swiss bank account
Switzerland has long enjoyed a reputation as a bank “secrecy” haven. That reputation continues today, as many U.S. citizens believe they can have a Swiss bank account that is beyond the reach of U.S. authorities. In reality, however, the advantages offered by a Swiss bank account to a U.S. citizen seem marginal, at best, in light of the Treaty between the United States and Switzerland on Mutual Assistance in Criminal Matters (the “Swiss Treaty”) entered into force on January 23, 1977. In comparing Switzerland with the United States in the area of bank secrecy, one must distinguish the mere obtaining of bank account information from the freezing and forfeiting of such accounts. True to its aura of “secrecy,” Switzerland’s banking environment still offers some slight advantage to U.S. citizens in preventing the U.S. government from readily obtaining their Swiss account information and their personal identity. The area of forfeiture, however, is a different matter. Since the implementation of the Swiss Treaty, the legal protections against forfeiture afforded to U.S. citizens’ Swiss bank accounts are often no greater than those received by their U.S. accounts. Accordingly, Switzerland’s reputation of bank secrecy is questionable and to a large extent misleading. This Comment seeks to debunk this myth of Swiss bank account “secrecy.”
Prior to comparing Swiss bank account secrecy (in both the context of obtaining information and freezing or forfeiting such accounts) to protections afforded to domestic bank accounts, Part I of this Comment provides a brief overview of Switzerland’s historical tradition of bank secrecy and its enforcement. Part II addresses several limitations placed upon Swiss banking secrecy, in particular the Swiss Treaty. The mechanism by which the United States government is able to obtain information about Swiss bank accounts and forfeit such accounts under the Swiss Treaty is then analyzed in Part III of this Comment. Part IV compares the U.S. methods of obtaining information about bank accounts with the process of obtaining information pursuant to the Swiss Treaty. Finally, this Comment addresses forfeiture of both domestic and Swiss bank accounts by the U.S. government. A comparison of domestic forfeiture with the Swiss Treaty surprisingly reveals that a U.S. citizen’s money is perhaps best left at home, in a U.S. bank.
I. TRADITION AND HISTORY OF SWITZERLAND’S BANK SECRECY
In analyzing Switzerland’s bank secrecy and in determining precisely how secret a Swiss bank account is today, in light of the Swiss Treaty, it is important to first set forth what Swiss banking “secrecy” has traditionally meant. “Bank secrecy [is] the obligation of a financial institution, and of its officers and employees, to protect and withhold information acquired while handling a client’s business.” The notion of Swiss bank secrecy is based upon three principles: (i) the right to privacy; (ii) the nature of the banking relationship; and (iii) the historical importance of secrecy and its role in affirming Switzerland’s sovereignty.
A. The Right to Privacy
While a general “right to privacy” is viewed as an international human right, the application of that right differs from country to country. One can illustrate these variances by comparing banking in Switzerland with banking in the United States. Such a comparison demonstrates that Switzerland’s right to banking privacy is considerably broader than that which is recognized in the United States. Switzerland’s more inclusive concept of the right to privacy is present on two levels.
First, Switzerland’s right to privacy extends substantively beyond its U.S. analogue. While U.S. bank depositors have little, if any, right to privacy regarding their bank records, the Swiss privacy right encompasses financial privacy, including banking information and records.
Second, Switzerland’s right to privacy is broader than the United States’ because it applies to businesses as well as individual citizens. This broader application is a result of Switzerland’s status as a civil law jurisdiction, as compared to the United States, which is a common law jurisdiction.
Thus, although both the United States and Switzerland grant a right to privacy, the rights afforded are far from similar. It is Switzerland’s broad, inclusive right to privacy that has helped foster its bank secrecy.
B. The Banking Relationship
Banking secrecy in Switzerland derives in part from the nature of the relationship between an account holder and his or her bank and banker(s) (hereinafter “Swiss banks”). Swiss banks owe a duty of confidentiality to their account holders. This obligation is imposed on bankers in three distinct areas of Swiss law. First, bankers are the protectors of the banking privacy rights guaranteed by Swiss civil law. Second, an agency relationship exists between the banker and his or her client with the client acting as the “master of the secret.” Third, Swiss banking law outlines Swiss banks’ duties and provides the basis for account holder remedies for violations thereof. Furthermore, account agreements contain an implied contractual term requiring Swiss banks to uphold these three obligations of secrecy. Remedies for their breach accompany all obligations owed by Swiss Banks.
C. Historical Importance of Secrecy in Switzerland
History has also played an important role in Switzerland’s tradition of bank secrecy. “The Duty of Confidentiality of Banks is as old as Banking institutions themselves,” and a notion of bank secrecy has existed since the Middle Ages. In 1934, the enactment of Switzerland’s Federal Banking Law strengthened Swiss bank secrecy. Article 47 of the Federal Banking Law criminalized the violation of bank secrecy and extended account holders’ protections beyond the civil remedies traditionally available.
The traditional view was that Switzerland enacted its bank secrecy laws to protect the accounts of German Jews from the Nazis prior to and during World War II. Because the world approved of what it perceived as Swiss efforts to thwart the Nazis, Swiss banking secrecy was accepted and respected. As a result, it was believed that Switzerland’s bank secrecy and perceived position of neutrality bolstered Swiss sovereignty.
Recently, however, there appears to be more to the connection between Switzerland’s bank secrecy laws and its sovereignty than its relation to the protections afforded to some Holocaust victims. It appears that Switzerland actually purchased its neutrality, sovereignty, and freedom from Nazi Germany. The price Switzerland paid included laundering hundreds of tons of gold and other “war booty” looted by the Nazis. From 1939-1945, Hitler’s regime deposited 360 tons of gold in Swiss banks and some estimates have placed the amount of stolen items deposited with the Swiss at close to $20 billion (in today’s dollars). This evidence thus indicates that Switzerland and its banks played a central role in financing the Nazi war effort.
