Banking by the Numbers

To innocents, from abroad and elsewhere, Zurich's Bahnhofstrasse looks like the main street in a prosperous, dull Swiss city. Its jewelry, watch and fur stores compare favorably with those on New York's Fifth Avenue and London's Old Bond Street. But that's where the comparison ends. Bahnhofstrasse is the world's third largest financial center, after Wall Street and the City in London. One square meter of ground is now worth over $9000. Behind the dignified, Victorian façades of the dark-gray bank buildings, several billion dollars' worth of assets, and of mysteries, are hidden. It might be easier to get hold of atomic secrets at the Pentagon than to ferret out the secrets inside a Swiss bank.

The banks display gold coins, gold bars and exotic bank notes in their street-level windows. During the great gold rush in March, when the price of an ounce of gold shot up to $44.36, compared with the official price of $35, trading in gold was temporarily discontinued and all the gold suddenly disappeared from the window displays. In April, the leading Swiss banks formed their own joint gold pool; since then, the Zurich gold market has become a serious rival to London's gold market, until then responsible for 70 percent of the world's gold trade.

Now gold coins are on display again in the Swiss banks' windows, and so are Afghanistan afghani, Cape Verde Islands escudos, Faroe Islands crowns; Mauritius rupees are tastefully mounted on colored panels, exuding an air of adventure. Some passers-by look at the bank notes as though they were painted by Gauguin or Van Gogh. The gold coins are displayed on black-velvet pads--napoleons, 20-franc louis d'or with the heads of various French kings (many since informally beheaded), Swiss vreneli, Dutch tientje, English sovereigns; in the Middle East, old sovereigns fetch a higher price than the new ones with the Queen's head--out there, a woman's head is supposed to bring bad luck, and maybe it does. I've seen American tourists showing their kids American ten-dollar eagles that the children never saw back home.

Also displayed are closed-circuit-television screens showing the latest stock-market quotations. Inconspicuous men, who perhaps keep a million (francs or dollars) in the bank, hardly look at the figures as they walk by. They just did a little coupon clipping before lunch and don't worry about the market. Capitalists feel happy in this atmosphere of uninhibited live and let live and solid respectability.

Many Americans distrust banks. "No wonder nobody likes bankers," writes Theodore Levitt in Business and the Plural Society. The late Wilhelm Röpke, the great liberal economist, said, "Bankers have rarely luxuriated in the sun of popular favor." Except in Switzerland. Many Swiss feel affection for their banks, which helped make their country (no coal, no oil, no minerals, no natural gold deposits, but plenty of gold) an island of stability with the highest living standard in western Europe. The Swiss currency, the franc, is covered (continued on page 90)Banking by the Numbers(continued from page 79) 140 percent by gold. The Swiss National Bank could replace its entire bank-note circulation with gold coins and still have enough gold left for its short-term liabilities. Switzerland has more savings books than inhabitants. In the land of John Calvin and Ulrich Zwingli, savings are a must; poverty offends God. Money may be the root of all evil--but not in Switzerland. A Zurich proverb says, "God rules in heaven and money on earth."

Going to the bank in Zurich is a little like going to church in Rome or to the Folies-Bergère in Paris, or to a coffeehouse in Greenwich Village. Businessmen go there to gossip, young people have dates "in the bank." The bank is bazaar--club--gossip place. Women pick up some change before going shopping. Personal checks are unpopular in Switzerland. I know a big banker who recently took $3000 in greenbacks along when he went to America.

American Internal Revenue agents who see Swiss banks in their nightmares would be disappointed. A big Swiss bank looks as respectable as an American Legion post. Don't expect a furtive-looking Texan to shove $1,000,000 to the teller, whispering the number of his secret account. The furtive-looking character who just walked in through a side entrance or through a neighboring building was a respected Swiss citizen acting for somebody else. Swiss bankers have recently been accused of pulling the financial strings behind the international scene, of helping foreigners make shady deals. Specifically, they were said to attack the pound sterling, to attract "hot money" and illicit profits, to cover up tax evasions, to operate in proxy fights against the management of American corporations, to enable Communists to gain control of American key industries. Insult was added to injury when George Brown, then the British Secretary of State for Economic Affairs, coined the expression "the gnomes of Zurich." (The epithet was not used last year when leading Swiss bankers lent Britain the equivalent of $104,000,000 to help steady the shaky British pound. "They never call us gnomes when we send money out of Switzerland," a Zurich banker says sarcastically.)

Switzerland has more banks than dentists. This small country, twice the size of Vermont, has 470 banks, with 4300 branch offices--one for every 1300 inhabitants (compared with one for every 6300 people in America). Theoretically, anybody with 50,000 francs ($1200) can open a bank in Zurich. Swiss bankers are distressed about some recently opened, foreign-owned banks with outlandish names that are said to be controlled by people who once operated in the financial free-lance districts of Beirut and Tangier and have neither the traditions nor the ethics of reputable Swiss bankers. One such enterprise advertised the slogan, "Switzerland, Land of Security and Secrecy." There has even been a Soviet bank in Zurich since last October. Voskod Handelsbank (named after the Sputnik "Sunrise") finances trade with the Communist countries, except China, has Russian and Swiss directors, is capitalized at 10,000,000 Swiss francs. The correspondence is in English, but the bookkeeper is a Russian. The Swiss, who are violently anti-Soviet, are concerned about the new Soviet banking net in western Europe (there are also Soviet banks in London, Paris and Beirut) that may be used to finance local Communist Parties.

Obviously, there are banks and banks in Switzerland. A big bank in Bahnhofstrasse may turn down an account that is snapped up by the ambitious manager of the bank's branch office in a small town. No respectable Swiss bank accepts money from a known gangster; but suppose the gangster hands over the million to a Swiss citizen, for a nice fee, and the Swiss deposits it in his own name? "Some foreign-owned shyster banks here will accept accounts that we wouldn't touch with a flagpole," Hans J. Bar, of the 78-year-old, respected private bank Julius Bär & Co., told me.

