Legal hurdles in cooperating with foreign governments

Author: | Published: 12 Mar 2015
Email a friend

Please enter a maximum of 5 recipients. Use ; to separate more than one email address.

With an unprecedented rise in the number of whistleblowing cases in the Swiss banking sector, Saverio Lembo and Christophe Hensler of Bär & Karrer consider the far from simple application of the legal provisions

www.baerkarrer.ch

Since the 2008 financial crisis, many governments have focussed on the prosecution of taxpayers with foreign undeclared bank accounts, and of banks, bankers and other professionals. As the global market leader in the cross-border private banking business, Switzerland is under unprecedented pressure. Its banking secrecy is targeted by neighbouring countries and the US. In their effort to crack down on tax evasion, foreign governments have been helped by whistleblowers from the Swiss banking sector, who have passed on or sold them bank clients' details. Whistleblowing is not a new phenomenon in the Swiss banking industry, but it has increased significantly over the past few years. In some instances, foreign governments have also obtained information from individuals convicted abroad of assisting taxpayers to evade tax and who cooperate to receive a reduction in their sentence. This article will provide an overview of the main Swiss criminal law provisions, which prohibit the theft and disclosure of banking information for foreign authorities or courts, and look at how they have been applied to whistleblowers in recent cases by Swiss courts and authorities.

Overview of Swiss criminal law provisions

Unauthorised obtaining of data

Article 143 of the Swiss Criminal Code (SCC) prohibits the unauthorised obtaining of electronic data, also known as data theft or data espionage. It reads as follows (unofficial translation):

Whoever, with the intention of procuring himself or a third party an unlawful gain, takes, for himself or a third party, data which is recorded or transmitted electronically or in a similar way, and which is not intended for him and was specially protected against unauthorised access, shall be sentenced to imprisonment not exceeding five years or to a monetary penalty.

The data protected by article 143 SCC is all information processed, stored and transmitted by way of a computer.

Data is specially protected when it is not intended to be accessible to the person who stole or intercepted it . The protective measures, which can include both software protection (such as passwords and encryption) and physical protection (such as locking server rooms and limiting access to buildings), must make access sufficiently difficult.

Breach of manufacturing or business secrecy

Article 162 SCC was enacted to protect the individual interest of individuals wishing to maintain confidentiality. It reads as follows (unofficial translation):

Whoever discloses a manufacturing or business secret which he or she was legally or contractually bound to safeguard, whoever uses such disclosure for his or her own profit or the profit of a third party, shall be sentenced, upon complaint of the aggrieved party, to imprisonment not exceeding three years or to a monetary penalty.

Article 162 SCC defines manufacturing or business secrets as facts relevant to the economic result achieved or aimed at by a company; for example, manufacturing processes, plans, suppliers and customer lists. It is a criminal offence prosecuted only if the aggrieved party files a criminal complaint.

Economic espionage

The purpose of article 273 SCC is to protect the territorial sovereignty of Switzerland and its economic independence and security, by prohibiting the disclosure of trade or business secrets to foreign authorities and private persons. It reads as follows (unofficial translation):


"Whistleblowing in the Swiss banking sector has increased significantly over the past few years"


Whoever seeks to discover a manufacturing or business secret, to make it accessible to a foreign official or private agency, or a foreign private enterprise, or their agents, any person who makes a manufacturing or business secret accessible to a foreign official or private agency, or a foreign private enterprise, or their agents, shall be sentenced to imprisonment not exceeding three years or to a monetary penalty, or in serious cases to imprisonment for not less than one year. An imprisonment sentence can be combined with a monetary penalty.

Article 273 SCC does not protect all kind of information, but only confidential information. The scope of this notion covers any data and business facts: (i) that are known only by a restricted group of persons, of economic importance and difficult to access from abroad; (ii) that the interested persons intend to keep secret; and (iii) which, from a Swiss standpoint, need to remain secret.

The information that a company receives from its customers falls within the scope of article 273 SCC. As such, identities of bank customers are protected.

Under a ruling of the Swiss Supreme Court, a secret, according to the meaning of article 273 SCC, may also cover information related to business practices that are in breach of foreign laws, such as tax or antitrust laws.

