Swiss banking neutrality under pressure… In the near future, Bitcoin too will come ‘out into the open’

The shells fired by Russian President Vladimir Putin are landing on Switzerland's banks. As Russia's invasion of Ukraine heightens a mood in which tolerance for neutral-state status runs dry, an international campaign to put a full stop to the long tradition of the Swiss banks, famous for their secrecy, is advancing with public opinion at its back.

Irene Khan, a UN Special Rapporteur, stated that Switzerland's banking law conflicts with UN international conventions, and pressed the Swiss parliament by warning that she would refer the matter to the UN Human Rights Council if Article 47 were not amended. On May 6, the Swiss parliament voted down the amendment to Article 47.

The Article 47 at issue imposes criminal liability, extending even to journalists, for the external disclosure of bank client information. The maximum term is three years, but where the discloser is paid for the information a sentence of up to five years' imprisonment may be handed down. The provision is criticized for conflicting with international conventions Switzerland has signed, in particular Article 19 of the International Covenant on Civil and Political Rights, and also with Article 10 of the European Convention on Human Rights, which Switzerland has likewise signed.

According to foreign press reports, despite parliament's rejection, the Swiss government submitted, as a kind of compromise, a draft new intelligence law granting the Federal Intelligence Service (FIS) the authority to request information on companies holding suspect bank accounts. Which is to say that until now even Switzerland's intelligence service had almost no ability to investigate the financial transactions of domestic bank clients.

Did they help the Nazis? A history of the Swiss banks' ‘moral blows’ Swiss banks began to suffer decisive damage to their moral standing in 1990. That Switzerland, a neutral state during the Second World War, had collaborated with Adolf Hitler's Nazis had existed only in novels and conspiracy theories.

But when Swiss banks refused withdrawals to the surviving families of Jews who died in the Holocaust, on the grounds that they could not prove the family relationship, Jewish organizations moved American political circles to apply pressure. They even threatened to bar UBS from doing business in New York and in the United States, and in the end a settlement was reached.

American politicians moved at the time partly because evidence emerged that Switzerland had reaped enormous profits by collaborating with the Nazis, buying at a discount the gold bars seized from Jews, and had as a result financed Nazi Germany's ability to prolong the war. Stories even circulated that gold coins minted from bullion Switzerland obtained from the Nazis were found to contain concentrations of mercury as high as one would expect only in dental gold fillings. The image of the Swiss banks began its fall from a symbol of trust to a custodian of dirty money.

About a decade after paying astronomical sums in compensation to the Jewish survivors' families, in 2008, Wall Street became the cradle of a financial crisis. The U.S. government had to pour vast tax revenues into rescuing financial firms, and just when public sentiment toward the financial elite was at its worst, a whistleblower's account happened to leak out of a Swiss bank: wealthy Americans were holding accounts at Swiss banks for the purpose of tax avoidance.

The Obama administration enlisted the international community to pressure the Swiss government, and in 2014 Switzerland finally signed an agreement committing its banks to provide information on suspect accounts to the investigative agencies of some fifty countries. Over the following years shocking data came to light. In February 2022, a German news organization went so far as to disclose to media outlets around the world information obtained from an insider at a Swiss bank. It included numerous secret accounts belonging to notorious dictators and to criminals who had trampled on human rights.

Whenever public opinion soured, Swiss banking officials said they were continuously purging problem accounts as part of an internal cleanup, but this exposure cast doubt on the sincerity of those self-corrective efforts. The Western press, working with Switzerland's own media, wanted to obtain more information from insiders working at Swiss banks; the Swiss banks responded, as with Article 47, by broadening the class of people subject to secrecy-violation penalties and stiffening the sentences.

But once Russia mobilized force on the periphery of Europe and shattered the international order, the Western world found itself compelled to deliver at least the punishment of a financial freeze. In the end, the situation demands that the international community show its firm resolve, even if that means finishing off a Swiss bank secrecy regime that is by now little more than a signboard.

Switzerland's bank secrecy law was enacted in 1934, but the Swiss institution of banking secrecy, and the renown that came with it, goes back to the 1700s. Geneva, then a stronghold of Protestantism, barred banks from providing information to foreign governments so that France's Catholic government could not track down the French who had emigrated to Switzerland.

Of course, the Swiss banks were able to preserve bank secrecy for centuries not because it was a moral or a righteous institution. Changes in the geopolitical environment did much to make it possible. On top of this historical accident, thanks to the distinctive and rigorous professional ethic of Swiss bankers and to their reputation for maintaining neutrality, Switzerland was able to draw in the money of the world's rich; and because its people learned early on the principle of a financial industry that delivers relative prosperity despite a barren geography.

So then: did enormous pools of malign money form because the Swiss banks kept their secrets? Or did the demand for financial secrecy transform a country into one vast, sturdy, neutral vault? If the former, then by strangling the Swiss banks' practice of secrecy the idealists will achieve their aim. But if the axis of truth tilts more toward the latter, the money of the rich who want secrecy will find another solution. In the end the idealists' efforts may not bear the fruit they expect. Institutionalizing Bitcoin: will a ‘highway of trust’ open? For a powerless individual who must live through an age of turbulence, this is not an important worry. The truly important question lies elsewhere. Can the United States, the United Nations, and the international community also put an end to Bitcoin's neutrality by the very method with which they are tearing down the signboard of Swiss banking secrecy, namely the force of international public pressure and legislation?

Fortunately, Bitcoin never helped Hitler and owes no debt to the families of Jewish victims. But what happens if evidence emerges that the millions of coins already issued and held in personal wallets are being used, without passing through financial institutions or exchanges, to shelter tax evasion, the proceeds of crime, and the offshore flight assets of dictators and their cronies?

Suppose the media mount a sweeping offensive and politicians inflame public opinion with provocative language. Will there exist a witness or a defendant to haul into court, to force a signature from, or to summon before the United Nations, in the way the centuries-old tradition of the Swiss banks has been eroded? To be sure, one could find and prosecute the exchange that cashed out the bitcoin deposited to the address in question, or the miner who handed over a bundle of bitcoin on a piece of paper without even checking the counterparty's identity. But what reality would punishing them actually change? Put simply, far too much bitcoin has already been issued. That is, it is spread widely, independent of miners or exchanges. Moreover, Bitcoin needs no vault as gold bars do, and it needs no transport truck or armed escort vehicle when it moves.

America's regulatory elite, who caught on to this fact a few years ago, devised a delaying strategy. It can be summed up as: as far as possible, keep the public from knowing about Bitcoin; as far as possible, keep the public from believing in Bitcoin; as far as possible, keep the public away from Bitcoin. But delay is not the ultimate solution. Someday the deferred homework must be done.

From the moment Bitcoin crossed one dollar, the solution that would perfectly satisfy the idealists who wish to finish off Swiss banking secrecy should be regarded as gone. But as a realist I can offer the idealists one piece of advice: accept Bitcoin as a reality, and a realistic path to containing this problem comes into view. Hard as it may be to believe, it is the surprisingly simple method of getting Bitcoin onto the accounting books of corporations.

Within a few years of that happening, we will be able to watch a magnificent spectacle: a substantial share of the world's bitcoin emerging from the dark vaults inside the rock faces of the Alps and traveling, glittering for all to see, along the internet of money, which deserves to be called the highway of trust.

Oh Tae-min, author of ‘Bitcoin Was Strong’ and ‘Bitcoin: A Genealogy of Wisdom’