The most plausible explanation, in light of recent information, is that Switzerland aided both sides of the war effort by allowing both the Nazis and their victims to avail themselves of its banking protection. From a banking perspective, Switzerland’s actions solidified Swiss banking secrecy and affirmed Swiss sovereignty. Because many have believed for over fifty years that Swiss sovereignty is based upon, and contingent upon, the existence of its bank secrecy laws, it is understandable that the Swiss have vigorously sought to enforce these secrecy provisions.
II. ENFORCEMENT OF SWISS BANKING SECRECY
The enforcement of Switzerland’s bank secrecy is effected through Swiss laws providing for civil, administrative, and criminal accountability. A Swiss bank’s breach of its secrecy obligation may result in liability on each of these levels.
Civilly, Swiss bank secrecy is policed by Article 28 of the Swiss Civil Code. The Swiss Civil Code in general, and Article 28 in particular, protects an account holder’s right to privacy. As mentioned above, this right extends to both individuals and businesses and includes privacy in one’s financial affairs. While Article 28 does not expressly protect bank secrecy, the Swiss Supreme Court has concluded that Article 28, and the right to privacy that it provides, obligates Swiss banks to maintain clients’ banking privacy. Prior to the occurrence of a violation, an account holder may seek a court order preventing the release of information. Post-violation, a client may sue the bank for damages under the Swiss Commercial Code. The Swiss Commercial Code provides a “right to be indemnified” for “damages” (Article 41) and “pain and suffering” (Article 49) associated with a breach of the right to privacy afforded by Article 28 of the Swiss Civil Code.
The Swiss Commercial Code also governs contracts between a bank and its account holder. The account agreement is regulated in Articles 394 to 406 of the Commercial Code “governing an agent’s undertaking to provide services or carry out business transactions on behalf of a principal.” The remedy under the Swiss Commercial Code for breach of an account contract is termination of the agreement and damages.
Breach of Swiss banking secrecy may also have administrative consequences for the breaching banker and his or her bank. First, the violating banker’s association with the bank will likely be terminated. Second, the bank itself is subject to loss of its banking license or loss of its membership in the Federation of Swiss Banks. Bank secrecy is thus afforded a second level of protection by these administrative sanctions for its breach.
In addition to civil and administrative penalties for a breach of bank secrecy, Swiss law also criminalizes the breach. Federal Banking Law, Article 47, establishes the “Duty of Confidentiality” for banks and bankers alike and criminalizes disclosure of bank information. In addition to covering both the banker and the bank, a party seeking to discover confidential information is subject to prosecution under this same provision.
III. THE SWISS TREATY AND ITS LIMITATIONS ON SWISS BANK SECRECY
While Switzerland has established a seemingly formidable set of laws granting and protecting banking secrecy, these laws are by no means absolute. Although virtually all countries supported Switzerland during World War II in what they believed was assistance provided to Holocaust victims (obviously unaware of the other side of the coin), since that time Switzerland’s secrecy provisions have suffered many international attacks. Many fear that Swiss banks are used by money launderers and other criminals worldwide in pursuit of illicit profits. As a result of this international pressure, international obligations entered into by Switzerland, such as the Swiss Treaty, do away with Swiss bank secrecy in many instances.
“The [Swiss] Treaty, when applicable, overrides Swiss laws that would otherwise prohibit disclosure of [bank] information to foreign parties.” The Swiss Treaty intended to address post-WWII concerns that Switzerland’s banking laws were being used by wrongdoers, rather than against them. Specifically, the United States became increasingly aware that Swiss bank accounts were being used by violators of securities laws, tax evaders, and criminal organizations. In the late 1960s, the United States and Switzerland commenced discussions addressing these concerns, ultimately resulting in the bilateral Swiss Treaty.
Both parties intended the Swiss Treaty to provide a mechanism for the United States to bypass Swiss bank secrecy provisions pursuant to the Treaty. “When the conditions of the treaty have been met, bank secrecy is no bar to assistance [from the Swiss].” The Swiss Treaty is analogous to Swiss domestic criminal proceedings because under the Swiss Treaty, bank secrecy does not prevent disclosure on the theory that the “public interest prevails over the private interest of a bank’s client.” Both the Swiss Federal Banking Law and the Swiss Penal Code (with reference to the Swiss Commercial Code) are primarily responsible for permitting this result. First, Article 47 of the Swiss Federal Banking Law, the law criminalizing a breach of bank secrecy, is expressly subject to federal law (i.e. the Swiss Treaty). Second, under Article 321 of the Swiss Penal Code, bankers, unlike other Swiss professionals, are not exempt (by virtue of their Duty of Confidentiality under the Commercial Code) from the obligation to be deposed in criminal matters. Because the Swiss Treaty by its terms applies to criminal matters, bankers must divulge information sought pursuant to the treaty process. Thus, Switzerland’s bank secrecy provisions are subject to the Swiss Treaty and do not inhibit the treaty’s use in most instances.
The parties signed the Swiss Treaty, together with six interpretative letters, on May 25, 1973 and the treaty entered into force on January 23, 1977. The treaty provides both Switzerland and the United States with, inter alia, a basis and a mechanism for assistance in criminal prosecutions. Several chapters of the Swiss Treaty are worth noting. Chapter I outlines several key elements: the countries’ obligations to assist one another; the treaty’s applicability; situations where assistance is discretionary as opposed to compulsory; and the limitations placed upon information received pursuant to the Swiss Treaty. Special provisions for organized crime are provided in Chapter II. The logistics and procedures of a Swiss Treaty request are detailed in Chapters III, IV, and VII.
Annexed to the Swiss Treaty is a Schedule listing thirty-five “Offenses for Which Compulsory Measures are Available.” Included in the Schedule are several finance-related crimes such as embezzlement, fraud, and receiving money or property known to have been embezzled or fraudulently obtained. Additionally, the Schedule contains a litany of other offenses covering a broad spectrum. To receive compliance with a request for assistance under the Swiss Treaty (a “Request”), the offense in the Request must be included in the Schedule and it must be considered criminal by the requestee country.