The information protected by article 273 SCC should also have a sufficient nexus with Switzerland. Swiss courts and authorities have, in this respect, a large degree of discretion as to what constitutes a sufficient nexus with Switzerland.

Article 273 SCC is prosecuted ex officio but, due to its political nature, any prosecution under this provision is subject to the prior approval of the Swiss Federal Council (article 66 of the Criminal Federal Authorities Organisation Act, CFAOA). The latter has a broad discretion in its decision regarding the opportunity to initiate proceedings. Under article 23 (1) (h) CPA, the Swiss federal prosecuting authorities (Office of the Attorney General of Switzerland, OAGS) have exclusive jurisdiction to prosecute.

Banking secrecy

Switzerland enshrined banking secrecy as a criminal offence in article 47 of the Banking Act (BA).

First, it is important to note that article 47 BA only applies to the disclosure of information by bank directors, employees or auditors that conduct banking activities in or from Switzerland in an entity that has been licensed as a Swiss Bank by the Swiss Financial Market Supervisory Authority (Finma).

Article 47 (1) BA reads as follows (unofficial translation):

Shall be sentenced to imprisonment not exceeding three years or a monetary penalty, anyone who willfully:

a. Discloses a secret that is entrusted to them in their capacity as body, employee, appointee, or liquidator of a bank, as body or employee of an audit company or that was brought to their knowledge in such capacity; or

b. Induces a third person to violate professional secrecy.

Article 47 (2) BA adds that 'persons acting by negligence will be sentenced to a fine not exceeding SFr250,000' ($265,000).

Swiss law does not provide a statutory definition of banking secrecy. However, the term may be defined as the professional discretion which banks, their employees or individuals belonging to any of their bodies must observe with respect to financial and personal affairs of their clients during the exercise of their profession.

The duty of confidentiality resulting from article 47 BA extends to all data that the bank has acquired knowledge of in connection with its business relationship with the client (including the mere existence of the banking relationship).

Contrary to popular belief, Swiss banking secrecy is not absolute. It can be waived first by the client, who is the so-called master of the secret. Further, article 47 (5) BA provides that provisions of federal and cantonal legislation regarding the duty to inform authorities and give testimony in court overrides Swiss banking secrecy. Swiss banking secrecy can also be waived under certain circumstances by a judicial or administrative authority in civil, administrative or criminal proceedings.

Recent cases

WikiLeaks

This long-running saga began in 2005 and is ongoing.

The whistleblower is a Swiss citizen who was chief operating officer of a Swiss bank in the Cayman Islands until his dismissal in 2002. He was still in possession of backup copies of data and started to disclose information about undeclared accounts to Swiss media and tax authorities in 2005.

On September 27 2005, the Zurich General Attorney's Office opened an investigation against him on suspicion of violating banking secrecy. He was arrested and held in custody for 30 days. He came into prominence as a whistleblower later in 2008 when WikiLeaks' website published confidential banking documents provided by him.

On January 17 2011, two days before going on trial, he held a press conference with a WikiLeaks representative and publicly handed over two CD-ROMs allegedly containing additional data about offshore bank accounts.

On January 19 2011, the Zurich District Court sentenced him to a SFr7,200 fine with probation for a period of two years for threats, multiple counts of attempted coercion and violation of banking secrecy. Both the whistleblower and the attorney general appealed against the judgment.

On the same day of the first instance judgment, the whistleblower was arrested on renewed suspicion of violation of Swiss banking secrecy for the information disclosed two days earlier and was taken into custody on the grounds of urgent suspicion and risk of collusion. He was finally released from custody on July 25 2011.

At the appeal hearing, on November 17 2011, the Zurich Supreme Court decided that it lacked clear evidence to rule on appeal and asked the attorney general to complete his investigation. It was not clear whether the CD-ROMs contained data of bank clients in Switzerland or only in the Cayman Islands. This question is of importance as the whistleblower denies the charges against him, and argues that he should not be prosecuted under Swiss banking secrecy laws because his data came from the Cayman Islands subsidiary.

The attorney general conducted additional investigations and, on December 10 2013, amended the indictment.

