[Infowarrior] - OpEd: Swiss Banks and the End of Privacy

[Richard Forno]

Swiss Banks and the End of Privacy
Disclosure is the new social imperative.
By L. GORDON CROVITZ

http://online.wsj.com/article/SB123776401389908783.html

Since the Middle Ages, Switzerland has stood for bank secrecy -- or  
bank privacy, as the Swiss would insist. In the past month, this  
foundation of Swiss banking has collapsed under calls for  
transparency, making Swiss banks seem as outdated as cuckoo clocks.  
The nearly universal condemnation of Swiss banking is a sign of how  
quickly our expectations about privacy have changed.

Under pressure from the U.S., Germany, Britain and other high-tax  
countries, the Swiss agreed to abandon their longstanding protections  
for depositors accused by their home countries of tax evasion. Until  
now, countries had to present evidence of fraud, a more serious  
accusation, before Swiss banks would turn over information about their  
clients. Switzerland has long been the preferred location for private  
banking, with more than $2 trillion of the $7 trillion in all offshore  
deposits located in the country.

The law that the Swiss authorities agreed to change was passed in 1934  
but had codified generations of previous practice ensuring  
confidentiality. For many years, the global consensus was that the  
benefits of banking secrecy outweighed the clear vices. It took almost  
50 years before Swiss bankers agreed to look into deposits left by  
Jews killed by the Nazis, eventually creating a $1.25 billion fund for  
their heirs. The Swiss have taken other steps, including against  
terrorists and money launderers, but the hard line against tax  
complaints from other countries was considered unmovable.

Try as they did, the Swiss could not hold out in an era when the  
presumption is becoming that information once considered off-limits to  
others, including personal financial information, is fair game.  
Regulators such as the Securities and Exchange Commission mandate that  
compensation for top executives at public companies is made public.  
The bailouts of financial services firms have made transparency even  
greater for bankers and traders.

More broadly, online services from LinkedIn to Facebook and MySpace  
are built on our newfound enthusiasm for disclosing details about  
ourselves. Hundreds of millions of people now use these services,  
creating an expectation of transparency. We expect to be able to learn  
details online about people we haven't met. We may be approaching a  
time when we become suspicious of those who don't contribute to these  
kinds of social media, wondering what they have to hide.

In this environment, the Swiss adherence to confidentiality seems  
quaint. Lost in the rejection of financial privacy has been the  
important role Switzerland played for many years in the development of  
Europe. Bank secrecy gave citizens from countries such as France,  
Italy and Germany a safe haven for their earnings during times when  
their governments pursued policies of currency devaluations and  
controls, expropriation and confiscatory tax rates.

No one supports tax fraud, and Swiss banks have also long been the  
refuge for tyrants and criminals. Still, Switzerland has been a public- 
policy safety valve, limiting the tax rates that countries could  
impose without their people finding ways to park their funds in  
confidential accounts in Switzerland. The head of the Swiss Bankers  
Association had argued that rather than blame private banks,  
governments should look in the mirror: "Chronic tax evasion is a  
symptom of illness in a state's relationship with its citizens."

The U.S., where tax rates are high and going higher, lobbied hard  
alongside the Europeans for these changes. The largest Swiss bank,  
UBS, last month agreed to pay a fine and to disclose the names of  
several hundred American holders of Swiss accounts. Washington has now  
asked for many more names.

Privacy got little respect in the debate over bank secrecy. The leader  
of Germany's Social Democrats threatened the Swiss, warning that "in  
the olden days, one would have sent in the troops." Swiss politicians  
lost their cool, with a lawmaker from St. Gallen saying that pressure  
from the German finance ministry reminded him of Germans "who walked  
the streets in leather coats, boots and armbands 60 years ago." The  
Swiss foreign minister twice summoned the German ambassador to  
complain about "insulting and aggressive" language by the German  
government and politicians lobbying for change.

Confidentiality remains part of the Swiss ethic, even now. Opinion  
polls suggest the Swiss strongly oppose the changes, saying that  
lowering the bar on secrecy undermines the core of what makes  
Switzerland different. Swiss President Hans-Rudolf Merz had to assure  
his country that Swiss banks still have advantages. "Protecting the  
private sphere against unjustified government encroachment is deeply  
rooted," he said.

Still, changes in Swiss banking are another sign that the increasingly  
free flow of information is redefining our view of fundamental  
concepts such as confidentiality. As the Swiss have learned, what was  
once considered a right to privacy seems to be transforming into a  
duty to disclose. We can know more, so we expect to know more.

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