Although the Swiss Treaty provides a requesting country with assistance in a broad range of scenarios, it does have several limitations. In general, pursuant to Article 2, the Swiss Treaty does not apply to extradition, execution of criminal judgments, or investigations or proceedings concerning: political offenses; violations of military obligations or laws; antitrust violations; or violation of tax laws. However, even these limitations are narrowly defined. For example, the Swiss Treaty applies to situations involving political offenses, antitrust violations, and tax offenses if a criminal organization is involved.
While the Swiss Treaty is a general, bilateral criminal assistance agreement, from a U.S. prosecutorial perspective, the Treaty’s most useful function has been its role in lifting the veil of Swiss banking secrecy. The Swiss Treaty helps U.S. investigative and prosecutorial agencies break through traditional Swiss bank secrecy. The U.S. government routinely obtains information about Swiss bank accounts and has the ability to freeze and/or forfeit them.
A. Information and Forfeiture Under the Swiss Treaty
Under the Swiss Treaty, obtaining information about, freezing, and forfeiting a Swiss bank account are basically straightforward, mechanical processes for the U.S. government. Chapter VII governs the issuance of a Request under the Swiss Treaty. First, the U.S. Department of Justice issues a Request to the Swiss Central Authority, the Division of Police of the Federal Department of Justice and Police located in Bern, Switzerland. This procedure differs from those applicable to an analogous domestic action conducted by U.S. authorities because a Request is not issued by a judge. A Swiss Treaty Request must indicate, among other things, the nature of the investigation or proceeding, the reason for seeking the information or action requested, and the crime that the U.S. government seeks to prosecute. The standard governing the “Obligation to Furnish Assistance” is found in Chapter I, Article I of the Swiss Treaty. “[A]n offense in the requesting State is deemed to have been committed if there exists in that State a reasonable suspicion that acts have been committed which constitute the elements of that offense.”
Upon receipt of a Request, Swiss federal law provides that:
If a petition meets the formal requirements of the [Swiss] Treaty and appears not to be obviously inadmissible for the rendering of legal assistance, the Central Headquarters determines the body to execute it, issues the directives for execution of the petition in accord with Article 5 without a hearing of the parties, and if necessary takes precautionary measures in accord with Article 8, and passes on the files to the executive body. Thereby it judges on the basis of the described facts of the case in the petition or its documentation whether the actions based on American procedure are punishable under Swiss law.
In reviewing a Request, the Swiss are “bound by the account of the facts in the [R]equest and the requesting authority cannot be obliged to furnish proof of the accuracy of the summary of the facts . . . ; it is sufficient if reasonable suspicion is shown” and the Swiss “may deviate from there only if there are obvious errors, gaps or contradictions that can be immediately established.” Additionally, in reviewing a Request, the Swiss do not evaluate any of the United States’ proceedings.
If the judicial assistance is requested by the United States, it cannot be denied just on the basis of deficiencies in the American proceedings, because the [Swiss] [T]reaty does not contain any corresponding provision. Even alleged violations of human rights in the American proceedings form no basis for denying judicial assistance.
Thus, the Department of Justice issues a Request and the Swiss review that Request to determine Swiss Treaty compliance, but in doing so the Swiss take all information at face value.
Most Requests fall within the “Compulsory” provisions of the Swiss Treaty. The requestee country must grant any Request falling within the Compulsory provisions (i.e. a Request to which the Treaty is applicable and for which assistance is not deemed “discretionary” under Article 3). However, the Swiss may deny a Request pursuant to Article 3, which addresses “Discretionary Assistance.” Switzerland may refuse assistance if the subject offense of the Request does not fall within the Treaty; there exists a double jeopardy concern; or execution of the Request is likely to prejudice Switzerland’s “sovereignty, security or similar essential interests.” However, under normal circumstances, disclosure of information typically protected by banking secrecy does not fall within these interests.
Once a Request is determined not to fall within the non-applicability limitations of Article 2 and has not resulted in a discretionary refusal under Article 3, Article 4 provides the “Compulsory Measures” to which the requestee country must adhere. The requestee applies the same measures ordinarily employed in an investigation or proceeding originating in that jurisdiction. A Request need not specifically ask that Article 4 actions be taken because the treaty contemplates that the requestee country “shall” employ them. However, the requestor country also has the ability to request that certain other actions be taken. Included among the “measures” which can be taken is the freezing of Swiss bank accounts.
In the event that a Request pertains to an offense not listed in the Schedule, the requestee country “shall determine whether the importance of the offense justifies the use of compulsory measures.” Thus, even if the underlying offense is not one of the thirty-five enumerated in the Schedule, the potential for cooperation among the two countries still exists.
Once the Swiss have complied with a Request, “any person affected . . . [who] has an interest worthy of protection” may object in writing within ten days. An objection has a “suspensory effect, unless there is danger in delay or the injury substantiated by the objector could only come about as a result of the transmission of the executive order enforcements to the American authorities.” It is important to note that an objection on the grounds that the accused is not guilty will be dismissed because the issue of guilt is the precise issue to be decided in the requestor country’s courts.
While on its face the right to object affords the accused protection from arbitrary U.S. governmental action, one must question its true worth for two reasons. First, the objector must object to Switzerland’s compliance with the Request in Switzerland. This entails obtaining Swiss counsel and proceeding in a Swiss court within the ten day period set forth by Swiss Federal Law. Notwithstanding financial concerns, mounting such an opposition within the allotted time frame is logistically cumbersome. Second, assuming that the logistical hurdles of objecting can be overcome, a U.S. account holder then still faces substantive difficulty. Because an account holder cannot validly object on the grounds of his or her innocence of an underlying crime, in most situations that account holder will be unable to prevent U.S. authorities from seeking information about Swiss accounts, freezing such accounts, or forfeiting such accounts. An objection stands only if based upon a ground other than a plea of innocence. This substantive difficulty in setting forth a valid objection is underscored by the binding effect on the Swiss authorities of the facts as set forth in the original Request.