The new trial before the Zurich District Court began one year later, on December 10 2014, but was stayed on the first day after the whistleblower collapsed. The trial is due to continue in 2015.

Swiss banking data sold to Nordrhein-Westfalen

The whistleblower in this case, a former employee of a Swiss bank, provided confidential data on German clients, and internal banking documents, to an accomplice who sold them for €2.5 million ($2.8 million) to the German state of Nordrhein-Westfalen. The amount was shared with the whistleblower.

The OAGS started criminal proceedings on February 6 2010, following the revelations by the German press on the purchase of bank information by the tax authorities. On September 14 2010, the OAGS arrested and took into custody the accomplice. The latter committed suicide a few days later while in custody. The whistleblower was arrested in the Czech Republic on September 15 2010 and extradited on November 18 2010 to Switzerland where he was taken into custody. He was released from custody on February 17 2011 and alternative measures were ordered against him.

Upon request from the whistleblower, the OAGS decided on September 6 2011 to continue the prosecution by way of so-called accelerated proceedings. The latter explained that he started stealing confidential data from his employer "to kill time, out of passion and historical interest".

In its decision dated December 15 2011, the Swiss Criminal Federal Court ratified the sanctions proposed by the OAGS and sentenced the former employee to 24 months suspended imprisonment with a probation period of two years and a fine in the amount of SFr3,500.

Swiss banking data sold to German tax authorities

On August 22 2013, a former employee of a Swiss bank was found guilty by the Swiss Criminal Federal Court of aggravated economic espionage, money laundering, breach of business secrecy and violation of banking secrecy. He was sentenced to 36 months imprisonment, of which 18 months suspended imprisonment with a probation period of two years. Also, the Court ordered the seizure of his assets to guarantee a compensatory claim by the Swiss authorities worth €739,100.

Between October and December 2011, the whistleblower, an IT specialist who was an interim employee of a Swiss bank in Zurich, searched and collected client data in different internal systems of the bank following the incentive of a German intermediary. He copied data of wealthy German and Dutch clients during his working hours. He sent 15 emails from his work computer to his private mailbox with attachments containing client names, addresses, account numbers, opening dates, account balances and currencies. He then filtered the data on German clients with more than 100,000 euros, Swiss francs, pounds sterling or US dollars and, in December 2011, sent a sample of the information (on approximately 100 clients) to his accomplice in Berlin, a retired German tax inspector. Later on February 2012, he met his accomplice in Berlin and handed over data on 2,700 German clients of the bank for transfer to the German tax authorities.

The whistleblower had agreed with his accomplice on a reward of €1.1 million for the collection and delivery of client data. In March 2012, the whistleblower received €200,000 in cash in Berlin. He had intended to use the rest of the money to pay off taxes he owed in Germany.

In May and June 2012, he sent a new sample of information on 42 Dutch clients to his accomplice with the intention to sell them to the Dutch tax authorities. They intended to sell these data for €400,000 but the Dutch tax authorities refused to buy tax information from an anonymous source.

On July 24, 2012 the bank filed a criminal complaint and the Zurich Attorney General Office opened an investigation against the whistleblower and his wife. On the same day, the whistleblower was arrested and taken into custody. On August 3 2012 the Zurich Attorney General Office transferred the case to the OAGS who opened an investigation for economic espionage, violation of banking secrecy and money laundering.

The whistleblower admitted that he copied and sold client data from the Swiss Bank to the German tax authorities through an intermediary in Berlin. Upon his request, the OAGS decided on May 17 2013 to continue the prosecution by way of accelerated proceedings.

In its decision dated August 22 2013, the Swiss Criminal Federal Court found the former employee guilty of the charges mentioned above and ratified the sanctions proposed by the OAGS. On the question of the adequacy of the 36 months imprisonment, the Swiss Criminal Federal Court referred to its previous decision of December 15 2011 (the Nordrhein-Westfalen case) and the fact that 24 months imprisonment and a fine in the amount of SFr3,500 were at the lowest admissible limit. In the present case, the Swiss Criminal Federal Court considered that a sentence of 36 months imprisonment was adequate.

