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Whistleblowing: Federal Supreme Court ruling places Swiss banks' offshore subsidiaries outside secrecy laws

Simon Fuller, IBA Managing Editor

Prosecutors have failed to establish that Swiss bank secrecy laws extend to foreign subsidiaries of Swiss banks. In October, Switzerland’s Federal Supreme Court upheld an earlier court decision to acquit Rudolf Elmer of breaking bank secrecy rules. Elmer is the former employee of the Cayman Islands subsidiary of the Swiss bank, Julius Baer, who turned whistleblower over ten years ago.

After being fired from the Cayman Islands subsidiary of the Swiss bank Julius Baer, Elmer disclosed banking information belonging to the branch to tax authorities and WikiLeaks.

The ruling confirmed that bank secrecy is limited to Swiss banks and their employees. Crucially, the case has established that the threat of criminal sanctions for violating bank secrecy cannot constrain whistleblowers from using data obtained from Swiss banks’ foreign subsidiaries.

The Federal Supreme Court found by a 3-2 decision that clients of foreign subsidiaries of Swiss banks, are not covered by Article 47 of the Swiss Law on Banking Institutions – which allows criminal sanctions for violating Switzerland’s bank secrecy rules.

'Swiss prosecutors wanted to establish the "long arm of the law" in this case. A lot of countries have these secrecy provisions… In Switzerland they are proactively enforced on whistleblowers

Leah Ambler
Anti-bribery lawyer, OECD; Co-Chair, IBA Anti-Corruption Committee

The decision by Switzerland’s highest court is in line with recent Swiss case law. Of the five judge Federal Supreme Court panel, two judges dissented. They took the view that Julius Baer bank had delegated tasks to its Cayman subsidiary (JBB), which in their view means the relevant law would apply to it as a third party mandated by a Swiss bank.

‘Swiss prosecutors wanted to establish the “long arm of the law” in this case,’ says Leah Ambler, Co-Chair of the IBA Anti-Corruption Committee and an anti-bribery lawyer at the OECD. ‘A lot of countries have these secrecy provisions, not a lot of them have data about their enforcement of these. In Switzerland they are proactively enforced on whistleblowers.’

Leah Ambler

‘The Elmer decision is significant in limiting the extraterritorial application of Switzerland’s severe banking secrecy laws,’ says Kieran Pender, Legal Advisor for the IBA Legal Policy & Research Unit and project lead for the report, Whistleblower Protections: A Guide, published in April 2018. ‘Given the lack of adequate whistleblower protection laws in Switzerland – something highlighted recently by the OECD – the decision may provide a degree of protection by omission.’

Saverio Lembo, a partner and head of the White Collar Crime practice group at Bär & Karrer, says that ‘by holding that banking secrecy should not apply to JBB, the judges decided against a globalisation of such secrecy. Indeed, as many other banks did, by delocalising its activities in the Cayman Islands, Julius Baer decided to submit itself to the local law. While foreign legislation might present certain advantages for the banks, the banks might in return run the risk of not being protected by Swiss banking secrecy anymore.’

Elmer’s case has been closely watched, including by anti-corruption activists and international media. The final decision in the case follows several high-profile leaks in recent years, including the ‘Panama Papers’ leak in 2016, which involved 11.5 million documents – detailing the use of offshore tax regimes – being leaked from Panamanian law firm Mossack Fonseca.

The decision looks to bring to an end Elmer’s legal saga. He was first arrested in 2005, and then detained again in 2011, when he came to global attention by publicly giving two compact discs to WikiLeaks founder Julian Assange at a London conference. At the time Elmer said these CDs contained evidence of tax evasion through offshore accounts by individuals and corporations.

A tribunal in Zurich found Elmer guilty later that year of violating Swiss bank secrecy laws by leaking confidential bank data to Swiss tax authorities, as well as of attempts to coerce and threaten Julius Baer officials.

In 2015 he again faced a tribunal in Zurich in a second case, this time in relation to allegations he’d broken bank secrecy laws when he’d leaked data from Julius Baer to WikiLeaks in 2008 and allegations that he’d forged documents; he was found guilty of both.

The Zurich Court of Appeal overturned the lower court’s findings in respect of bank secrecy in 2016. Appealing the Court of Appeal’s verdict, Swiss prosecutors expressed concerns that excluding those connected to Swiss banks from the reach of Swiss bank secrecy laws would affect the ‘substance’ of the laws.

Benedikt Maurenbrecher is Vice-Chair of the IBA Banking Law Committee and a partner at Homburger. ‘In our opinion, the decision doesn’t constitute an eroding of bank secrecy, as the contractual obligation [that banks have] remains in place,’ he says. ‘It’s a tweaking of the case law, confirming that the protection afforded to banking secrecy by criminal law relates solely to banking relationships maintained in Switzerland. But confidentiality remains a key priority of Swiss banks and financial institutions, irrespective of whether the account relationship is maintained in Switzerland or abroad.’

As well as the implications for whistleblowing, there may be some impact on the use of offshore accounts by Swiss banks. Lembo notes that ‘as it appears that such accounts open with foreign banks might not be covered by the banking secrecy, Swiss banks might be tempted to advise their clients to keep their assets on accounts open with banking establishments with a seat in Switzerland, in order to ensure that their relationship will be subject to banking secrecy.’

Alexander Troller, partner at Swiss law firm Lalive, believes that despite this case, ‘denouncing questionable banking practices remains indeed by no means an easy road’, noting that Elmer’s acquittal came only after years of proceedings, during which he spent more than seven months in prison. ‘Needless to say that he has also been the target of strong criticism in the media,’ adds Troller.