The end result of the Request process, and the limitations on one’s ability to object to it, allows for potentially arbitrary prosecutorial action by the U.S. government. From a U.S. prosecutorial perspective, this aspect of the Swiss Treaty is particularly appealing. Provided they comply with Swiss Treaty provisions, U.S. authorities have the ability to gather information and freeze and/or forfeit Swiss bank accounts without the accused having an effective measure to stop them. The accused’s only recourse would exist in a U.S. court after the authorities had acted. Thus, an accused party’s remedial action will often become available only after his or her Swiss “secret” is out. Because of these logistical and substantive problems associated with objecting to a Request, in most instances an accused’s right to object is more of a theoretical right than a practical reality.
Upon obtaining the desired information through the Swiss Treaty Request process, the requestor country must then comply with the “Limitations on Use of Information” found in Article 5. Article 5 provides that the requestor country may not use information obtained in a Request for the investigation or prosecution of an offense different from the offense named in the Request. Thus, Article 5 serves to curb arbitrary and free-wheeling action by the requestor country once it obtains the information or action sought in its Request.
However, much like the “check and balance” afforded by the ability of an accused to object to compliance with a Request, the Article 5 “Limitations” are, for practical purposes, not very limiting. In most situations, the U.S. government is able to bypass these provisions. Once information becomes part of the public record in the United States, it can be used for other purposes. Additionally, information obtained may, in certain circumstances, be used against the same suspect(s) in a subsequent proceeding. Thus, because of both U.S. domestic laws and the Swiss Treaty provisions themselves, the United States often operates unhindered in its use of information obtained via the Swiss Treaty.
Overall, the process of issuing and complying with a Request tends to be a highly procedural one involving little substantive debate. The U.S. Department of Justice interacts with its Swiss counterpart, and, provided that the Swiss Treaty provisions are satisfied, or some type of agreement is made in the event that they are not satisfied, the process tends to be very mechanical. The mechanics of the Request process are the same whether the United States is seeking to obtain information about a Swiss account or to freeze or forfeit an account. However, action taken and results achieved under the Swiss Treaty may differ from the results the U.S. government could accomplish in an analogous situation involving a domestic bank account. It is therefore necessary to examine more closely actions taken by the U.S. pursuant to the Swiss Treaty and the results of those actions.
B. Swiss Treaty Actions vs. Domestic Actions
When comparing U.S. prosecutorial action taken pursuant to the Swiss Treaty with prosecutorial action that is solely domestic, both the methods and results may differ. First, this Comment reviews situations where a U.S. prosecutorial agency seeks information about a bank account. A comparison is made between the Swiss Treaty mechanics the U.S. government uses in cases involving Swiss accounts, see Part III.A. above, and methods available to the U.S. government in cases involving domestic accounts. Second, and more importantly, this Comment then analyzes actions taken pursuant to the Swiss Treaty with analogous domestic actions in the context of freezing and forfeiting bank accounts.
IV. OBTAINING BANK ACCOUNT INFORMATION
When a United States prosecutorial agency seeks information about bank accounts, Switzerland does offer a slight “secrecy” advantage over that afforded to a U.S. domestic account. However, this is primarily a result of the seemingly “free access” that the government has in the United States to obtain bank information, as opposed to any broad protection offered in Switzerland. While there does exist an historical common law basis to financial privacy in the United States, little to no privacy remains in today’s domestic banking environment. This is due, in large part, to several exceptions to bank secrecy’s common law basis and two strong weapons the U.S. government has to obtain financial information. First, the government and its agencies have ready access to information that is required to be reported under the Bank Secrecy Act (the “BSA”). Second, for information that does not fall within the purview of the BSA’s reporting requirements (for example, information that is required by BSA record-keeping provisions), the government may use a search warrant (commonly referred to as a “financial search warrant” in the context of bank information).
Banking relationships in the United States took their cue from the English common law. In 1924, the King’s Bench in England held in Tournier v. National Provincial and Union Bank of England that banking relationships contain an implied term that bankers will not disclose a customer’s account information. However, Tournier also contains several key exceptions. A banker may disclose account holder information when: (i) such disclosures are mandated by law; (ii) a public duty to disclose exists; (iii) the bank’s interests necessitate disclosure; or (iv) the account holder, expressly or impliedly, consents. Because of these broad exceptions, the Tournier-based banking “secrecy” in the United States failed to amount to much. While the Tournier case garnered discussion, in reality it conferred little of substance upon U.S. bank account holders, and whatever bank “secrecy” did exist in the United States was virtually eliminated with the passage of the BSA.
The BSA was originally enacted in an effort to address: the need for banks to maintain adequate records of transactions and public concerns about U.S. citizens using foreign bank accounts to evade U.S. laws. Since its enactment in 1970, the BSA has expanded upon the Tournier exceptions. In fact, the label “Bank Secrecy Act” is somewhat of a misnomer, if not “wholly cynical,” because, in reality, the BSA is an anti-secrecy measure that imposes reporting and record-keeping requirements upon banks.
In passing the BSA, Congress intended to assist law enforcement efforts by preserving and making available financial information which might prove useful as evidence. The BSA empowers the U.S. Department of the Treasury (“Treasury”) to require banks to keep certain records and to report certain transactions. Banks are “routinely” required to file several types of reports with Treasury. Further, the BSA and subsequent Treasury regulations require the maintenance of numerous other bank records.
Both BSA reports and BSA records have proven useful to law enforcement and prosecutors. However, “[r]ecords required to be kept under the BSA, unlike the BSA reports, generally may be inspected or reviewed by law enforcement authorities only for the purpose of assuring compliance with the BSA’s [record keeping] requirements; in other cases, the authorities must obtain legal process or comply with other legal provisions.” Thus, law enforcement agents are able to access both BSA reports and records when investigating situations beyond BSA compliance; though the process for obtaining records tends to be more involved.
Despite its seemingly intrusive nature, the Supreme Court has held that the BSA does not violate the Fourth Amendment of the U.S. Constitution. The Fourth Amendment provides that
[t]he right of the people to be secure in their persons, houses, papers, and effects, against unreasonable searches and seizures, shall not be violated, and no Warrants shall issue, but upon probable cause, supported by Oath or affirmation, and particularly describing the place to be searched, and the persons or things to be seized.