Swiss banks are not large, by American standards. The Big Three, internationally well-known commercial banks--the Swiss Bank Corporation, the Swiss Credit Bank and the Union Bank of Switzerland--each have assets of about three billion dollars and certainly don't rank among the top 30 in the international banking hierarchy. (The Union Bank gained greatly after its recent take-over of Interhandel.) Swiss banks are small, compared with the Bank of America or the Chase Manhattan Bank, but they have prestige far beyond their resources. Their combined total resources of about 25 billion dollars are almost twice the gross annual product of Switzerland. (America's bank deposits are about half the annual U. S. gross national product.) Not included in this figure are the enormous securities portfolios controlled by these banks.

Swiss banks are almost unlimited in their functions. They accept deposits, grant commercial loans, carry out all stock-market transactions, acting as their own brokers, are custodians for securities, lease safe-deposit boxes, establish trust funds, buy gold and foreign exchange, underwrite stocks and bonds and run the large Swiss investment trusts. Switzerland is the biggest single investor in the capital markets of western Europe and the United States. (Swiss banks are believed to account for about 15 percent of Wall Street turnover.) Yet in this citadel of financial conservatism, banks have taken long chances and suffered large losses in the past 50 years. The Zurich newspaper Die Tat reported that the losses in the past 50 years almost offset the profits. Swiss banks lost $250,000,000 in Germany in each World War. They recouped their losses by being efficient, reliable, flexible and extremely discreet.

In addition to the Big Three, there are the People's Bank of Switzerland and the Bank Leu & Company, founded in 1755, that also belong to the big banks; the cantonal (or state) banks; local banks, savings banks, loan associations, other banks and private banks. The oldest of them, Rahn & Bodmer in Zurich, was founded in 1750. The 30 most important members of the Private Bankers' Association are in Geneva, Basel and Zurich. They are not incorporated, not required to publish balance sheets. Each of the largest houses (Pictet, Lombard, Hentsch and Bär) controls an estimated $500,000,000 through the securities portfolios of their investment accounts.

Why do so many people from everywhere take their money to Switzerland, often at great risk and taking heavy losses? Because it's safe and secret there. The banking floor of a Swiss bank exudes an atmosphere of subdued discretion and cultivated secrecy. High wooden partitions are mounted on the counters, with narrow windows for the tellers. There is ample space between the windows. Standing in front of the teller, the customer cannot be overheard by people on both sides. A Swiss banking floor has a muting effect on people's vocal cords, like a dentist's waiting room; everybody talks softly. Wooden benches, comfortable desks, wooden racks for newspapers and coat hangers make you relax and feel at home. Elderly attendants in gray uniforms, looking like everybody's friends, walk around unobtrusively, watching everybody. To post an armed guard in this atmosphere of financial finesse would be unthinkable; bank robberies are rare in Switzerland, a small country with efficient police and border guards; in the past, criminals have found it almost impossible to get away with their loot.

The banking floor radiates comfort and confidence, inviting you to leave your worries--and your money--there. The cashiers are gray-haired, serenelooking paterfamilias types; women are rarely employed as tellers in the big banks. (The Swiss feel that a woman's face does not exactly inspire financial confidence.) Once in a while, people with a haunted look in their eyes go to the teller's window. The other morning, a man stepped to the foreign-exchange window of a very big bank in Zurich and surreptitiously put down a thick wad of Romanian lei. Once he glanced apprehensively over his shoulder. In (continued on page 94)Banking by the Numbers(continued from page 90) Romania, the unofficial export of bank notes is a crime. The cashier was businesslike; in Switzerland, there is free trade in gold and all currencies--no controls, no one is afraid. He counted the lei and handed the customer a slip of paper and a large number of Swiss francs; no questions were asked. The customer took the francs to another window and bought gold coins, and minutes later he walked out, looking relieved. He had converted an unstable currency (at considerable loss) into the world's stablest commodity. In the free market of Zurich, the true rate of the Romanian lei is set by supply and demand, not by government regulation. Perhaps the man was a private citizen who had managed to get the money out of his country. Or perhaps he was a government emissary who needed gold to pay off an agent for some sinister purpose. Who knows? A Swiss bank is full of unanswered questions.

It is the mixture of secretiveness and no questions asked that gives a Swiss bank its particular ambiance. In an American bank, everything is wide open for inspection; the customer should see everything. The Swiss are different. "If we would build a large glass structure, as the Manufacturers Trust people did on New York's Fifth Avenue, we would lose half our accounts in six months," a prominent Swiss banker says. "No one here wants to be seen going into the safe." The banker works in an office with double doors, one of them padded. The doors are always closed. He couldn't conduct financial negotiations in an office with the doors wide open, as in America. His office is on the second floor, removed from the vulgar sight of bank notes and the banal sound of adding machines. Wood-paneled walls, wall-to-wall carpets, indirect lights, abstract paintings. Not a word will ever drift out of the soundproof office.

Occasionally, these high priests of caution become victims of fraud. Years ago, a big bank in western Switzerland paid out almost 5500,000 to a man who presented impeccable documents and a perfect bill of lading concerning a shipment of copper from Chile to Genoa on a ship called Peter Pan. All the seals and stamps were there and the customer's passport was properly issued and visaed. Only one thing was wrong: The forms had been stolen. The Peter Pan had never existed. Owing to the "banking secret," the banker had been unable to find out everything about the crook.

The Swiss banking secret is the solid foundation of all Swiss banks--and a source of mystification to the world at large. Essentially, it means that no Swiss bank will give any information on a client's account or transactions--not even to the Swiss police or to the Swiss or any foreign tax authorities. ("When in doubt, keep your mouth shut," is the Swiss bankers' dogma.) The banking secret is not a Swiss invention. In the 16th Century, the statutes of the Bank of St. Ambrosius in Milan stipulated that it was a punishable offense for anyone in the bank to give information about the affairs of the clients to outsiders, unless authorized by the client to do so. Bankers were expected to observe secrecy as strictly as priests, physicians, lawyers and midwives. (A Swiss banker I know says, "I'm the financial priest of my clients.")

When Louis XIV revoked the Edict of Nantes in 1685, thousands of Huguenots escaped from France into Switzerland. Some set up private banks there, keeping complete secrecy about the affairs of their French clients. After the French Revolution in 1789, a second wave of French refugees arrived in Switzerland. In 1815, the Congress of Vienna recognized the "perpetual neutrality" of Switzerland, which became Europe's classic haven for men--and for money. The Swiss admit that the borderline between neutrality and expediency is sometimes rather thin. During the last War, Swiss banks granted commercial loans to Germany, "investing in the hope of not being attacked by Hitler." Most of the credits were lost. "A small nation has to learn the technique of making concessions," a Swiss banker says philosophically. The French say, "Point d'argent, point de Suisse." The Swiss will do nearly anything for money. So will a great many other people.

