In a recent decision, the Swiss Federal Tribunal (Swiss Supreme Court), acting on appeals by COB, the French Stock Exchange Commission, ruled against a decision of the Court of Geneva denying COB's request for assistance in a case of suspected insider trading. This is a good illustration of the present status of banking secrecy and the interrelation of the complexities of international judicial assistance in matters of fraud. An update of the forthcoming changes in the Swiss legislation.
In 1988, an entity based in Geneva purchased shares in a listed French company just before another group took a major stake. The COB, suspecting a case of insider trading, requested the cantonal justice authority to provide them with the identity of the purchaser in application of prevailing mutual assistance treaties. The suspected purchasor opposed that his name be divulged on the basis that the COB is not a body having penal powers in France, and as such should not benefit from the treaty. The defendant's argumentation was initially accepted by the Court of Geneva. However in 1992, the Federal Tribunal overturned this decision on an initial appeals by the COB, accepting the latter's arguments that although it did not have judicial authority, its investigations might ultimately lead to criminal proceedings. This decision reversed the case to the Cantonal Court of Geneva, with a request to the COB to provide further details, as to the scope of its investigative powers within its own country.
COB's renewed demand for assistance came before the Court of Geneva in March 1994, and was denied anew on the argument that, whithin France COB's requests for information from banks had to be enforced by investigating judges, who are the ones habilitated to request international judicial assistance.
This Cantonal decision has now been overturned by the recent Supreme Court ruling. According to the Federal Judges, although certain acts the COB wants to carry out within its own territorial jurisdiction require the intervention of an investigational judge, it is empowered in France to investigate cases of suspected insider trading and to administer fines to those who refuse to cooperate or testify during the investigation process, thereby being granted with investigative powers itself. Consequently, the COB is entitled to obtain direct assistance from the Swiss judiciary.
This decision of the Federal Tribunal is in line with the present trend of simplifying requests for international assistance in matters of economic crime. This assistance should also be facilitated by the new law concerning the Stock Exchange, which will allow the Swiss Stock Exchange Commission to provide certain information to its foreign counterparts.
BANKING SECRECY IN SWITZERLAND
In Switzerland, banking secrecy is established by civil and administrative law. For instance, in the event of flagrant breach of confidence committed by a bank, the Federal Banking Commission may revoke the authorisation for the bank to conduct business. However, what sets Switzerland apart, is that banking secrecy is also protected by criminal law. Anyone found violating the secrecy is liable for up to six months imprisonment and to a fine up to SFr. 50'000.
Up until now, the veil of banking secrecy might only be lifted under domestic law within a Swiss legal proceeding or pursuant to agreement with a foreign judicial authority.
Concerning civil matters, under the Swiss Constitution, civil procedure is a matter for the cantons and not for the Confederation. The rules governing banking secrecy in civil litigation differ from canton to canton.
In some cantons a banker may be obliged to give evidence. In others it is up to the judge to determine whether a banker should give evidence or not. In others, nobody subject to professional secrecy can be obliged to give evidence in civil cases.
In criminal matters, there is no exemption possible, for any category of profession (lawyers, accountants or bankers) from giving evidence in criminal proceedings, if summoned to do so by the judicial authority.
In administrative matters on the other hand, there has been until now, no way of waiving the banking secrecy rule to obtain information in administrative proceedings. The recently adopted Swiss law on Stock and Commodity Exchanges, currently being implemented, enlarges the administrative powers of the Federal Banking Commission to the surveillance of the Exchanges, effectively giving it the additional role of Stock Exchange Commission. Under the new law, the Federal Banking Commission will, as a result of its supervisory powers, be able to obtain client related information normally protected by banking secrecy, if there is a suspicion of insider trading or stock manipulation.
INTERNATIONAL MUTUAL ASSISTANCE
A. In civil matters:
On January 1, 1995 Switzerland became a member of the 1965 Hague Convention on the Service Abroad of Judicial and Extra Judicial Documents and the 1970 Hague Convention on Taking of Evidence Abroad in Civil and Commercial Matters.
B. In criminal matters:
Switzerland is party, on a multilateral basis, to several Council of Europe conventions: Mutual Assistance (1959), Transfer of Sentenced Persons (1983) and Laundering, Search, Seizure and Confiscation of the Proceeds from Crime (1990). It has also concluded bilateral treaties with the USA, Australia and Canada and declarations of reciprocity with India, Japan and Russia.
Outside these treaties, foreign states may ask for assistance under the Swiss domestic law on mutual assistance: The Swiss Federal Act on International Assistance in Criminal Matters (IMAC). This act is also of vital practical importance where a treaty exists with the requesting country. Indeed, the international agreements rarely prescribe how a request is to be executed, simply referring to the domestic law of the country receiving the request.
In essence, IMAC provides for the following key elements:
- 1. Dual criminality: The Swiss will apply compulsory measures only if the object of the request for assistance is punishable both under the foreign and Swiss law.
- 2. Proceedings qualifying for assistance: in order to qualify for assistance under IMAC the proceeding must be appealable before a judicial authority in the requesting country.
- 3. Proportionality: the information requested must be relevant and in proportion to the proof required from abroad
- 4. Specificity: The use of results of investigations made in Switzerland is limited to the investigation and trial of the offences for which the assistance was requested. It excludes use in other proceedings such as administrative, fiscal, political or military offences.
C. In administrative matters:
In most countries, insider trading investigations are carried out by specialised administrative bodies, outside the judicial system, such as the SEC in the United States and the COB in France. Frequently, these investigations necessitate access to banking information related to customers in foreign countries, and involve jumping over the more or less impregnable wall of the banking secrecy rules in these countries.
In some administrative matters such as social security, double taxation, antidumping , international agreements provide for the conditions of mutual assistance between authorities.
In other areas, the assistance is either impossible or relies on voluntary cooperation. Hence, so far, it has been impossible to exchange information normally protected by Swiss law such as that related to a bank account.
In its new supervisory role of the Stock Exchanges, the Federal Banking Commission will be enabled to share information concerning insider trading, including banking information related to customers, with its foreign counterparts. However the information provided at the administrative level cannot be used as evidence in a criminal proceeding. To this avail, the rules governing international mutual legal assistance will continue needing to be abided by.
For any further information on this topic, please contact Deloitte & Touche SA, Geneva, Marie-Christine Chalon, Senior Manager in charge of Fraud prevention and Fraud investigations (41-22- 788 02 46).
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.