Follow the Money - From St.Moritz to Singapore
Anton Keller, Geneva

Built on the unique appreciation and goodwill the French kings had developed over centuries for the lives and treasures of Swiss mercenaries, Hans-Konrad Hottinger of Zurich started in Paris in 1786 what, seven generations later, is still a family-owned, discreet wealth-management enterprise in the service of sophisticated clients.

Today, the pillars of society and the economy, the inherently and the newly rich are still looking forward to open accounts with Swiss bankers in Zurich, St.Moritz, Singapore, etc. For both foreign friends of Heidiland and concerned Swiss citizens, the question is whether this obliging heritage is still in safe hands, whether this unique trust, awe - and the premium service charges that go with it - are still justified.

“In most cases no longer!” answered the American Iconoclast Philip Wainwright, adding: “But don’t despair either, for while the Swiss have a penchant for near-perfection of mediocrity, the next generation of Swiss bankers may again be able and willing to play hardball when needed, to effectively stand up for their clients and not to sell them out, and thus again become successful because and not despite of themselves.”

The Wall Street Journal’s Allan Otten gave the alert back in 1982, saying that “A change in attitude is taking place here that makes Switzerland a less attractive center than it used to be.” Deploring Switzerland’s adoption of “Lex Americana,” he and others have “been trying to alert the Swiss to the American regulatory bureaucracy’s penchant for growing real problems if given fertile ground.”

Since then, it has only gotten worse. Swiss laws and codes have been focused less on investors’ legitimate needs than on what some short-sighted bureaucrats here and there have felt comfortable with. Mostly “under foreign and especially U.S. pressure,” foreign agendas were thus accommodated, undermining Switzerland’s position in the global financial market. Gone are the days when demand for Swiss banking services was such that foreign clients could bring in more money only with an annual negative interest penalty of 10%.

What produced the “Swiss Banking Miracle”--and what could bring it back?

Take Charles Pictet-de Rochemont’s public-service record. The gratitude of the Swiss people and government is written in stone at his statue in front of the City Hall of Geneva (in 1814/5 he negotiated Geneva’s accession to Switzerland, obtained universal recognition for Switzerland’s permanent armed neutrality, and contributed to the foundation of Europe’s industrialization).

Paul Pictet (another outstanding member of the family, which has served discerning banking clients since 1805), took the fight to preserve treaty rights concerning Geneva’s “zones franches” in 1923 to the Swiss people and won, despite the government’s sell out to France.

Jacques Darier (of the 1796-founded private bank bearing his family name), while visiting his clients in Paris after World War II, was followed by French taxmen and arrested to compel him to inform on his clients. At the commissariat, rather than betraying his clients, he grabbed and swallowed the paper slip that the police officer had found on him listing their telephone numbers.

After Francois Mitterrand’s election as French president in 1981, Pierre Darier, with Charles and Pierre Pictet, effectively neutralized the French government’s fiscal attacks on their clients, persuading the Swiss Parliament to reject as “diplomatic treason” what the Swiss Bankers’ Association and the Swiss Government had already granted to the French socialists.

The Geneva Stock Exchange followed up with imaginative countermeasures directed against bureaucratic lawmaking by the OECD, U.N. and EU. But that also caught the ire of colleagues who, single-mindedly, eyed the U.S. market. They ignored the lessons of the World War II-era dormant-accounts disaster, snubbing and free-loading on the pro-market, pro-sovereignty and pro-privacy efforts that had derailed the OECD’s INTERFIPOL convention, its truly harmful “Harmful Tax Competition” initiative and the EU’s tax-data-exchange program.

Indeed, these principled stands have proved the exception rather than the rule for over 50 years in Switzerland. Over the decades, in a misguided attempt to curry favor with tax authorities in the U.S. and Europe, Swiss bankers have acceded to the adoption of U.S. insider-trading laws, money-laundering and anti-corruption rules, and IRS Qualified Intermediary regulations, and most recently to breaches of privacy and liberties on purported antiterrorism concerns. All of these short-sighted measures could not fail to degrade the investment climate to the point where Switzerland is now threatened by a macroeconomic tailspin. After September 11, 2001, the compliance mentality became nigh-universal, paralyzing and asphyxiating the remaining productive forces, with the compliance departments often the only growth shows in town.