Switzerland has not been involved in an armed conflict since 1815. People who worried about revolutions, devaluations, fascism, communism and Nazism would deposit their money in Switzerland--discreetly. In Hitler Germany, it was said, "Money alone won't make you happy--unless it is in Switzerland." The Swiss banking secret reflects Switzerland's traditional belief in personal freedom and private property. To the Swiss, the private sphere is the inalienable right of man. (Many Americans, on the other hand, automatically associate secrecy with wrongdoing.)

"Protection of private affairs against snooping indiscretion is a vital condition of civil liberty," said Wilhelm Röpke. "The individual has a right to discretion. ... That part of our lives which we can keep private from the state is steadily shrinking; but our bank account belongs to that diminishing number, as surely as the illnesses we have had, or our love experiences." To the Englishman, his home is his castle; to the Swiss, his bank account is his secret. (In 1984, George Orwell showed that privacy and discretion are enemies of the totalitarian state.)

The Swiss find it inconceivable that a man would tell anybody how much he is worth. A Swiss might tell his friends about the women he has slept with, but never how much money he makes. The Swiss differentiate between privacy and secrecy. A robust Swiss banker told me, "What I do in the bathroom is private but not secret." The Swiss are willing to pay for secrecy. The anonymous "bearer shares" of the great Swiss industries, such as CIBA or Nestlé, are more expensive than the "name shares." The Swiss well remember that after Germany and other central-European states abolished the banking secret at the end of World War One, many depositors shifted their savings to Swiss banks. The Swiss passion for privacy explains the Swiss dislike for statistics; they feel that the price paid for complete statistics is too high. In a public referendum, the Swiss once rejected a measure calling for compulsory t.b. X rays and, instead, accepted a much less efficient anti-t.b. campaign.

In 1934, when refugees from Germany and Italy sought asylum in Switzerland and the governments of Hitler and Mussolini asked the Swiss for information on German and Italian bank accounts, the Swiss parliament enacted a new banking law. Article 47 (b) states:

Whoever intentionally in his capacity as an officer or employee of a bank ... violates his duty to observe silence or professional secrecy; or whoever induces or attempts to induce a person to commit such an offense, shall be fined not more than 20,000 francs, or shall be imprisoned for not longer than six months, or both. If the offender acted negligently, he shall be fined not more than 10,000 francs.

At the Union Bank, newly hired employees must sign a declaration that they will keep strictest secrecy about the transactions and clients of the bank. "Anything you're going to hear inside the bank is secret and must not be discussed outside, not even with your closest relatives ... and also after the termination of your employment." Besides, the Swiss Criminal Code (article 273) makes it a punishable offense to divulge anything to a foreign country to the disadvantage of the Swiss state. British revenue agents who went to Switzerland after World War Two trying to get information on British depositors were told to stay out. A Dutch tax official who bothered a Dutchman domiciled in Switzerland was arrested by the Swiss police and sent to jail. Years ago, several Israeli tax agents snooping around were expelled. According to recent rumors, Internal Revenue Service snoopers are said to have "attempted to induce" (continued on page 142)Banking by the Numbers(continued from page 94) Swiss bank employees to give them information about American depositors. Most Swiss bankers doubt that such rumors are true. They think the risks aren't worth it. "Theoretically, at least, an American IRS man who comes into a Swiss bank asking about a certain Mr. Smith might be arrested and there might be diplomatic complications," a Swiss banker says. It is known that the IRS pays money to informers on tax dodgers. No such attempt has been reported from Switzerland.

In America and England, the Swiss banking secret has been called "immoral," because it is said "to shield tax dodgers and criminals." Actually, the Swiss banking secret does not hold in a criminal case. Every Swiss bank must produce in court such records as are required "in due process of criminal and civil law." If the U. S. tax authorities file a suit against a taxpayer on suspicion of tax evasion, "in due process of law," a Swiss court may ask the bank for information--and the bank must supply it to the court. Several months ago, the manager of a big Swiss bank was informed by an American lawyer that one Mr. X., who had an account of $13,000 in the Swiss bank, had stolen the money. The lawyer asked the bank to return the money to the rightful owner; otherwise, he would hold the bank responsible. The bank regretfully informed the lawyer that it could give no information whatsoever--except under a court order. "It takes months to obtain a court order; and meanwhile, our client wanted 'his' money," the manager said. "We tried to stall him off. At last, the court order came. Eventually, the money was paid out to the lawful owner."

Only once were the Swiss almost forced to breach the sacred banking secret. In 1942, the U.S. Government asked them to block all German accounts in Switzerland to avoid the uncontrollable movement of enemy funds; the Swiss complied. The American Government had blocked all Swiss assets in the United States, though Switzerland was a neutral country. After the War, the Americans asked the Swiss to disclose the identity and the assets held by German depositors in Switzerland. When they refused to do so, the Americans threatened an embargo on the export of all raw materials to Switzerland. This would have immobilized many Swiss industries. Under pressure, the Swiss told their German-domiciled depositors that they could transfer their funds back to Germany (which most of them wouldn't do, since they had never declared these funds) or that one third of each account would be confiscated. The Swiss reported the German account holders to the Swiss Clearing Office. There was much bitter feeling on all sides. Eventually, an agreement was reached in Washington and ratified in Bern. The Swiss paid 250,000,000 francs (about $60,000,000) to the Allies, and the German government was ordered to indemnify its account holders.

The Swiss claim that most German account holders who were hurt were innocent anti-Nazi refugees. Few top Nazis took their funds to Switzerland; they preferred a "friendly" South American country. After the last war, the Swiss returned all Raubgut (loot) that could be traced to Swiss banks. They returned to France some looted French gold reserves. They recovered $9,000,000 that Göring had left there when he began to have second thoughts about the Thousand Year Reich. But suppose some Göring money is still there, in the name of a solid Swiss citizen? Nothing would prevent the Swiss from withdrawing some money and giving it to Göring's widow. The Swiss banking secret helps some people who deserve no help. It also saved the lives of other people. No one will ever know the exact details.

