Bank secrecy is a practice that prevents the financial institution from revealing the information of the customers’ accounts. The Swiss Banking Act of 1934 originally introduced the legal principle. It was introduced after a public scandal took place in France. M. P. Fabien revealed that several rich French people are trying to avoid tax by keeping their money in the Bank of Switzerland. Fabien criticized them because Switzerland is lending the money of these people to Germany. From that time onwards, many people started to criticize Switzerland for encouraging illegal activities such as laundering, embezzlement of the money, and etc.
The purpose of inventing bank secrecy act is to enforce the security of the bank account holders. A financial institution that practices the legal principle will not share information with the tax authorities, government from foreign country, and the local government. However, if the Swiss judge demands the information, the bank has to reveal it.
Some governments criticize it as contributing to the underground criminal activity. There are more criticisms on bank secrecy after the September 11 event occurred. In bank secrecy, the bank cannot reveal the account information of a customer unless someone filed a complaint. When a third party requests for the account information, the bank representative will use his discretion. Every staff that works at the bank must obey the legal principle. The legal principle will protect the client and not the bank.
The banking secrecy is based on two laws including civil law and banking law. In civil law, the financial institution must keep the client bank information as a secret and never reveal to anyone. In banking law, the banker will get fine or imprisonment if he violated the rule of bank secrecy and revealed the bank account information. In some countries such as Switzerland, the banks use numbered account to hide the identity of the client. In Switzerland, the bank must know the identity of the client. However, the bank is allowed to replace the name of the account holder with a number. Numbered accounts can be used on various types of bank accounts including checking account, deposit account, and etc. By using numbered account, only the bank knows the account holder’s identity. Since the name is shown as number to the public, no one will ever know the real identity of the account holder. The client can waive the bank secrecy if he doesn’t want this kind of protection. The bank has no absolute decision to waive the bank secrecy.
There are many reasons why people like secrecy. Secrecy can be used for bad and good reasons. One of the reasons that people use bank secrecy is to protect their accounts from criminals. Criminals in certain countries are able to gain access to the bank information of the customers. Because of this risk, it is necessary that bank follow the bank secrecy principle to protect customers from all kinds of criminals such as identity thieves. Besides, secrecy can also protect the clients from spongers. Examples of spongers that are likely to find out about the bank information include beggars, salesman and etc.