Banking Scandals in Switzerland: from Past to Present

Swiss banks get involved in various scandals on a regular basis. They are found to facilitate money laundering, to cater to tax evaders, and to participate in different fraudulent schemes. However, they get over the troubled times, fire the guilty managers, and return to ‘business as usual’. The popularity of Swiss banks remains at a high level notwithstanding conflicts with regulators and dishonorable activities on their part.

History of Swiss banking scandals

After World War II, many countries found themselves in deep crises. However, wealthy foreigners continued to use Swiss bank vaults to hold and protect their capitals. When peace was restored in the world, the League of Nations in Geneva started looking closely at the issue of taxes and tax evasion.

Swiss banks were very keen on banking privacy and the legislation of the country protected secrecy of banking operations from times immemorial. We have to note that laws protecting banking privacy are still in force in Switzerland even though the situation in the global banking sector has changed and continues to change dramatically.

The first major scandal with a Swiss bank

The first major scandal with a Swiss bank broke out in 1932 when managers of a Basel-based bank (BCB, Banque commerciale de Bâle) were arrested for paying dividends to wealthy clients who had been evading taxes. The list of clients contained 1018 names and some of the people were public persons.

The BCI (Banque de Crédit International) scandal

BCI (Banque de Crédit International) was founded in Geneva in 1959 and provided services to Meyer Lansky, among other people (Lansky was known as the American mafia accountant). Everything went well until Lansky was arrested in Miami in 1973 for tax evasion.   

At that moment, the bank lost an important client and his scandalous reputation made one of the shareholders with 36.42% of ownership (the German Landesbank Hessen-Thüringen) claim their ownership share back. In 1976, the Algerian entrepreneur Faud Mustafa Nashat reported to the Geneva prosecutor’s office having lost 345 million francs with BCI. These events triggered the process of the bank liquidation.

The first scandals caused a public outcry and they became the focus of attention of many clients from France and the USA. In 1973, the American authorities initiated the process of preparing an agreement with the Swiss government on mutual assistance in combating crime. The agreement was signed by the parties in 1977. It had articles related to mutual legal assistance in combating tax evasion in particular.

The scandal with Banque de Crédit et de Commerce International (BCCI)

The next Swiss banking scandal hit the media in 1980. Banque de Crédit et de Commerce International (BCCI) was a Swiss bank founded by a Pakistani businessman who opened 400 branch offices all over the world during the 10-year period when he was the CEO of the bank.

But the U.S. Drug Enforcement Administration suspected the bank of laundering drug money, and after an investigation, many bankers and drug dealers were arrested. In the course of the investigation, the police discovered that another Geneva-based bank – Banque de commerce et de placements (BCP) – was involved in criminal activities too. Today, this bank is back on track again, it successfully operates in Switzerland and has branches in Luxembourg and Dubai.  

As the number of money laundering scandals grew in Switzerland, the Government of the country started introducing laws aimed at combating financial fraud. We have to note that the first such law was passed back in 1900 but stricter measures were required. So new laws aimed at combating money laundering, tax evasion, and terrorism financing were passed in 1997.

In the 2000s, deoffshorization processes were started and the international campaign has been affecting Swiss banks ever since.  

The UBS case

Another banking scandal broke out in Switzerland in 2009 and it continues to this day. It concerns UBS and it was initiated by Bradley Charles Birkenfeld, a Boston native. The whistleblower started the high-profile case of UBS Bank that was forced to turn over to U.S. authorities information about more than 4,000 of its customers and pay a fine of 780 million U.S. dollars in addition to that.

In 2022, UBS lost a court case in Paris and now it owes 4.5 billion euros to the French. The amount of the fine is record high for the French judicial system.

Scandals associated with Credit Suisse –timeline of events

A large Swiss bank that has been most frequently involved in money laundering, terrorism financing, and tax evasion scandals is Credit Suisse. Surprisingly, the bank has been able to stay afloat and retain its popularity with international clients for years. Nevertheless, it is currently facing serious problems and some analysts forecast bankruptcy and collapse of the financial giant in 2023.