• • •

When Hitler took over Germany in 1933, everybody was required to repatriate all funds held abroad. The penalty for "monetary crimes" ranged from concentration camp to death. Gestapo agents bribed minor Swiss bank officials and, in some cases, received lists of customers living in Germany. There was an angry reaction in the Swiss press and, in 1934, the Swiss government made it a penal offense to give away unauthorized information about bank accounts. Still, the Gestapo continued its efforts in Switzerland. An agent would step into a Zurich bank and try to deposit a small sum of money "for the account of Herr So-and-so." If the cashier accepted the money (such accidents did happen), the Gestapo had proof that Herr So-and-so had a forbidden account there. A telephone call would be made to Germany and Herr So-and-so would be arrested and never seen again.

It got so bad that Swiss bank officials refused to talk to a customer from Germany who was "accompanied" by a German stranger. And they unhappily remember some letters they received from clients in Germany asking for money. "From the letter, it wasn't clear whether it had been written under coercion," a banker says. "What should we do? If we pretended we didn't have an account, we might save his life. But if the letter was genuine, the money might buy his freedom." In the more recent past, Swiss banks have been approached by Communist agents asking for information on certain people. Ignoring such requests, the banks supply information only if a client's power of attorney that has been legalized by the client personally before a Swiss consul is presented. The Communists have to take their victims to the nearest Swiss consulate, which they are often reluctant to do. When in doubt, the bank will not pay out any money on behalf of a client domiciled in a Communist country.

After 1934, the so-called number accounts (which had existed for a long time) became important, because they gave the customer added protection. All accounts in a Swiss bank--both ordinary name accounts and number accounts--enjoy the privilege of full secrecy under Swiss law, but number accounts are safer. A number account doesn't show the name of the owner, only a number or a code word. The identity of the owner is known only to two or three people inside the bank. (An ordinary name account is known to anyone in the bank who wants to look it up.) Contrary to an American myth, the number account does not give the depositor complete anonymity. But number accounts are kept in special files, under special internal-security regulations. A small fee for extra handling is charged. Nothing is gratis in Switzerland.

Number accounts exist not only in Switzerland; they are offered by reputable banks in Canada, Western Germany and Lebanon. The Bank of America's branch in Beirut used to advertise comptes numerotés in the Beyrouth Express. The Banque des Depöts in Geneva, reputedly American-owned, advertised its readiness to open number accounts and stopped the ads only after intervention by the Swiss Bankers' Association.

Owing to the bad publicity about number accounts, Swiss banks nowadays are reluctant to open them. Americans, especially, find it very hard to get a number account, unless they are very well known at the bank. "There has been too much trouble about the number accounts of American citizens," a Swiss banker says. "The first thing the American authorities always want to know is whether a man has a number account." In certain financial circles, it is an important status symbol to have a Swiss number account. I know an honest American who is proud of his number account that he opened after the War. He keeps ten dollars in it. Swiss bankers who don't want to open number accounts for American customers sometimes explain that the electronic bookkeeping number (which every name account has, as in American banks) is their "number." The Americans proudly go home and think they have a number account, though they have only an ordinary name account.

There exists no such thing as an anonymous number account in a Swiss bank. (In Austria, savings accounts may be kept under numbers and code words and the depositor is not asked to give his name.) Nowadays, no reputable Swiss bank opens a number account without seeing the customer's passport and asking many questions. (During the last War, some banks accepted money from refugees who were afraid to give their names and, instead, gave their birthdays, which by agreement became their secret account numbers.) Theoretically, a member of the Direktion must see a person before he opens a number account; but in at least one case, a man who went in with 1,000,000 francs saw only a lowly clerk. At the People's Bank, one of the five largest, a customer asking for a number account is interviewed by a specially trained staff member. He must give "reasons for opening the account" and "prove the origin of the funds." They must not be stolen. He must give orders what to do with the money. A special handling fee is agreed upon. Finally, the interviewer must give his personal appraisal of the would-be customer, who is also asked to make a declaration about his business activities and financial background. He must always give references, "if possible, bank references."

Next, the protocol of the interview is scrutinized by the management. If the bank agrees to open the number account, there is a second interview. The staff member writes down how the account is to be handled (in Swiss francs, American dollars or in another currency), the name of the account owner, his profession, nationality, marriage status, residence and private address, how to carry on the correspondence and the names of beneficiaries. The customer may demand that all correspondence be kept at the bank or that it be sent to him anonymously. Letters will not be written on the bank's stationery but on plain white paper in a plain envelope. Some banks show only a post-office-box number as return address; others correspond under the name of one "Herr Ruetli," an employee. If the client lives in a foreign country with strict currency controls, special couriers will mail the letters to him with no return address, no Swiss postage stamp betraying the sender. And if the client wants to have no communication whatsoever from the bank, he may arrange for a bank executive to visit him from time to time.

Some clients prefer not to be in touch with the bank at all; they never see their account. Inside the bank, only one executive, his secretary-typist and a file clerk, who keeps the key to the safe containing the lists with numbers and names of the number-account holders, know the client's identity. If the client forgets the number, there is no trouble: He simply identifies himself by his name. His heirs can do the same, though they may not know the number. No one can lose an account because he forgot his number. The owner of a number account signs withdrawal slips normally with his name; but inside the bank, the slip is then changed from name to number. Or he may sign only with his number, which is then treated like his signature; in this case, however, he must make a special contract with the bank and guarantees to indemnify the bank against damages if someone should imitate his "number signature." In cables, the client adds a code word to the number. Checks are not used by owners of number accounts.

Swiss banks have developed masterful schemes for the protection of their number-account holders. Sometimes two letters are added to the number; the square sum of the letters in the alphabet (A is 1, B is 2, etc.) must equal the number. One big bank uses fictitious names instead of plain numbers. Mr. Joe Smith may become Kamasutra Nehru or Israel Nasser. But in spite of elaborate precautions, accidents happen all the time. Once the bank sent the owner of a number account a statement on which his real name had been insufficiently erased, was still visible, and the pseudonym had been typed above. In the branch office of another big bank, a clerk asked the head office by phone for the number of a certain account (mistake number one, since such information must never be divulged over the telephone). The cashier at the head office absent-mindedly wrote down the number (mistake number two), without knowing that he was watched by a customer on the other side of the counter, who asked some curious questions. The number account was quickly closed and reopened under another number, and a bank executive personally went to apologize to the customer, who lived in a country with strict currency controls.

