Banking secrecy and money laundering
| Pages | 376-382 |
| Published date | 01 October 2004 |
| DOI | https://doi.org/10.1108/13685200410810074 |
| Date | 01 October 2004 |
| Author | He Ping |
| Subject Matter | Accounting & finance |
Journal of Money Laundering Control Ð Vol. 7 No. 4
Banking Secrecy and Money Laundering
He Ping
ORIGINS AND FOUNDATIONS OF
BANKING SECRECY
Although the meaning of banking secrecy is widely
understood, there is no explicit de®nition at inter-
national level. In respect of a ®nancial institution,
banking secrecy is a professional obligation and a
right, which means ®nancial institutions assume an
obligation that they shall not, on the one hand,
expose a customer's ®nancial information acquired
in the course of business, and on the other hand, ®nan-
cial institutions have the right to resist a third party's
enquiries in order to protect the customer's interests.
In respect of a customer, banking secrecy is a privilege,
which means that the customer's ®nancial information
should be protected legally and should not be invaded
by other parties.
The ®rst eective banking secrecy statute was
created in Switzerland and this case resulted from a
particular episode in history. In the 1930s, the Nazi
government prohibited a German Jew's movement
of assets out of Germany, in order to seize those
assets. Because of the geographic proximity and
Switzerland's then unocial policy of con®dentiality
over banking deposits and transactions, Swiss banks
were chosen for Jews to transfer their assets. In 1933,
the Nazi government enacted a decree, which stated,
`Any German national who, deliberately or other-
wise, activated by a base sel®shness or any other vile
motive, has amassed his wealth abroad or left capital
outside the country, shall be punished by death.'
One year after the law's enactment, three German
Jews were executed. These executions, as well as
pressure put on Swiss Bank employees for information
by German Gestapo agents, persuaded the Swiss
government to codify its practice of maintaining the
con®dentiality of its customers' accounts. Thus the
®rst banking secrecy law came into being.
1
At present, there are many reasons for a desire for
such secrecy. According to one commentator:
`Secrecy laws have served to shield persons from
®nancial loss in countries plagued by instability,
weak currency and run-away in¯ation rate. Secrecy
laws have also served to protect wealthy individuals
or those who promote unpopular political causes by
allowing them to hide their assets to avoid the threat
of kidnapping or persecution.'
2
In addition, banking
secrecy can prevent commercial competitors from
trying to discover ®nancial information about their
adversaries. And parents and grandparents can also
make use of bank secrecy to avoid their potential
heirs knowing about their inheritance in advance.
Although the notion of banking secrecy is accepted
in most countries, the justi®cations dier widely. One
view regards banking secrecy as a part of individual
privacy right.
3
It is a fact that banking secrecy is closely
related to individual privacy. An individual's banking
information directly re¯ects that individual's econ-
omic situations. Stocks, insurance, retirement funds,
loans and mortgages are all discoverable from ®nancial
records. Banking information also mirrors that indi-
vidual's personal interests. With access to banking
records, the books and publications and the material
items that the individual purchased all become visible.
Furthermore, banking information can re¯ect an indi-
vidual's political beliefs. With access to banking
records, it becomes clear which groups and associ-
ations the individual belongs to, and which political
party and causes the individual supports.
4
One point of view considers banking con®dential-
ity `contractual in nature'.
5
A ®nancial institution, as
one party to the transaction, should be loyal to cus-
tomers in terms of the principle of good faith and
should not disclose customers' ®nancial information
to others.
Another viewpoint deems bank secrecy to be pro-
fessional secrecy. Some commentators have attempted
to justify banking secrecy laws by analogy with the
common law privileges of lawyer-client or doctor-
patient.
6
Clients can disclose all information to law-
yers without worrying about being denounced. In
order to prescribe a suitable remedy, doctors should
be told the whole truth about an illness. The relation-
ship between ®nancial institutions and customers is the
same.
Due to the dierent justi®cations for banking
secrecy, its legal protection varies from country to
country. In some countries, there are no speci®c
statutory provisions that impose a con®dentiality obli-
gation on banks or other ®nancial institutions. The
only obligation concerning secrecy is an assumed
one, based on contract law, such as in the Nether-
lands.
7
The ®nancial institution has a contractual
Page 376
Journalof Money Laundering Control
Vol.7, No. 4, 2004, pp. 376± 382
#HenryStewart Publications
ISSN1368-5201
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