The Lugano-based bank faces damage claims exceeding 800 million dollars. Experts point to avoidable risks entailed in dragged-out proceedings and expect particularly the Federal Banking Commission FBC to intervene.

Is the management of Banca della Svizzera Italiana acting in line with Switzerland's obliging banking traditions?  Is BSI a reliable and safe partner for both its clients and its shareholders?  Does the Federal Banking Commission correctly carry out its task of controlling the activity of BSI?  And is the Swiss taxpayer thus spared the burden of civil responsibility for damages made even bigger by a deficient official banking surveillance?

Unfortunately, as by-standers, we cannot at present answer affirmatively to any one of these questions.  We only see signs that the BSI finds itself at the center of a growing controversy.  Mismanagement, neglect of fiduciary duties and abuse of confidence are some of the charges which damaged clients have levelled against this venerable Ticinese bank - over the past years and mostly out of the public eye.  The respective court cases evolve in the protective shadow of what has all the hallmarks of conveniently and artificially drawn-out civil proceedings.  In Geneva, the investigating judge Christine Junod has been looking, since 1999, at the still unexplained and hugely damaging "disappearance" of assets which were placed in BSI custody before 1991.  And she is still pondering whether to bring criminal charges against some by-now former BSI officials.  Yet, for reasons of state, she may never do that.  For the "disappeared" assets include super-sensitive computer tapes on high-resolution airial mapping and geological surveys based on technologies which proved their value in recent wars.

Still, the Federal Banking Commission continues to let the public believe everything to be in line with the law, strictly speaking.  Regardless of long-standing claims to the contrary of which it has been informed at least since 1998.  And regardless of recent bad experiences with colorblind faith in formalistic approaches which charaterize the surveillance practices underlying the Arthur Andersen, ENRON, Parmalat, Worldcom, and similar cases. Thus, not only could the taxpayer be called upon to foot some of the damage bills, but some of the damage claims are so high that BSI, in the event, may not survive without massive support from its shareholders.

According to documents at hand, BSI is currently fighting off damage claims totalling over one billion Swiss francs in at least five civil proceedings. The open proceedings are in Lugano, Geneva, Nassau (Bahamas), Montevideo (Uruguay) and in Rio de Janeiro (Brazil). The Federal Banking Commission and, more recently, even the Federal Council have again been alerted to these cases.  Referring to the BSI cases in particular, a federal lawmaker, Nationalrat Jean Spielmann, broke the story with his parliamentary intervention 03.1085 of 19 June 2003 on the adequacy of Swiss banking surveillance.  Specifically, Spielmann has raised the following questions:

"1.  Is it true that Banca della Svizzera Italiana (BSI) has breached its statutory duty of being run by an irreproachable management, for several years and without being discovered as such, as evidenced in several court proceedings?"

"1.  The Federal Council and the FBC have no knowledge of cases where a court has found the Banca della Svizzera Italiana to have violated its obligation to conduct its affairs in an irreproachable manner.  The FBC is informed that the bank has been engaged for years in civil litigations involving a person residing in the Canton of Geneva, as well as firms controlled by that person."

"2.  Is it true that BSI has changed hands several times without, in its official statements, having divulged self-incurred liabilities amounting to several hundred million Swiss francs, and that – similar to the case of dormant accounts dating from the time of the 2^nd world war – BSI has pursued a practice of geriatric problem-solving, rather than a prompt and extra-judicial damage settlement corresponding to the reputation of the Swiss financial market?"

"2.  Neither the Federal Council nor the Federal Banking Commission is aware of cases where BSI unduly failed to mention 'self-incurred liabilities' in the reports it submitted on the occasion of ownership changes.  It is neither the duty of the FBC, nor is it part of its competences, to prescribe to the institutions under its control how to resolve civil litigations."

"3.  Is it true that in the BSI case, too the Federal Banking Commission has begun licence examinations and corrective measures not on the basis of examination of documents in its possession, but only after several years of neglect of serious indications of wrongdoings, and under the pressure of advanced civil and criminal court procedures in Switzerland and abroad as well as under the threat of U.S. Patriot Act sanctions?"

"3.  The FBC fulfills its mandate according to the law and in line with its best knowledge and a clear conscience.  Receiving complaints from clients of individual institutes constitutes a part of its work.  The FBC examines such complaints with an eye on violations of surveillance rules and regulations.  In the case at hand, no facts have been establised which fall into the purview of banking surveillance.  Moreover, reference is to be made to the FBC's official secrecy obligations."

Iconoclast Comments

As the law and the available documents suggest, the Federal Banking Commission has or should indeed have been aware of such generally harmful practices which Spielmann rightly denounced as geriatric problem-solving.  Having for years observed at close range, and having been formally alerted to what's going on at BSI, there can indeed be no escaping or hiding from the question: Why did the FBC not intervene so far more effectively?  Is it because the cases which have come to light are considered to be too small (involving "only" already damage-weakened clients)?  Or, on the contrary, because some of these BSI cases forebode even bigger problems ahead, similar to the proverbial tip of the iceberg?  Have foreign regulatory authorities, notably the U.S. Securities and Exchange Commission, not - yet - shown an interest in the matter?  The cases of the Nazi gold, those of the dormant accounts from the Second World War period, those evolving under the heading of apartheid claims, those involving what's called "politically exposed persons", and others are symptomatic - and not encouraging at that.  They seem to suggest that currently the Federal Banking Commission's strength lies less in its independence from foreign influences (www.solami.com/swissbanks.htm#STAMM), less in its foresight, and less in its sensitivities to and perception of macro-political & economic realities, aberrations and opportunities (.../swift.htm ¦ .../hedge.htm).  And this at the very moment when the global economic and political environment visibly degenerates into non-productive, self-rightuous and increasinly parasitic bureaucratic jungles, where the increasingly over-bearing, paralyzing and harmful compliance mode becomes the Leitmotiv of formally sovereign nations and citizens (.../oecdmandate.htm).  When entrepreneurship, courage and self-responsibility, when imagination, heeding of time-tested principles and liberated citizens are more then ever called for (.../costbenefit.htm).  And when, instead of hiding behind formalistic excuses for overlooking malpractices, the Federal Banking Commission could and should be in the vanguard of cleaning houses where and when necessary (.../swissbanks.htm#54th).  Moreover, there is work to be done for giving back to our bankers the conditions to protect and serve the homo oeconomicus from all over the world with competence, reliability and trustworthiness (.../salt.htm).  Instead of pushing them - under whatever fashionable pretext - to become agents even of foreign fiscal authorities.  Which, in the end, merely amounts to fooling ourselves and others with unhelpful, wasteful and even counter-productive activism, i.e. something even worse than E.F.Schumacher's proverbial "rearranging of the desk chairs on the Titanic."