In 1958, the Spanish police obtained a little black book that belonged to an agent of the Swiss Bank Corporation, one of Switzerland's Big Three. The book contained names and numbers of accounts belonging to some rich, trusted friends of the Franco regime. The scandal cost the bank $5,800,000. The banking secret had been breached and the foreign depositors sued for recovery of damages.

The Union Bank, also among the Big Three, had bad luck not long ago when one Marcel Venat, a clerk at the bank, managed to photocopy a list with the names of certain number-account holders. He sold the list through a Basel hairdresser to some German gangsters, who blackmailed the depositors. Venat and the hairdresser went to prison. The bank lost some accounts. Earlier, the Union Bank was talked about when a trusted employee, Hans Schellenbaum, was arrested. For years, he had artfully changed the statements of his customers, who didn't know that he speculated with their securities. That meant keeping two sets of statements and never going on vacation. He was caught after eight years because he made an adding mistake of two francs on a customer's statement.

Not all number accounts are set up by tax evaders, as is often assumed. Prominent Swiss citizens keep, so to speak, a bona fide number account: They don't want all employees of the bank to know how rich they are. Others prefer to keep their wives or families in the dark about their wealth. ("You would be surprised how many wives would spend money like water if they knew how much their husbands own," a thrifty Swiss banker says. In Switzerland, where most men refuse to let their womenfolk vote, the banking secret stipulates that a husband may ask his banker for information regarding his wife's financial affairs, if they have community property, but the wife is never, never permitted to inquire into the finances of her husband.)

Some eminently solid Swiss citizens keep their number accounts away from their home towns "so they won't be seen going to the bank." Italians, Frenchmen and Spaniards with a busy love life often establish number accounts in Switzerland for the other lady; a very active Italian established four. (Italians rarely go to the nearby Swiss banks in Lugano and Locarno, where they meet too many people from back home. Instead, they travel to the Bernese Oberland or to St.-Moritz and go banking and skiing there.) Swiss citizens sometimes set up a number account for an illegitimate child. The Zurich authorities will refrain from a paternity suit if the father voluntarily establishes an account for mother and child. "It's very practical and has prevented a lot of domestic tragedies," a Zurich lawyer says dryly.

The Swiss banking secret works both ways: It protects the customers but also prevents the bank from defending itself against provocative statements. "A Swiss banker must not say that Perón or Khrushchev or Mao does not have an account with the bank, even if it happens to be true," a Swiss banker told me. "The banking secret forbids us to give any answer, and 'no' is also an answer. We must remain silent, even if silence hurts us. Many American bankers would be in jail here because, by our strict standards, they constantly break the banking secret." A Swiss bank cannot obtain any credit information on a client from another Swiss bank. The banking secret is scrupulously respected even among banks. Fast-talking borrowers have obtained credit that a bank would have refused, had it known all the facts.

Sensational stories have been published lately about the Swiss banks. It's easy: The authors know that their claims cannot be disproved. Evita Perón is said to have left $15,000,000 in some Swiss number accounts but didn't give all the numbers to her dear husband (women are so forgetful), and now Juan Peron cannot get most of the money. Allegedly. Fulgencio Batista of Cuba is said to have put away $3,000,000 before he was overthrown, and Moise Tshombe transferred "what was left of the national treasury of Katanga" into a Swiss number account in 1963. Other alleged depositors were the late King Alexander of Yugoslavia (assassinated in Marseilles in 1934), King Feisal of Iraq (murdered in 1958) and ex-King Farouk of Egypt (who died in 1964). Much of this is hearsay. But it is no secret that Farouk lived well though not wisely on money from Switzerland and that King Peter, the son of King Alexander, lives in rather modest circumstances in Monaco because his father left no records and he is unable to collect the money. If a depositor leaves no special instructions about a beneficiary and several heirs make claims, no one gets anything until the claims are decided by the court, which may take years. Safety-deposit boxes are considered as secret as all other accounts. An alleged heir can open a deposit box in a Swiss bank only with the consent of all known heirs. Naturally, the heirs bitterly complain and call the Swiss bankers "crooked" because "they don't hand over the money that belongs to us."

Virtuous women and Swiss banks should not be talked about; but in recent years, there has been much talk about certain Swiss banks. On May 28, 1965, Zurich's Weltwoche reported that late in 1961, the heirs of the unlamented Rafael Leonidas Trujillo, hated dictator of the Dominican Republic, "arrived at Geneva's President Hotel with 200 heavy pieces of luggage ... and the trucks of certain banks came to fetch almost 200,000,000 francs." That was only part of the loot. ("By actual record," wrote T. R. Fehrenbach, "Trujillo, Batista, Ubico of Guatemala, and the Somozas of Nicaragua always kept more money in New York, Miami and New Orleans than in Switzerland.") Right now, Trujillo's heirs have a suit pending in Swiss courts. The Spanish promoter Julio Muñoz got hold of some of Trujillo's millions, bought two old, small Swiss banks--the Banque Genevoise de Commerce et de Credit and the Savings and Credit Bank in St. Gallen--and used their funds for hazardous real-estate investments in Italy and elsewhere. In 1965, the boom collapsed and so did Muñoz' dreams of a financial empire. Max Hommel, president of the Federal Banking Commission, who had failed to report substantial payments that he'd received from Muñoz as "advisor," was dismissed. The Swiss Bank Corporation took over the St. Gallen bank, with its liabilities. But the scandal left a bad aftertaste and didn't exactly promote the image of the Swiss banks nor of Switzerland. Many Swiss privately admit that the Banking Commission should exercise tougher controls, especially over "foreign-owned banks."

"No bank can be better than the conscience of its bankers," a Swiss banker admits. "There are one hundred banks in Zurich and some just don't belong here."