But it also offered a renewal opportunity, a dignified path with a distinct future appreciably away from all foreign and home-made obstacles to legitimate market opportunities. For those with a corresponding public service-oriented vision focusing on both the enterprising responsible citizen and the common good, there always was and will be a bright future--if they are capable and willing to admit past errors as preconditions for not repeating but correcting them.

Swiss bankers can start by regaining the lost wisdom of the Pictets and the Dariers; they will only thrive if they can see the necessity of acting on behalf of the ever-growing number of individual clients here and there with legitimate surplus earnings, not against them. These clients don’t need bankers turned agents of the state, but competent and trustworthy allies against an increasingly overbearing state bureaucracy.

Built on the unique appreciation and goodwill the French kings had developed over centuries for the lives and treasures of Swiss mercenaries, Hans Konrad Hottinger of Zurich started in Paris in 1786 what, seven generations later, is still a family-owned discrete wealth management enterprise in the service of sophisticated clients.

Today, the pillars of society and the economy, the inherently and the newly rich here and there, are still looking forward to open accounts with Swiss bankers in Zurich, St.Moritz, Singapore, etc. For many observers, foreign friends of Heidyland and concerned Swiss citizens, the question is whether this obligeing heritage is still in safe and reliable hands, whether this unique trust, awe and the premium service charges that go with it, are still justified.

"In most cases no longer!" answered that knowledgable American lawyer Philip Wainwright, adding:"But don’t dispair either, for the Swiss, typically, have a penchant towards the most successful long-term formula, i.e. near-perfection of mediocrity. So chances are, the next generation of Swiss bankers may have learned to play hardball, too and thus again become successful because and not despite of themselves."

Other seasoned observers, like W.L.Luetkens of the Financial Times, and Gary Putka and Allan Otten of the Wall Street Journal have long ago made up their minds on "The Secrets of Bank Secrecy" (FT, December 20, 1984).  They gave the alert already then, saying that "Swiss Banking Secrecy Isn’t All It Used to Be, As Recent Cases Show" (WSJ, June 25, 1986), "A change in attitude is taking place here that makes Switzerland a less attractive center than it used to be" (in "Swiss Banking Haven Losing Luster", WSJ, April 27, 1982) and, on "Lex Americana?" (WSJ, March 26, 1985), "We’ve been trying to alert the Swiss to the American regulatory bureaucracy’s penchant for growing real problems if given fertile ground" (WSJ, March 24, 1985).

And Seth Lipsky hammered in the famous nail: "The Swiss Investors Protect[ion] Association, most assiduously, has been arguing that the government in Bern will jeopardize a business climate that has served the country well - even spectactularly – for generations. It’s easy to understand its worries. Let the American regulators get a foot in the door on insider trading and they’ll jump in with both feet on antitrust cases. Soon there’ll be a stampede on tax cases, and before you know it, there won’t be all that much difference between Switzerland and America. The theorists will call that a ‘level playing field.’ But the market may start to wonder why it needs to do business in Switzerland at all." (in: "A Swiss Mistake", WSJ, February 22, 1985).

That, nota bene, was some 20 year ago. Since then, it only got worse, for replying with softball to hardball-playing friends only increased their contempt and wetted their appetite for more scalps.  What Luetkens had then called the "international legend" of Swiss bank secrecy has since essentially disappeared for all but the blue-eyed - behind such smokescreens as: "the wealthy private individual, important though he is, is steadily losing importance. The growth of the business of finance is coming from corporate and other institutional investors."  Swiss laws and codes have thus been adopted, oriented less towards the foreign investors' legitimate needs than to what some limited-vision bureaucrats here and there have felt comfortable with. Also "often under foreign and especially U.S. pressure", foreign agendas were thus accommodated which have sought to undermine Switzerland's gold-covered currency and position in the global financial market.  All this hasn't exactly reassured Switzerland's traditional clients, with Arabs, Russians and others starting to ask embarrassing questions or simply "voting with their feet".

