No Free Pass for Banks

Swiss authorities never had the intention of sacrificing bank employees by exposing them to total disclosure of information as a means to save banks from U.S. indemnification.

The joint statement by Switzerland and the U.S. for settling the dispute on taxes in banking is predicated by the notion that Swiss banks should provide information about their business practices, as well as the activities of their employees and external assets managers to avoid prosecution in the United States. The U.S. Department of Justice seems to assume that the disclosure of information must comprehensively circumvent banking confidentiality, including the consequential ability to request privileged information via bureaucratic or legal channels in Switzerland. In other words, banks should provide all information requested by the DOJ.

From the Swiss perspective, it should be noted that the joint statement does not have the same qualities as a treaty, and therefore doesn’t come before Swiss law. With regards to the Swiss, it only has context within the confines of Swiss law with particular regard to the protection of Swiss bank employees who do not participate in negotiations between the DOJ and their parent bank, and hence cannot represent their own interests in these negotiations. They are often in jeopardy of being exposed to the possibility of prosecution in the U.S. when information is transferred, despite working only in Switzerland and having broken no Swiss law.

Swiss law has a number of provisions that protect bank staff and external asset managers from releasing information. To this end are, first and foremost, the penal prohibition of procedural acts for a foreign nation, protection of trade secrets, protection of data and the fiduciary responsibility of the employer to its employees. Most data dissemination to U.S. authorities has been stymied by the prohibition of procedural acts for a foreign state. Since the joint statement itself cannot overrule this prohibition, and following the failure of Washington’s previous take-it-or-leave-it deal dubbed “Lex USA,” the Swiss Federal Department of Finance granted every bank, when admissible, a provisional release from the prohibition of procedural acts for a foreign nation. The provision releases the bank, though not automatically, from compliance with data protection legislation, the fiduciary responsibility of the employer, as well as the obligation to preserve trade secrets of third parties. However, Swiss laws that protect bank employees apply, and only within these limits are the banks subject to compliance with the DOJ. But the U.S. is of the basic opinion that the joint statement gives them access to all desired data, regardless of potential Swiss regulation on protection of data. Concerned banks believe that the general terms of the provision can be construed as a free pass, and can thus release all information requisitioned by U.S. authorities. The banks use the supposed “overriding public interest” to end the tax dispute with the U.S. as justification.

As confirmed by the court, the U.S. has the instrument of indictment and its economic superiority as a means of coercion at its disposal; the U.S. can even exert the threat of force on Swiss banks outside the realm of the U.S. legal system. The pressure is strong to surrender unconditionally, but it is unlikely to serve the reputation and credibility of the Swiss financial system well. The end of the tax dispute with the U.S. must not displace other public interests such as the protection of the Swiss legal system and its sovereignty. It will only be a matter of time before undermining the Swiss legal system has negative effects on the financial system and its reputation. Moreover, it is absurd to argue that public interest should allow banks to be protected from indemnification at the expense of bank employees, the community and the Swiss legal system. That is to say, the boundary of the Swiss legal system wouldn’t apply should the unlimited dissemination of data by bank employees result in a violation of Swiss law, while attempting to rectify a supposed breach of U.S. law. Banks cannot merely supply information that doesn’t violate the stringent regulations pertaining to data protection and the fiduciary duties of an employer.

The joint statement is only part of a constitutional structure and should be considered within these bounds — the norms that hold the constitutional structure together; i.e., the Swiss people — as opposed to bringing the structure to fault. Bringing the structure down isn’t possible with the mechanisms of the joint statement, and thus the positive aims of the agreement — namely the provisional release of banks from the prohibition of procedural acts for a foreign power — are a threat to the rule of law, especially to affected bank employees. Yet it has been clear from the beginning that Swiss authorities never had the intention of sacrificing bank employees through full disclosure as a means to save the banks.