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Under Swiss banking law, accounts that remain unclaimed or dormant for 20 years revert to the bank--not to the Swiss government. The limitation begins only after the account has been closed by the bank. The big banks in Switzerland often keep the accounts open for 25 years or longer, adding the annual interest; they are extremely reluctant to take over unclaimed accounts. All reputable Swiss banks demand the name of a beneficiary when they open a new account. But during World War Two, thousands of Jewish depositors and their beneficiaries perished in Nazi concentration camps. In 1954, the Israeli government claimed that "at least $30,000,000" in unclaimed Jewish accounts remained in Swiss banks. Between 1946 and 1962, many efforts were made by the Swiss banks to locate the heirs to Jewish accounts. In 1962, a federal law required all Swiss banks to give to a federal agency in Bern all information about racially, politically or religiously persecuted foreigners or stateless persons whose accounts had remained dormant since the end of World War Two. About 1050 accounts, with assets of about $2,000.000, were registered. Israeli officials said that the amount was "incredibly low." No one will ever know whether the figure is correct: This is another matter for the conscience of the bankers.

I know a third-generation private banker in central Switzerland who took over from his father a custody account named "Monsieur H." No present employee of the bank had ever seen Monsieur H." who had not shown up since the end of World War One and might have died years ago. The conscientious banker hired a detective agency and genealogy experts, who found out nothing about Monsieur H. He had long ago moved away from the last given address and the account remained unclaimed--and grew, since interest and dividends were meticulously added every year.

Last year, the banker, during a winter vacation in a St.-Moritz hotel, became acquainted with an old lady in mourning. She sadly remembered the happy days prior to World War One, when she'd often been in Switzerland with her late husband. Certain references to the loved one sounded familiar and the banker asked a few cautious questions. The old lady burst into tears. Her husband had been a wonderful man but extremely secretive in financial matters. He'd never told her where he'd left his large fortune and he'd died without a will. She was certain the money was somewhere in Switzerland but knew she would never find it. The banker went home and checked up on the old lady--who now has the account of her husband, the late Monsieur H.

Not an unusual story. Most Swiss bankers are honest, God-fearing men, and quite a few of them would be bothered by their Calvinist consciences if they cheated. But there are always some exceptions--and they are the ones who are talked about.

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It is often claimed that Americans and other foreigners evade taxation at home by depositing securities in number accounts in Swiss banks without declaring the income in their homelands. Many Swiss bankers admit that foreigners use Swiss banks to circumvent their national tax laws; but then, some Swiss investors take their money out of Switzerland to cheat on their taxes. Swiss bankers don't consider themselves the tax conscience of their customers; they feel that each country should keep track of its own law evaders. Dr. Alfred Schäfer, chairman of the Union Bank of Switzerland, has been widely quoted, "I am not my brother's keeper." Many Swiss bankers inform Americans who want to open an account that in the United States, tax evasion is a criminal offense.

"Thereupon, some Americans get up and leave, and others leave their money," says a Swiss banker. "We give no information to our own tax authorities, because this would mean breaking the banking secret. The American Internal Revenue Service cannot expect us to violate our own laws in order to please them." The attitude is morally sanctimonious but legally uncontestable. In Switzerland, breaking the banking law is a criminal offense, but tax evasion is only an administrative matter. In Switzerland, no one ever went to jail for tax fraud. There is less concern about tax dodgers than in America. "The Swiss tax laws recognize the banker's duty of secrecy," says Hans J. Mast of the Swiss Credit Bank.

Actually, an American does not escape American taxation by hiding his securities in a Swiss number account. All clients of a Swiss bank, regardless of their residence, get dividends and interests paid out only after deduction of a sizable withholding tax. The withholdingtax agreement concluded in 1951 between Bern and Washington states that any dividends on U. S. investments held by a Swiss bank are taxed by the U. S. Government at the rate of 15 percent. This applies to all security holders. If they happen to be subject to American taxes (as every American citizen is, no matter where he lives), the Swiss bank withholds another 15 percent. The American who blissfully hopes to escape American taxes by putting his money into a Swiss bank actually pays 30 percent in American taxes. The Swiss banking secret is not inexpensive. Naturally, the American could apply the withholding tax against his U.S. income tax, or he could get a refund by asking for it on his tax return--but he would have to disclose all the facts. He has to disclose them himself; the Swiss bank will tell Washington nothing. According to the American-Swiss agreement, the Swiss bank is obliged to collect the U. S. tax but not to report it to the Internal Revenue Service. This means that the withholding agreement makes tax evasion uninteresting for Americans, unless they are in a tax bracket higher than 30 percent.

Yet, there remains the capital-gains loophole. An American, operating through a Swiss bank, could make enormous capital gains, and no IRS man could legally prove it, as long as the American didn't try to bring the money back home. When the U. S. authorities went to Switzerland with a tax lien, trying to find the missing $7,000,000 that belonged to Texas promoter Billie Sol Estes, they were told nothing by the Swiss, who considered it only a fiscal matter. On the other hand, a Chicago automobile dealer, Harold C. Trownsell, went to Switzerland under a court order to get $410,000 out of his Swiss bank account.

There is another side to the tax coin. Switzerland is the largest single investor in Wall Street. Swiss banks annually buy many million dollars' worth of American shares and bonds for their French, German, Spanish, Swiss, Arab and South American (and U. S.) customers. On all dividends and interests, the Swiss bank withholds 15 percent for the U. S. Government. The French, German, Spanish, etc., customers could ask for a refund by declaring the tax payments on their own tax forms--which they certainly wouldn't do. Washington happily keeps the money. There seems to be some divine justice even in international tax matters.

In the Latin countries, cheating on taxes is not a serious crime, as in the United States, but a hide-and-seek game in which the smarter man wins. The French and Italian governments know that their rich citizens don't like to pay income taxes; many businessmen in these countries keep two or three sets of books, live in a poor manner (because appearances may betray their wealth), buy a small Simca when they could afford a Cadillac. (British millionaires, such as the Beatles, have been known to turn themselves into "limited companies," selling shares, whereupon their wealth is treated as capital gain. That's considered more patriotic than leaving one's money in Switzerland or having one's domicile in the Bahamas.)

