In October 1932, French police raided the Paris premises used by the Basler Handelsbank, one of Switzerland's big commercial banks, and caught its representatives in the middle of receiving clients. The records they seized — a list reportedly running to well over a thousand names — read like a directory of the French establishment: senators, generals, bishops, newspaper owners and industrialists, all quietly holding money in Switzerland beyond the reach of the taxman. The scandal detonated in the Chamber of Deputies, France demanded cooperation, and Swiss bankers concluded that discretion could no longer rest on custom alone. It needed the force of criminal law. The affair also hardened a Swiss legal position that would frustrate foreign governments for the next eight decades: under Swiss law simple tax evasion was not a crime, merely an administrative matter, so Switzerland saw nothing to cooperate with.
It got it two years later. The Federal Act on Banks and Savings Banks of 1934 was mostly an unremarkable response to the Depression-era bank failures then rattling Switzerland — the country's first federal banking regulation. But tucked inside was Article 47, which made it a criminal offence, punishable by fines and prison, for a banker to reveal client information, with the state obliged to prosecute even if nobody complained. Until then a breach of secrecy had been a mere civil matter between bank and customer. The instinct itself was much older: as far back as 1713 the Great Council of Geneva had forbidden the city's bankers to divulge details of their clients — many of them Catholic French aristocrats who preferred not to be seen borrowing from Protestants.
The convenient myth
The story most people know is different: that the 1934 law was passed to protect Jewish assets from Nazi agents sniffing around Swiss banks. Historians who have combed the parliamentary record — notably Sébastien Guex — find no trace of that motive in the 1930s debates; the humanitarian origin story gained currency only from the 1960s, when secrecy was under attack abroad and needed a moral defence. The wartime record, in fact, points the other way. After 1945, heirs of Holocaust victims were routinely turned away for lack of death certificates, and the scandal of these dormant accounts finally erupted in the 1990s, ending with the Volcker Committee's forensic audit and a 1.25 billion dollar settlement by Switzerland's two biggest banks in 1998. As for the fabled numbered account, it was never truly anonymous: the number merely replaced the name on everyday paperwork, while the client's identity stayed known to a handful of senior officers. Nor did the number buy protection from Swiss courts — only from foreign taxmen, who could be refused because evasion was no crime in Switzerland. Still, the mystique was real enough for British Labour politicians to sneer at the "gnomes of Zurich" during the sterling crisis of 1964 — a jibe usually credited to Harold Wilson — and it made the country a magnet for flight capital from every continent.
How the era ended
The demolition began in 2007, when Bradley Birkenfeld, an American private banker at UBS, walked into the US Department of Justice and described the machinery from the inside: bankers touring art fairs and yacht regattas to recruit rich Americans and, by his own account, a spell smuggling diamonds in a toothpaste tube. In 2009 UBS accepted a 780 million dollar deferred-prosecution deal and, breaking the great taboo, handed thousands of client names to Washington. Congress then passed the Foreign Account Tax Compliance Act — FATCA — in 2010, obliging banks everywhere on earth to report their American account holders or face a punitive 30 per cent withholding on their US income. Resistance was brief. Wegelin & Co, founded in 1741 and Switzerland's oldest bank, pleaded guilty in a New York court in 2013 and closed its doors forever. Credit Suisse pleaded guilty in 2014 to helping Americans evade tax and paid about 2.6 billion dollars. Switzerland signed up to FATCA, which took effect in 2014, and from 2018 began automatically exchanging account information with dozens of countries under the OECD's common reporting standard. Secrecy survives for Swiss residents at home, but for foreign tax authorities the vault door now stands open. Birkenfeld's own ledger captures the era's strange accounting: a 40-month sentence in an American prison, of which he served about 30 months, for his part in the schemes, followed by a 104 million dollar whistleblower award from the IRS.
The numbered account had survived a depression, a world war and half a century of outrage; it could not survive the American tax code.
Quiz nuggets
- Article 47 of Switzerland's 1934 Banking Act made breaching bank secrecy a criminal offence for the first time.
- A 1932 French police raid exposing tax-evading clients of the Basler Handelsbank helped trigger the secrecy law — not the popular Nazi-era myth.
- "Gnomes of Zurich" was popularised by British Labour politicians during the 1964 sterling crisis.
- Wegelin & Co, founded in 1741 and Switzerland's oldest bank, pleaded guilty in a US court in 2013 and closed.
- UBS whistleblower Bradley Birkenfeld was sentenced to 40 months in prison, served about 30 months, and then received a $104 million IRS award.