What scandals has Credit Suisse been involved in? Let’s look back in time and then return to the situation at present.

Banking scandal of 1977

Many bank customers will remember the spring of 1977. It became known at that time that Credit Suisse managers had taken trips to Milan to collect money from rich Italian tax evaders. Naturally, the trips were secret.

After that, the Swiss Government and the Swiss Bankers’ Association signed an agreement obliging the banks to check all prospective customers before accepting deposits from them.

Catering to the Philippine dictator

In 1995, Credit Suisse had to return nearly half a million dollars that was held in an account belonging to Ferdinand Marcos, the Philippine dictator. We have to note that this scandal affected not only Credit Suisse but other Swiss banks too: they had also opened accounts for Marcos. 

As it turned out later, the Swiss banks had opened accounts for Marcos and his wife under the names of William Saunders and Jane Ryan. This fact allowed the two of them to keep away from the regulators and tax authorities’ sight for some time.

Violations of U.S. sanctions – a scandal and a fine

In 2009, a fine of 536 million dollars was levied on Credit Suisse for violating the U.S. sanctions against Iran and other countries in the period between 1995 and 2007. The U.S. Ministry of Justice claimed that the Swiss bank ‘had provided the sanctioned countries access to financial institutions of the USA’ and that was illegal in the eyes of Washington.   

Corporate espionage within the Swiss banking system

Tidjane Thiam, the Executive Director of Credit Suisse, was found guilty of spying on the bank’s employees in 2020. Thiam had to resign from his position as a result. It turned out that the bank had been using private detectives’ services to spy on the former head of asset management department Iqbal Khan and the former head of human resources Peter Gehrke.

The investigation conducted by the Swiss Financial Market Supervisory Authority (FINMA) found out about seven espionage episodes that occurred between 2016 and 2019.

Scandal with the tuna fish bonds

The Republic of Mozambique obtained a loan of 1.3 billion U.S. dollars from the Swiss bank. As it later turned out, the money had not been used for the purposes it was supposed to be used for. The largest portion of the loan ‘went missing’ and part of the money was used to grease the palm of the bankers thus securing future loans. In 2021, the bank had to pay a fine of 350 million pounds for these operations.

Where does the tuna fish come in here? The loan money was supposed to be invested in tuna fishery development and other fishery programs but it was not. 

The banking scandal of 2023

Today, Credit Suisse is once again part of the scandal related to bank deposits and customers. The Organized Crime and Corruption Reporting Project (OCCRP) gained access to secret banking information and published it on February 20, 2022. 

The publication triggered yet another banking scandal in Switzerland. Information about 18,000 bank accounts belonging to over 30,000 individuals was made public. According to the OCCRP journalists, some of these individuals were ‘suspicious foreigners associated with the criminal world’.

The last quarter of 2022 saw a great number of Credit Suisse clients withdrawing money from their accounts. They withdrew 110.5 billion Swiss francs (120.29 billion U.S. dollars) in total. Early in March 2023, the Swiss bank’s shares collapsed by more than 11%.

Some analysts believe that the bank may well go bankrupt in the near future while some other analysts think that it is too early to make such claims.

The continuing story of Swiss banking scandals

Why do banking scandals occur in Switzerland and elsewhere? Most often, this happens because the bank is involved in some money laundering schemes and it caters to tax evaders. In other cases, a banker can give a bad loan for a bribe.

What are the consequences of such activities on the part of the banks? When cases of financial misconduct come to light, the accounts are blocked, the money is expropriated, and the bank is fined if not closed.

What lessons should we all learn from the stories given above? We have to pay all the due taxes and the money that we would like to put in a bank has to come from transparent legal sources. If these conditions do not hold, obtaining services from a reputable bank is impossible these days.