Some Americans who obtain a residence permit in Switzerland form there a Swiss corporation into which all income, from America and elsewhere, is paid. The countries of origin don't tax such money that is earned by the "Swiss" corporation. Swiss taxes are due, but they are smaller than in any other Western country. I know some of the richest men in Switzerland--very rich by anybody's standard--who are in the 30-percent tax bracket. The theoretical limit is 45 percent. Several years ago, when the U. S. income-tax rate reached 90 percent, an American in the U. S. would have paid $900,000 in taxes on an income of $1,000,000. In Switzerland, a foreign resident might then have made a legal ("lump-sum") tax agreement with the cantonal (state) authorities. The American in the $1,000,000 income bracket may have paid between $50,000 and $100,000, if he had a good Swiss lawyer. Since 1962, he has paid more. The tax laws have been changed. The cantonal authorities no longer extend tax agreements beyond 1970.

Many American corporations set up their European branches in Switzerland, because taxes are lower there than elsewhere; there is complete freedom, financially and economically, and American firms are not treated worse than Swiss ones; the country is politically reliable, has the stablest currency on earth, is centrally located in the heart of western Europe, with excellent communications, fine railroad service, telephone and telegraph. For tax reasons, the Swiss cantons most popular with American corporations are Zurich, Zug and Vaud (Lausanne). Few corporations pay more than 25-percent company taxes in these cantons; in the United States, the rate would be almost doubled. There is no Swiss tax on undistributed profits. If the profits are distributed, 30 percent of the company profits are withheld, in accordance with the American-Swiss Agreement. The American firm pays Swiss taxes, which it may charge against U. S. taxes. In the end, the corporation pays legally much less than it would pay in America.

Americans who want to transfer their funds to a Swiss bank can easily do so by giving a check to a New York branch office of one of the Swiss Big Three; or they may transfer funds through their American bank directly to Switzerland. Such transactions can, of course, be traced in the U. S. An American may withdraw money from his Swiss account by giving his Swiss check to his American bank. The check is either "taken for collection" or "credited at once," depending on how well the customer is known at his American bank. An American might also give a check to a traveling Swiss bank representative. (In Italy and France, respected local businessmen act as operatives for respected Swiss banks.) These representatives, however, are often reluctant to accept funds from people they don't know.

But before an American puts his money into a Swiss bank, he should realize that 30 percent of his profits (dividends and interests) will be withheld and that Swiss banks for years have paid no interest at all on foreigners' deposits. Since 1960, the banks have even charged as much as one fifth of one percent annually on foreign checking-account balances to scare away would-be depositors. Officially, it was stated that the heavy influx of foreign funds might create serious inflation. Even when Swiss banks pay interest, they always pay less than American banks. They charge high custody fees and high rentals for safe-deposit boxes. A client may obtain a loan from a Swiss bank against his funds deposited in the same bank; he pays interest on the loan, though he may get no interest on his own deposits. Businessmen sometimes use their private deposits as collateral to obtain business credit at the bank.

Foreigners are somewhat second-class people, by Swiss banking standards. Until last year, they were not permitted to have savings accounts in excess of 20,000 francs ($5000) and they still cannot buy certain Swiss shares and obligations. New Swiss-franc accounts of foreign depositors are blocked for six weeks to prevent the use of Swiss facilities for questionable financial deals. The big Swiss banks can afford to take a lofty attitude toward their foreign depositors. The Swiss banking secret gives them a monopoly. Whoever values complete secrecy in his financial affairs must go to Switzerland. Large numbers of Swiss 1000-franc notes are hoarded abroad, almost like gold. Even Swiss one- and two-franc coins were bought up recently by speculators in Germany who discovered that their silver content made them worth 30 percent more than their face value. The Swiss government, for the first time, had to forbid the export of such coins.

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According to well-informed Swiss bankers, since the beginning of this year, more Americans than ever have opened new accounts in Swiss banks. These accounts are open and legitimate; the funds were transferred by mail through American banks and could easily be traced. The new American clients did not ask the Swiss banks to buy gold for them, to speculate against the pound or the dollar, to secretly purchase foreign stocks without paying the 15-percent Interest Equalization Tax or to do anything else that would be illegal for the Americans. There is no intent of tax evasion, either. Then why did they do it?

"First, because there are widespread fears that the U. S. may introduce exchange controls, limiting the amount of dollars that can be legally taken out, and the American clients need dollars either for business in Europe or for private reasons," a Swiss banker says. "It's precautionary action against dreaded future restrictions. And second, because they are worried about rumors predicting the eventual devaluation of the dollar. In April, William McChesney Martin, the chairman of the Federal Reserve Board, said the U. S. was in the midst of its worst financial crisis since 1931, that might lead to 'a world-wide devaluation of currency.' You can't blame ordinary mortals for getting nervous when they read such statements by superexperts. Everybody knows that a devaluation of the dollar would make no sense, since it would benefit only the gold-producing countries--the Soviet Union and South Africa. But the present double price of gold, one for the central banks and the other for everybody else, already amounts to a veiled devaluation of the dollar. President Johnson said he wouldn't do it--but what about his successor?"

Of course, any devaluation of the dollar would be followed by a world-wide devaluation of currencies, as Mr. Martin indicated. But many Swiss bankers believe that Switzerland might devalue its currency less drastically than the United States. Suppose the dollar were devalued by 15 percent (the last devaluation of the pound, in November 1967, amounted to 14.3 percent) and the Swiss franc by only 5 or 7 percent, just enough so the Swiss wouldn't lose their American market? An American who had legally converted his dollars into Swiss francs might save himself a considerable capital loss.

Many Americans in Europe were shocked during the gold panic in March when European banks and even American Express offices refused for a few days to accept traveler's checks and dollar bills. (I was told in Milan that there was no exchange rate, "since the dollar might be devalued any moment." The clerk asked, "Do you have Swiss or German or French money? We'll change it at once.")

Aside from converting your dollars into any other currency that you feel is "safer," the Swiss bank can do little for you. You are not permitted to buy and hoard gold (though quite a few Americans are said to have bought silver through their Swiss bank). You may buy foreign stocks, if you're willing to pay the 15-percent Equalization Tax, or you may purchase Eurodollar bonds. (Over 15 billion Eurodollars, U.S. dollars that have legally escaped to foreign countries, are floating around Europe, and many of these dollars are lent to American corporations operating abroad. In return, the corporations issue bonds, and sometimes these are eligible for later conversion to the company's stock. But it is expected that Washington will clamp down on such issues; Washington has already prohibited American companies from sending dollars overseas for investment in western Europe. The U.S. Government cannot afford a further drain on the country's precarious balance of payments.)