Four years after Congress enacted the BSA, the Supreme Court of the United States, in California Bankers Association v. Schultz,103 determined that a bank making records pursuant to BSA requirements “neither searches nor seizes records in which the depositor has a Fourth Amendment right.” Less than two years later, in 1975, the Court again addressed a Fourth Amendment challenge to the BSA in United States v. Miller.105 The Miller Court concluded that no “reasonable expectation of privacy” exists in information voluntarily conveyed to banks on things such as negotiable instruments and deposit slips. The Court went on to hold that by obtaining information from a person to whom that information was voluntarily given, the government does not violate the Fourth Amendment. The BSA did not change this; it did not create for a depositor a Fourth Amendment interest in a bank’s records relating to that depositor’s account. Thus, after Schultz and Miller, the BSA appears immune to Fourth Amendment challenges, despite its far reaching provisions.
In response to concerns of eroding financial privacy, in 1978 Congress enacted the Right to Financial Privacy Act (“RFPA”). The RFPA aimed to curb governmental abuse of the BSA. However, the RFPA does not actually provide a right to financial privacy. The RFPA merely requires a bank to inform an account holder prior to turning over requested information to the U.S. government. This provides the account holder with an opportunity to challenge the government’s information request. However, under certain circumstances, the RFPA prohibits banks from notifying the account holder prior to turning over information to the government. The RFPA “right to financial privacy” thus proves illusory.
Not only does the RFPA fail to provide a right to privacy for financial information, it actually expounds the mechanisms by which the government can access bank records. Under the RFPA, law enforcement or a prosecutorial agency can obtain bank record information via the following methods: (i) an account holder’s consent; (ii) an administrative subpoena; (iii) a financial search warrant;(iv) a formal written request; (v) a judicial subpoena; or (vi) a grand jury subpoena. While these requirements offer some protection of an account holder’s privacy, there also exists a major exception. A bank can voluntarily supply the government with account information derived from its records without incurring any liability to the account holder, even if the bank’s suspicions of account holder wrongdoing are later found to be without merit.
Thus, because of the BSA and the RFPA, law enforcement and prosecutorial agencies have broad access to bank information in the United States. The government has ready access to information contained in BSA reports and to information voluntarily provided by banks under the RFPA exception. Moreover, the government can also obtain bank records with a financial search warrant.
A financial search warrant is obtained by law enforcement agencies via the same mechanical process as other search warrants. First, a law enforcement officer seeks an order from a judge or magistrate directing him or her to search for and seize certain property. Upon application, the law enforcement agent must demonstrate probable cause that an underlying crime has occurred and that the subject property is potentially linked to that crime. Typically, a law enforcement officer will submit an affidavit setting forth his or her basis for believing that a crime has been committed and the evidence law enforcement hopes to gather via the warrant.
In comparing the ability of the U.S. government to obtain information relating to domestic bank accounts, as opposed to Swiss accounts pursuant to the Swiss Treaty, the analysis differs depending upon the information sought and the circumstances surrounding the investigation. In light of the Tournier case, the BSA, and the RFPA, the government has virtual “free access” to all but a small percentage of domestic bank information. The government readily obtains information which banks voluntarily turn over pursuant to the RFPA exception and the information contained in BSA reports. When comparing these two categories of information with information accessible under the Swiss Treaty, Switzerland probably does still offer some degree of “secrecy.” However, even this secrecy seems to exist by default. It mostly arises from the administrative process and time involved in processing a Request under the Swiss Treaty, rather than from any substantive benefits afforded by post-Swiss Treaty Swiss law. Although the Request process is straightforward and mechanical, it remains more cumbersome than the “free access” afforded to BSA reports and information which banks voluntarily turn over under the RFPA exception.
With regard to domestic account information not contained in BSA reports or that which is not voluntarily turned over by banks, the comparison of domestic actions with their Swiss Treaty analogues parallels the forthcoming comparison of U.S. civil forfeiture with Swiss Treaty forfeiture. In this small category of information, and in the context of forfeitures, it appears that domestic bank accounts have virtually identical protection from the U.S. government as Swiss accounts do from their government.
V. DOMESTIC FORFEITURE OF BANK ACCOUNTS
It is in the context of bank account freezes and forfeitures that one finds surprising results. Specifically, while overall one’s account information may have slightly more secrecy in Switzerland, once that “secret” is revealed, the U.S. government appears to have the same control over a Swiss account as a domestic account. This section first provides an overview of U.S. forfeiture. The Comment then proceeds to explain why the U.S. government has the same control over a U.S. citizen’s Swiss account(s) as one held in his or her own backyard.
The U.S. government has the ability to seize a domestic bank account via two methods: civil forfeiture and criminal forfeiture. Forfeiture is commonly defined as “a divestiture of specific property without compensation.” Such divestiture normally targets property associated with criminal activity, regardless of whether the forfeiture is criminal or civil in nature. The divestiture itself is usually accomplished pursuant to a statute. While the general notion of forfeiture is the same for both civil and criminal forfeitures, the applications, procedures, and limitations of the two differ remarkably.
A. Civil Forfeiture in the United States
This Comment addresses civil forfeiture first because it is more favorable to law enforcement and, consequently, is used more frequently. The United States has provided for civil forfeiture since 1789, and today’s civil forfeiture proceedings closely resemble those conducted throughout history. Civil forfeiture is an in rem legal action brought by the government against certain property, the res.141 Thus, in such a proceeding the res itself is considered, in theory, to be the “offender” and the “proceeding in rem stands independent of, and wholly unaffected by any criminal proceeding in personam.” At the time of forfeiture, title to the res vests in the government and the “owner,” seeking a return of the property, must file a civil claim against the government. After filing such a claim, the “owner” becomes a “claimant”. The subsequent civil trial takes place in a United States District Court and the claimant must “answer to the government’s forfeiture complaint.”
Significantly, while the government commonly uses civil forfeiture against assets related to criminal activity, no criminal conviction is necessary for the government to civilly forfeit assets. The absence of a required conviction is one of the most attractive qualities of civil forfeiture to prosecutors. Moreover, because the forfeiture proceeding is against the res itself, an individual need not even have criminal charges filed against him or her. The only requirement is that the res be linked with a crime. Generally, such a link for purposes of forfeiture includes: a res whose possession is unlawful; property that is the product of criminal activity; or property that is an “instrumentality” of a crime. Once the property sought to be forfeited is linked to the commission of a crime, the government can seize the property regardless of whether it chooses to prosecute the underlying crime.