At the height of the Swiss banking success story, the demand for its services was such that foreign clients could bring in more money only with a negative interest penalty of 10% pa! However, what goes up eventually will come down - often for similar oppostite reasons, action or inactions.  Take Charles Pictet-de Rochemont’s public service record.  The gratitude of the Swiss people and government is written in stone at his statute in front of the City Hall of Geneva (in 1814/5 he negociated Geneva’s accession to Switzerland, obtained universal recognition for Switzerland’s permanent armed neutrality, and contributed to the foundation of Europe's industrialization).

Paul Pictet (another outstanding member of the family who serves discerning banking clients since 1805), took the fight to preserve treaty rights concerning Geneva’s "zones franches" in 1923 to the Swiss people and won, despite the Government’s planned sell out to France.

Jacques Darier (of the 1796-founded private bank bearing his family name), after the 2nd World War visited his clients in Paris, was followed by French taxmen and arrested in order to inform on his clients. At the commissariat, rather than betraying his clients, he grabbed and swallowed the paper slip listing their telephone numbers which the police officer had found on him.

Pierre Darier, Charles Pictet and Pierre Pictet, after Mitterrand’s victory, got their professional groupement to effectively oppose the French government’s fiscal designs hurting their clients. Even though the Swiss Bankers’ Association and the Swiss Government had already smiled to the French socialists with another sell-out - that one rejected by Parliament as "diplomatic treason".

Those who successfully lead this fight found themselves entrusted with the mandate by the Geneva Stock Exchange to explore and reactivate the potential of Geneva’s neighbouring forgotten "zones franches". And, generally, to fight off not only other French but also American, OECD and EU fiscal, administrative and other economic aberrations. But that caught the ire of both officials in Berne and bankers who have been single-mindedly fixated on the US market.  They preferred high-profile PR measures, ignoring the lessons of the dormant accounts disaster while snubbing and free-loading on low-cost political guerrilla operations. Though, essentially, the latter derailed the OECD’s INTERFIPOL convention (.../billiard.htm), its truly harmful "Harmful Tax Competition" initiative and the EU’s tax data exchange program.

In fact, the decline of the Swiss banking culture dates back further, even before the 1951 introduction of the menace of criminal persecution of foreign critics of Swiss banks (art.266bis Penal Code) which, in an environment of overflowing incomes deprived them of healthy critics and necessary challenges.

A further markstone was: former Swiss Attorney General’s ill-considered – and hugely damaging, for successfully applied - legal advice to the US SEC of 1981 for breaking Swiss bank secrecy without risk to the bank concerned by creating a state of necessity with unsupportable contempt-of-court fines, prison sentences, licence withdrawals, etc. (Erich Reyhl, "Kuhhandel: Ex-Bundesanwalt Walder arbeitete für die USA", Basler Zeitung, 19.Januar 1989: .../walderbsi.htm#Kuhhandel).

Symptomatically, the myopic, unprincipled and self-damaging Swiss cave-ins to US pressures run from insider laws, money-laundering and anti-corruption rules, and IRS Qualified Intermediary regulations (.../QIcomment.htm), to anti-terrorism breaches of privacy and liberties and to related lex americana outgrowths (.../lexamericana.htm). What's next: anti-outsourcing drives? All this could not fail to degrade the investment climate. The compliance mentality became generalized, particularly after 9/11, paralysing and asphyxiating the remaining productive forces, with the compliance departments often the only growth shows in town.

But it also offered a renewal opportunity, a dignified path with a distinct future appreciably away from all lex americana aberrations. In favor of the ever-growing number of individual clients here and there with legitimate surplus earnings.  Clients who needed no bankers-turned state agents, but competent and trustworthy allies against an increasingly over-bearing state bureaucracy.

For those with a corresponding public service-oriented vision focussing on both the enterprising responsible citizen and the common good, there always was and will be a bright future - if they are capable and willing to admit past errors as preconditions for not repeating but correcting them. And to act in line with their claims, e.g. by seeing to it that art.266bis CP will no longer isolate them from genuine market signals, that free-loading and lex americana are out, and that Swiss practice will again honor all foreigner treaty rights (.../commercetreaties.htm ¦ .../augas.htm), including those concerning the residents of Geneva’s "zones franches" (.../zonesfranches.htm). Thus, the place to begin drawing inspiration from is their own origin and past experiences. And the fashion of the day may then again appear what it often is, namely an unhelpful, blinding and even harmful Piper of Hamelin.