Americans transferring dollar funds to Switzerland can do little that is both profitable and legitimate. If they live part or full time abroad, they may want some funds there, to avoid the sad fate of the British, who now get only 50 pounds a year for travel out of England. (Quite a few Britishers seem to live splendidly in the expensive south of France on 50 pounds a year.) But whatever Americans do with their money in Switzerland, it's going to be quite expensive. Even relative safety is a luxury nowadays.

Swiss bankers are not delighted about the new influx of "nervous dollars." They know what happened in 1942, when their accounts were blocked in the U. S., and they are terrified at the thought of an avalanche of dollars rolling into Switzerland that would probably force the U. S. Government to take stern measures of retaliation. "The last thing we want is to be in trouble with Washington," a noted Swiss banker said recently. "But we can do nothing about some less reputable Swiss banks that will take any amount of American money. Some, in fact, are said to be American banks, operating through Swiss straw men. Above all, we are interested in a sound dollar--because it's better for our own business and our own currency."

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In the past years, attacks against Swiss banks have been made by newspapers in Britain, the United States and Germany and on the floor of the United States Senate. Swiss banks have been accused of shielding tax evaders, accepting money from criminals, selling short the pound sterling and acting as "dummies" for Communist governments or in American proxy fights. Swiss bankers privately admit that such things may happen, but not only in Switzerland.

"If a man embezzles a million bucks, he is a fool to deposit it in the Congo," a Swiss banker says. "He takes it to Switzerland, the country with the greatest financial stability. We have had fewer bank failures than American or England in the past 50 years." A Chinese proverb says, "It is very hard to find an honest partner for a swindle." No reputable Swiss bank accepts money if there is the slightest suspicion that it was stolen--and Swiss bankers are by nature suspicious. All Swiss banks have Interpol lists with the serial numbers of stolen bills and with the names of fugitive criminals. In 1959, $30,000,000 worth of Canadian bonds were stolen by American and Canadian gangsters and later deposited by a Liechtenstein holding company at a Swiss bank as a collateral against a loan. When the robbery became known, the Swiss bank notified the authorities and the criminals were arrested.

Most Swiss banks turn down deposits from agents for unknown third parties, but some shyster banks will take such money. International racketeers and narcotics dealers may use a Swiss bank--through a respectable cover--for the same reason that General Motors or IBM uses its Swiss bank. "Undeniably," wrote Röpke, "bank secrecy can be used as a cover for dubious or outright shady deals." Illicit money goes through banks everywhere. In Zurich, I heard the apocryphal story of an English gangster who robbed a branch of Barclay's Bank and deposited the loot at another branch of the same bank.

Claims that Swiss banks are used by Americans in proxy fights to build up a majority in shares have not been proved. "There is an agreement among Swiss banks that they vote regularly with the incumbent management of a company in which they hold stock," says Dr. Schäfer of the Union Bank. "The role played by foreign banks in the history of proxy fights has been insignificant."

It took Swiss banks a great many years to build a solid reputation. They would be foolish to risk it by knowingly serving as clearinghouses for gangsters or Communists. It has been claimed that Communist governments use Swiss banks to buy up shares of vital American defense industries. U. S. Department of Commerce figures show that the value of American stocks and bonds in security accounts kept by Swiss banks is about two and a half billion dollars--about one fifth of all securities entrusted to Swiss banks. Swiss citizens are said to own half of these holdings; foreign clients of Swiss banks probably hold over one billion dollars. The total value of all shares on the New York Stock Exchange is approximately 620 billion dollars; thus the amount of foreign-owned shares of American companies that are administered by Swiss banks would be about one third of one percent. A large part of these holdings belongs to citizens living in countries bordering on Switzerland: France, Italy, Germany and Austria.

Besides, the U. S. Securities and Exchange Commission excludes owners of more than ten percent of the stock of a corporation from voting before they have provided the SEC with detailed information about themselves. To obtain control of American corporations, the Communists would have to acquire many billions of dollars' worth of stocks. Price movements on the Big Board in Wall Street would soon betray such attempts. It is highly unlikely that Messrs. Brezhnev and Kosygin will ever take over General Dynamics.

Many Swiss bankers are philosophical about the attacks against them and write them off to a mixture of ignorance and envy. Swiss banks have no competitors. Their interest rate on business loans is now six percent, the cheapest in Europe. "Secrets and scandals always make the headlines, but the day-to-day routine business remains unnoticed," says a banker. Most attacks come from financially unstable countries at a time of a currency crisis. After the last sterling crisis, a columnist for London's Financial Times wrote about "The Swiss Role As Base for Financial Piracy." Periodically, there are dark accusations of the "gnomes" selling short the pound.

"Actually, only a handful of Swiss banks maintain fully staffed foreign-exchange departments," says Hans J. Bär. "The dealers operate only to a small extent for their own account but mostly on behalf of their international clientele, assisting their clients in switching their sterling assets out of Britain or in hedging their sterling investments. Naturally, the bankers advise their clients how and when to protect their legitimate interests." And a famous London merchant banker told me, "No one can sell the pound short except the British. Usually, the attacks are staged by the gnomes of London."

In 1966, profits of the 470 Swiss banks rose by 7.5 percent over the preceding year, to $100,000,000. Last year, Swiss gold and dollar reserves increased by 2.3 billion dollars. Much of the new-andnervous money soon left Switzerland again--as short-term loans in London and Paris or to buy Eurodollar bond issues or Wall Street stocks. (The Swiss invariably invest more money in the U. S. than they take out.) Bad publicity hasn't hurt the Swiss banks. Their business gets bigger and better; 1968 earnings will probably set new records.

No wonder. Everybody goes to Switzerland for his own reasons--some American "capitalists" because they think their money is "a little safer there" at a time of uncertainty and fear. But the Communists--their governments and their secret services--probably also have accounts there. Let us hope that the Central Intelligence Agency, the British Secret Service and the French Deuxième Bureau do the same. Who can tell? Only a Swiss banker, and he cannot tell--or he goes to jail.