Procedurally, civil forfeiture offers a major advantage to prosecutors as well. Although the prosecutor must show that he had probable cause to seize the subject property, once such a showing is made the burden then shifts to the claimant to establish that the property should not have been seized and should be returned. Significantly, “[w]hen a statute provides for civil forfeiture, the forfeiture takes place at the moment the property is used or generated illegally[,] . . .[a]t that moment, all rights and legal title to the property vest in the government . . . [and] [i]n the eyes of the law, subsequent judicial proceedings merely confirm or perfect a forfeiture.” In contrast, criminal forfeiture requires a conviction for an underlying crime prior to instituting a forfeiture action. The standard applied in such a criminal prosecution is that of “beyond a reasonable doubt,” a considerably higher burden than the showing of “probable cause,” law enforcement’s burden in a civil forfeiture. Thus, the burden on the government is considerably lower for civil forfeiture.
Although seemingly not required, in most civil forfeiture cases, law enforcement agents obtain a warrant prior to seizing a bank account. A seizure warrant will be issued by a judge or magistrate upon a showing that there exists probable cause to believe the bank account is subject to forfeiture. The probable cause standard for warrants is mandated by the Fourth Amendment of the U.S. Constitution which holds that “no Warrants shall issue, but upon probable cause.”
In the event the government fails to obtain a warrant prior to seizure, the probable cause standard still governs law enforcement’s conduct. That is, law enforcement, as represented by a prosecutor, will have to demonstrate the existence of probable cause for the seizure at the subsequent forfeiture hearing. A seizure conducted without a warrant is also governed by the Fourth Amendment. Warrantless seizures must not be “unreasonable,” and a seizure undertaken by the government absent a warrant is deemed unreasonable if it is not based upon probable cause. Thus, regardless of whether a warrant exists for a seizure of assets, probable cause remains the governing legal standard in civil forfeiture. Once the government establishes probable cause, the claimant bears the burden of obtaining the return of his or her property.
In seeking the return of property that law enforcement has civilly seized, the claimant must overcome the potential hurdle of “standing.” In other words, the claimant must be the real party in interest to challenge the government’s seizure. This poses potential problems to claimants because, when dealing with assets associated with a crime or derived from criminal activity, legal title is often not in the claimant’s name. “Most courts will not permit forfeitures to be contested by such so-called straw men[;]” “[o]nly those with [a] legitimate possessory interest . . . have standing to challenge forfeitures.” A claimant must establish standing before the prosecution is required to present its evidence justifying the forfeiture.
Another prosecutiorial advantage accompanying civil forfeiture is that it enables a prosecutor to utilize the civil discovery process. Information gathered through civil discovery in a civil forfeiture action can assist a prosecutor in preparing a related criminal case. While this benefit is tempered by the claimant’s Fifth Amendment privilege, an assertion of Fifth Amendment privilege may result in a finding adverse to the claimant’s interests in the civil forfeiture action. Such a factual finding against the claimant is a powerful weapon in the prosecutor’s arsenal because the claimant bears the onus of proving that the property should not have been forfeited. But, on the other hand, for obvious reasons claimants will rarely want to be deposed if criminal charges are pending. Thus, in circumstances where the claimant desires a return of the property, the prosecutor has substantial leverage to depose the claimant, despite the claimant’s desire to assert his or her Fifth Amendment privilege. A claimant’s one defensive move in such a situation is to attempt to obtain a stay of the civil forfeiture proceedings until any underlying criminal case (if one is brought) is resolved. However, this may not prove an effective defense for two reasons: (i) the government may never bring an underlying criminal suit, or (ii) even if the government does proceed with a criminal action, a stay may not be granted. In sum, the discovery associated with a civil forfeiture action provides valuable prosecutorial leverage.
Despite civil forfeiture’s pro-government attributes, “civil forfeiture procedures have been examined by the Supreme Court on several occasions from the time of Chief Justice John Marshall to the time of Chief Justice William Rehnquist and . . . the constitutionality of civil forfeiture has been upheld on each occasion.” However, it is important to remember that claimants are afforded several basic protections. For example, the government must meet the probable cause standard to have assets validly forfeited. Further, the assets must be linked to an underlying crime. Requiring the government to establish probable cause and such a link helps to curb arbitrary government action. Additionally, the claimant has a clearly defined recourse against the government: a civil claim seeking a return of the subject property.
B. Criminal Forfeiture in the United States
Criminal forfeiture is a relatively new practice in the United States. Unlike civil forfeiture, criminal forfeiture of assets is an in personam action, brought against a person as part of a criminal prosecution. For the government to criminally forfeit assets, a criminal must first be convicted of an underlying crime. Further, the subject assets must then be linked to that underlying crime. Once convicted, the government or a court is able to divest a criminal of his or her rights in the subject property pursuant to a criminal forfeiture statute. After divesting the criminal’s rights in the property, the government then cleanses its title to the asset(s) in an ancillary hearing.
Criminal forfeiture’s obvious disadvantage from a prosecutorial perspective is the necessity of obtaining an underlying criminal conviction before the forfeiture of any assets. In an underlying criminal prosecution, the government must prove guilt beyond a reasonable doubt. The “beyond a reasonable doubt” standard requires a considerably higher burden of proof than the “preponderance of the evidence” standard applicable to civil actions. As mentioned above, to civilly forfeit assets the government need only show probable cause in linking those assets to an underlying crime. Then, the onus shifts to the claimant to establish that the seizure was improper. Additionally, the government can civilly forfeit assets without ever bringing an underlying criminal case. Thus, in comparison, the government faces considerably higher hurdles in criminal forfeiture actions than in civil ones.