Swiss banking data handed over to US authorities

On July 21 2014 a former employee of a Swiss bank was found guilty by the OAGS of economic espionage and sentenced to a fine of SFr6,000 with a probation period of two years.

The whistleblower was a registered investment advisor with the US Securities and Exchange Commission. From 1995 to August 2008, he was employed by a Swiss bank as a private banker. From February 2009, he worked as an independent investment advisor.

He was working closely with a fellow former banker at the Swiss bank and arranged to travel to the US and meet with clients to discuss their investments in undeclared accounts. He was arrested in a hotel in Miami on November 8 2010, after meeting with a client (who was cooperating with the US authorities).

The whistleblower started cooperating with US officials, providing information about his former US clients who evaded income taxes and his former Swiss colleagues who assisted them.

On December 22 2010, he pleaded guilty to conspiring to defraud the US and was sentenced on November 18 2011 to sixty months probation and ordered to return to the US at least once a year to assist the Justice Department in its ongoing investigations of illegal cross border banking.

On July 3, 2012 the Zurich General Attorney's Office opened an investigation against the whistleblower on suspicion of violation of banking secrecy. On April 10 2013 it handed over the investigation to the OAGS.

During a hearing before the OAGS, the whistleblower explained that the US authorities obtained information by confiscating his laptop, his smartphone and work documents during his arrest in 2010. However, he also admitted that he later handed over financial statements of two undeclared US clients. These were former clients that he introduced to another bank. The two financial statements that he handed over to the US authorities came from the other bank. He also admitted that he had been interrogated by the US authorities, where he was confronted with the depositions of 12 former clients and was requested to confirm information already in the hands of the US authorities.

In its decision, the OAGS considered that there was no violation of banking secrecy with respect to the information obtained from his laptop and smartphone as the disclosure was the result of coercive measures and because he did not disclose the information on his own. With respect to the two financial statements that he later handed over to the US authorities, they came from another bank of which the whistleblower had never been an employee or representative. It follows that he was not subject to the Banking Act and Article 47 BA was not applicable to this case. The OAGS dismissed the charge of violation of banking secrecy. However, even though the whistleblower was not subject to banking secrecy for the two financial statements, the OAGS considered that these documents represented business secrets and were thus protected by Article 273 SCC. Moreover, the content of the financial statements was known only by the clients, the bank and the external investment advisor and so they had a legitimate interest for the content to remain undisclosed to third parties. Therefore, the whistleblower was found guilty of economic espionage under Article 273 (2) SCC.

A so-called state of necessity, to justify the whistleblower's actions, was rejected by the OAGS. Although the whistleblower was required to cooperate with the US authorities to receive a reduction in his sentence, the OAGS considered that the higher interests of the State, in particular the Swiss economy, and the interest of the clients to business secrecy clearly overrode the interest of the whistleblower to benefit from a more lenient sentence.

Disclosures on French politician

On December 19 2014, a former employee of a Swiss bank was found guilty by the Swiss Criminal Federal Court of economic espionage and violation of business secrecy. He was sentenced to two years suspended imprisonment with a probation period of three years.


"Whistleblowers expose themselves to civil and criminal sanctions, not to mention reputation damages"


The whistleblower, who was fired from the Swiss bank at the end of 2009, accepted to be heard by the French Customs services in February 2013 and to testify on tax evasion. In April 2013, he was heard by the judges in charge on an investigation of the Swiss bank accounts of a former French budget minister. He also alleged that he had a list of French politicians who had undeclared accounts in Switzerland. On June 14 2013, he provided the French media with an internal document from the Swiss bank (which turned out to be forged).

On June 17 2013, the bank filed a criminal complaint with the OAGS against the former employee for theft, forgery and violation of professional and business secrecy.

The whistleblower was arrested on July 5 2013 when he came back to Switzerland and was held in custody for two and a half months. He finally admitted to the charges of economic espionage and violation of business secrecy. The OAGS decided to dismiss the charges of violation of professional secrecy and forgery.

