim, u odsustvu specifičnog zahteva, ni jedna informacija se nikome neće obezbediti. Prikaz informacija će se odbiti u slučaju neosnovanih zahteva, ali se mogu obezbediti na grupni zahtev. I u principu, biće obezbeđena u sudskom postupku na osnovu prava koje ima pojedinac po švajcarskom zakonu (Troyanov, 2014, str. 1). Sa druge strane, bankarska tajnost će nastaviti da štiti klijente banke od nelegitimnih zahteva za dobijanje informacija od strane trećih lica poput novinara, kreditora itd, dok je njena primena, odnosno pravo da se povuče bankarska tajnost za sada ostala i opstala u istim slučajevima kao i ranije (na primer, kriminalne aktivnosti, utvrđivanje nasledstva itd).
cases and in accordance with procedures which they shall determine by mutual agreement, two or more Parties shall automatically exchange the information referred to in Article 4. For a long time Switzerland had resisted the pressure of the European countries. However, abundant criticism has been directed on its account. Perhaps the strongest criticism was in terms of its facilitating tax evasion and tax fraud by strict application of banking secrecy. The attack was led by the United States. Both major banks have been accused of facilitating tax evasion of the US citizens. Credit Suisse and UBS acknowledged their guilt (after months of sparring with the U.S. Justice Department, Credit Suisse, one of the two big Swiss banks, pled guilty to conspiring to aid tax evasion and agreed to pay a $2.6 billion fine) (Gumbel, 2014, str. 1). In order to preserve the reputation as a major financial center, and to provide support in the fight against tax evasion, Switzerland decided to sign the OECD Convention, along with 50 other countries. This way it committed to provide all the information at the request of certain countries if they can thus prevent tax evasion. Thereby Switzerland abandoned its traditional principles concerning the protection of banking secrecy and its assessment system which implied that the clients are obliged to present to the bank all details about their property. With the signing of the Convention, the role of banking secrecy as one of the peculiarities of the Swiss banking has been significantly reduced (there are even extreme opinions that the signing of the Convention, as well as agreements with the United States, mean that banking secrecy remained only formally in existence, while unofficially it ceased to exist). However, it is important to point out that on the territory of Switzerland the same rules are still applied: residents have the same right to privacy as before, even when determining the tax liability. The change occurred only oversees.
So far, the Swiss banking secrecy has not died. It still exists as a legal obligation incumbent on Swiss banks. However, in taxation matters, its scope has significantly changed. Swiss banks or Swiss Tax Authorities will no longer be able to refuse to disclose information on financial assets held by tax payers by referring to banking secrecy as their excuse. However, in case of no specific request, no information will be provided to anyone. Disclosure of information can be refused in case of unsubstantiated requests, but may be granted in case of group requests. And in principle, it will be provided in legal proceedings granting due process rights in Switzerland to the persons concerned (Troyanov, 2014, p. 1). On the other hand, banking secrecy will continue to protect banks' clients from illegitimate demands for obtaining information by third parties such as journalists, creditors, etc., while its application has for now remained and survived in the same cases as it has been before (for example in cases of criminal activity, determining inheritance, etc.).

Conclusion
The paper has discussed the phenomenon of Swiss banking. The specific nature of banking in Switzerland was considered, as well as other characteristics that led to the establishment of a system that has served the trade rather than industry. Over time, it developed into a system whose generic name is Swiss banking, created in Switzerland, and characterized primarily by personal banking with the use of banking secrecy. Significant portion of the paper is devoted to the question whether the institution of banking secrecy will survive under the pressure of the most powerful economies in the world, and their hunger for filling their budgets following the money trail of their residents/ nationals. The pressure has been getting stronger in recent years and it seems to be able to influence the abolishment of bank secrecy, although for now it still resists and survives.