Consequently, civil forfeiture is used much more frequently by the U.S. government. It thus seems logical to compare U.S. civil forfeiture with forfeiture pursuant to the Swiss Treaty. As the next section illustrates , once the “secret” of the existence of a Swiss account is out, Swiss bank accounts have virtually the same protections against arbitrary government action as domestic bank accounts.
VI. COMPARISON OF DOMESTIC CIVIL FORFEITURE TO SWISS TREATY FORFEITURE
In most contexts, the U.S. government or a U.S. prosecutorial agency has the power to forfeit the Swiss bank account of a U.S. citizen just as easily as it could a domestic account. A Swiss bank account can be forfeited via Swiss compliance with a Swiss Treaty Request. As a prerequisite to Swiss compliance, however, the underlying crime that the Swiss bank account relates to must fall within the scope of the Swiss Treaty. When the prerequisites are met, on its face it appears that the Swiss Treaty actually allows the U.S. government to forfeit a Swiss bank account more easily than it could a domestic account. While this argument has, on at least one occasion, been advanced and accepted, in reality, under the Swiss Treaty one’s Swiss bank account is afforded the same basic legal protections from forfeiture as his or her domestic account(s). That is because, as will be shown, the United States’ procedural and substantive legal burdens in forfeiting a Swiss account are essentially equal to those applicable in domestic civil forfeitures.
While the Swiss Treaty addresses assistance in criminal matters, this section compares the treaty forfeiture process to civil forfeiture in the United States. Although the Swiss Treaty applies only in a criminal context, forfeiture under the Swiss Treaty is conceptually more analogous to civil forfeiture in the United States than it is to U.S. criminal forfeiture. One should also remain conscious of the fact that U.S. civil forfeiture is used frequently in criminal matters, because in the U.S. forfeiture context, use of the term “civil” does not preclude its application to criminal matters. In fact, as mentioned above, civil forfeiture is the preferred forfeiture vehicle of U.S. prosecutors.
Conceptually, U.S. civil forfeiture and Swiss Treaty forfeiture are analogous. While U.S. criminal forfeiture requires prior conviction of an underlying crime prior to forfeiture, U.S. civil forfeiture requires only a showing of probable cause and a showing that the subject asset(s) are linked to an underlying crime. Moreover, U.S. civil forfeiture can occur without a criminal indictment. The Swiss Treaty operates in a similar manner. An account can be frozen and forfeited upon a showing of a reasonable suspicion that a crime has been committed. Thus, under both the Swiss Treaty and U.S. civil forfeiture law, a subject account must be linked to a crime believed to have occurred, but no criminal prosecution or indictment must be obtained prior to seizure of that account.
Procedurally, Swiss Treaty forfeiture also parallels U.S. civil forfeiture. Under the Swiss Treaty, the U.S. Department of Justice is responsible for issuing a Treaty Request to Switzerland’s Division of Police of the Federal Department of Justice and Police (the “Swiss Police”), a Swiss agency comparable to the U.S. Department of Justice. Upon receipt, the Swiss Police review the Request to assure Swiss Treaty compliance. In doing so, except in extraordinary situations, the Swiss Police make no inquiry into the facts provided by the Department of Justice. In essence, a Swiss governmental agency accepts a request issued by an executive agency of the United States; no independent legal evaluation takes place.
In comparison, under U.S. civil forfeiture law, U.S. law enforcement can seize a bank account either with or without a warrant. Swiss Treaty forfeiture closely parallels domestic civil forfeiture commenced without a seizure warrant. When operating without a warrant, law enforcement, under the belief that probable cause exists to do so, simply seizes a suspect bank account. Thus, in both warrantless domestic and Swiss Treaty seizures, no independent third-party review takes place prior to seizure.
While in most U.S. civil forfeitures law enforcement does obtain a seizure warrant, it does so primarily because it is in its own best interest to do so, not because the law requires it. Thus, in terms of procedural legal protection afforded to bank account holders, Swiss bank accounts and U.S. domestic accounts are afforded analogous procedural protection. In both instances, law enforcement has the ability to seize a bank account prior to any independent judicial review. Such review only takes place subsequent to seizure, when the forfeiture is challenged.
While the procedural legal protection afforded under the Swiss Treaty and U.S. domestic forfeiture law are virtually identical, there does appear to exist some differences in the way forfeiture events transpire. However, ultimately, these too do not amount to a difference in legal protection afforded to an account holder.
As discussed supra in Part V.A., domestic civil forfeiture is an in rem action against a res (in this case a bank account or the funds therein). This occurs in a legal action by the government against the account itself (typically denoted “United States v. Bank Account”). In the suit, the government seeks to establish that it had probable cause to seize/freeze the account and, if the government meets this burden, the burden then shifts to the person claiming rightful ownership in the account, the claimant, to establish by a preponderance of the evidence that the account is not subject to forfeiture. In contrast, in a Swiss Treaty forfeiture situation, the Department of Justice (DOJ) (usually at the request of a governmental agency such as the Securities and Exchange Commission (SEC), for example) issues a Request to Switzerland under the Treaty. If the Swiss comply, the account is frozen. Typically, in such a situation the claimant seeks an injunction against DOJ (or the agency that asked DOJ to issue the Request) (typically denoted “Claimant v. Department of Justice”). Specifically, the claimant seeks to have a U.S. federal court enjoin law enforcement’s seizure of his or her assets and asks the court to direct law enforcement to instruct the Swiss government to release the frozen funds. In the event that the claimant’s request for an injunction is denied, as is usually the case, the assets are transferred from Switzerland to the U.S. government and the situation proceeds in a fashion remarkably akin to that of a domestic civil forfeiture. Thus, while the actions may proceed differently, from a practical legal perspective the protections afforded to the account holder do not differ in a meaningful way.