The trial before the Swiss Criminal Federal Court on December 19 2014 was a closed-door hearing in order to preserve confidential information. According to Swiss media, the whistleblower was found guilty of economic espionage and violation of business secrecy. He was, however, not convicted of violating banking secrecy because he was not working as a banker, but at the bank's concierge service for wealthy clients, which is a separate entity of the Swiss bank licensed by the Finma.

Swiss banking data handed over to France and Spain

The OAGS announced on December 11 2014 that it had filed a bill of indictment with the Swiss Criminal Federal Court against an IT specialist of a Swiss bank for aggravated economic espionage unauthorised obtaining of data, breach of business secrecy and violation of banking secrecy.

The whistleblower is suspected of having, since February 2008, handed over banking data to Lebanese banks, to the French Tax Investigations Office in Paris and to other foreign authorities.

The whistleblower started transferring client account data to his own data carriers in October 2006 in order to compile personal and financial data on the bank's clients and thus obtain complete client profiles.

The OAGS learned in April 2008 that a man and a woman had attempted to sell banking data in Lebanon and decided to open an investigation in May 2008. The OAGS discovered the names of the two individuals later in December 2008 and interrogated the whistleblower about his activities in Lebanon. The latter fled Switzerland during the night following the first hearing.

The whistleblower, who is a Franco-Italian national, took refuge in France. Swiss authorities requested urgent mutual legal assistance from the French authorities. He was arrested in January 2009 and questioned during that month. House searches were conducted at his domicile in France and various objects were seized. Based on the data seized, the attorney general of Nice decided to open his own investigation against alleged French tax evaders.

The whistleblower was released and rearrested in Barcelona in the summer of 2012 under an international arrest warrant issued by Switzerland. On May 8 2013 a Spanish court ruled against his extradition to Switzerland on the grounds that violating banking secrecy laws was not a criminal offence in Spain.

On December 11 2014 the OAGS submitted the bill of indictment to the Swiss Criminal Federal Court. The trial is due to take place in 2015.

A rocky path for whistleblowing cases

Whistleblowing in the Swiss banking sector has increased significantly over the past few years, although the cases presented in this paper are probably only the tip of the iceberg. Investigations on whistleblowing are often lengthy because of the difficulty in determining if data was stolen or disclosed. In addition, the investigations are usually kept confidential in order to safeguard the interests of the master of the secret.

The cases in this paper also show the influence of jurisdiction considerations on the prosecution of whistleblowers. The OAGS has exclusive jurisdiction to enforce Article 271 and 273 SCC, but prosecutions are often initiated by cantonal prosecuting authorities for violation of banking secrecy and are later transferred to the OAGS.

Imprisonment sentences are often lenient, and reduced to a suspended imprisonment. One explanation is that the most cases use accelerated proceedings, where the whistleblower has admitted to the criminal offences and accepted the civil claims. The role of the court is therefore limited to accepting or rejecting the plea agreement between the attorney general and the whistleblower.

Finally, the cases discussed show that, under Swiss law, whistleblowers expose themselves to civil and criminal sanctions, not to mention reputation damages. So far, apart from very few exceptions, the Swiss legislator has not enacted laws protecting whistleblowers.

About the author
 

Saverio Lembo
Partner, Bär & Karrer

Zurich, Switzerland
T: +41 58 261 57 00
F: +41 58 263 57 40
E: saverio.lembo@baerkarrer.ch
W: www.baerkarrer.ch

Saverio Lembo heads Bär & Karrer's white collar crime practice group, as well as the litigation and arbitration team of the Geneva office.

He has extensive experience in white collar crime, commercial and financial litigation, international judicial assistance (civil and criminal), arbitration and insolvency. During recent years, he has been involved in a number of complex commercial litigation proceedings, has served as a party representative or arbitrator in various domestic and international commercial arbitrations and has assisted clients in Swiss and foreign criminal proceedings.

Lembo's practice also extends to pharmaceutical litigation, inheritance law, employment matters and enforcement of foreign judgments and awards.

Since 2012, the International Who's Who lists him among the world's leading practitioners in the areas of Business Crime Defense, Asset Recovery Lawyers and Commercial Litigation. Since 2010, The Legal 500 lists Lembo among the leading individuals in Switzerland in dispute resolution.