Substantively, it appears at first glance that the burden of showing that a bank account is subject to forfeiture is lower under the Swiss Treaty than that required in domestic civil forfeiture. To obtain compliance with a Swiss Treaty Request, the United States must demonstrate that a reasonable suspicion exists to believe that the elements of an underlying crime are present and that the subject account is linked to that crime. In comparison, in U.S. civil forfeiture actions the government must demonstrate that probable cause exists for an account to be seized. In the United States, “[n]o property may even be seized or arrested for purposes of forfeiture unless the [U.S.] Government has probable cause to believe it is subject to forfeiture.” The Swiss Treaty’s Technical Analysis openly states that the “‘reasonable suspicion’ standard is less stringent than the ‘probable cause’ standard . . . .” Thus, it appears that “on paper” the Swiss Treaty offers less substantive legal protection to U.S. citizens’ Swiss bank accounts than their domestic accounts would receive in an analogous domestic proceeding.
At least one court has grasped this idea and, in doing so, held that a seizure made pursuant to the Swiss Treaty’s reasonable suspicion standard violates the Fourth Amendment. In Colello v. United States Securities and Exchange Commission, the Central District of California held, on motion for summary judgment, that freezing Mr. Colello’s Swiss bank accounts pursuant to the Swiss Treaty violated his Fourth Amendment rights. The Colello court’s reasoning, as set forth below, was fairly straightforward and, given the facts of the case, appears sound.
In general, the U.S. Constitution applies when a U.S. citizen is harmed abroad by the U.S. government. The question then arises whether the Fourth Amendment applies to a U.S. citizen’s assets abroad. The answer seems to be a resounding “yes”, provided the U.S. government is the actor. In other words, the Fourth Amendment provides a “check” against actions taken by the United States government, and this check encompasses actions taken against U.S. assets abroad.
More specifically, the Fourth Amendment’s application must be examined in the context of Swiss bank account forfeiture under the Swiss Treaty. The Fourth Amendment provides that people shall be secure against “unreasonable searches and seizures” and that warrants shall not issue except “upon probable cause.” Property is “seized” when there is a “meaningful interference with an individual’s possessory interest in that property.” Freezing a bank account clearly constitutes a “meaningful interference,” and in Colello, both the DOJ and the SEC (the agency that had requested DOJ to issue the Swiss Treaty Request in the case) conceded that an “asset freeze was in fact a ‘seizure.’” Additionally, a “seizure” is subject to the Fourth Amendment even in instances where no “search” has taken place. Thus, it seems clear that the Fourth Amendment applies to U.S. governmental actions against its citizens’ Swiss bank accounts.
Because, as noted in Colello, the Fourth Amendment applies to seizures by the United States of Swiss bank accounts pursuant to the Swiss Treaty, the question as to the exact meaning of the Amendment’s application then arises. The Fourth Amendment states that the probable cause standard applies to the issuance of warrants. However, under the Swiss Treaty a seizure takes place absent a warrant. Therefore, one must look to the first portion of the Fourth Amendment which protects against “unreasonable searches and seizures.” Thus, in the case of the U.S. government’s seizure of a Swiss bank account pursuant to the Swiss Treaty, the Fourth Amendment requires that the seizure must not be “unreasonable.”
Interestingly, a seizure undertaken by the government absent a warrant is unreasonable if it is not based upon probable cause. “Dispensing with the need for a warrant is worlds apart from permitting a lesser standard of cause for the seizure than a warrant would require, i.e., the standard of probable cause.” Thus, despite the lack of a warrant requirement under the Swiss Treaty, the Fourth Amendment mandates that the probable cause standard governs U.S. forfeiture actions under the Swiss Treaty.
In Colello, the DOJ, at the request of the SEC, seized Mr. Colello’s Swiss bank accounts pursuant to the Swiss Treaty. DOJ satisfied the Treaty’s reasonable suspicion standard, and the Swiss complied with the Request, freezing Mr. Colello’s bank account. The court, on motion for summary judgment, held that the SEC violated Mr. Colello’s Fourth Amendment rights by not having probable cause to commence such an action. Despite compliance with the terms of the Swiss Treaty, the U.S. government’s actions in Colello were unconstitutional. Because the Fourth Amendment applies to U.S. citizens’ assets abroad, the government cannot end run the U.S. Constitution by merely complying with a treaty’s standard. The Swiss Treaty, like all treaties to which the United States is a party, is subject to the U.S. Constitution. Thus, notwithstanding compliance with the Swiss Treaty’s standard of reasonable suspicion, the U.S. government may not seize a Swiss bank account without probable cause. Because the government lacked probable cause in Colello, its seizure of Mr. Colello’s account violated the Fourth Amendment of the U.S. Constitution.
While it is clear that “on paper” the Swiss Treaty offers U.S. citizens’ Swiss bank accounts less protection than that afforded to their domestic accounts, in actuality the protection afforded is virtually the same. It is clear that, despite the language of the Swiss Treaty, the appropriate standard to be applied under the Treaty is one of probable cause. After all, the Fourth Amendment does not distinguish between Swiss Treaty forfeitures and domestic civil forfeitures, and neither do the courts in applying the Fourth Amendment. Thus, after Colello reaffirmed what U.S. law enforcement should have already known, it will not likely proceed in the future under the Swiss Treaty without probable cause, regardless of what the Swiss Treaty purports to allow. The end result is that, for practical purposes, U.S. citizens’ Swiss bank accounts have the same substantive legal protection against forfeiture that is afforded to their domestic accounts; therefore, Swiss accounts will not be seized absent probable cause.
In light of the Swiss Treaty, the real “secret” in today’s Swiss banking environment is the distinct lack of advantages it offers to U.S. account holders. Admittedly, in the context of merely obtaining information about a Swiss bank account, Switzerland does still offer some advantage over a domestic account. However, these benefits occur primarily by default, as Switzerland offers secrecy when compared to the United States, only because the U.S. banking environment offers so little secrecy. Broad domestic access to bank accounts in the United States, coupled with the administrative hurdles under the Swiss Treaty, gives Switzerland a slight advantage in keeping account information secret from U.S. law enforcement. But, even this slight advantage is significantly tempered by the ease and mechanical nature of obtaining compliance with a Swiss Treaty Request.
Moreover, while information may prove slightly more “secret” for a brief time period, once an account holder’s Swiss “secret” is out, he then has forfeiture protection from the U.S. government which is virtually identical to that afforded domestic bank accounts. In today’s banking environment, this is the real “secret” of Swiss bank accounts.