Swiss Numbers Game

As chairman of the House Banking and Currency Committee, Texas Democrat Wright Patman has made a career of jousting with U.S. bankers. Last week he thrust at their Swiss counterparts, whose secret subterranean vaults have long been the world's principal haven for nervous money--accounts whose owners are not anxious to admit ownership. After two days of public hearings, Patman called for legislation making it illegal for Americans to deal with any foreign bank that does not allow inspection of its records by U.S. regulatory agencies.

Patman's probe focused on that mystique-shrouded feature of Swiss banking, the anonymous numbered account. Robert M. Morgenthau, U.S. attorney for the Southern District of New York, testified that such accounts have become increasingly popular with Americans. Some who use them are underworld hoodlums, but many more are otherwise ordinary businessmen who play the Swiss numbers game to cheat Washington out of "tax revenues in the many millions of dollars." The various ways in which such accounts are used to avoid income taxes, said Morgenthau, "are almost as numerous as the ways of earning money" (see box next page).

No Responsibility. Numbered accounts are particularly handy for circumventing U.S. securities laws. To get around the restrictions on trading by "insiders," for example, corporate officers sometimes buy or sell stock in their own companies through Swiss banks. Other U.S. investors use the banks to sidestep margin requirements. The Government estimates that all foreign banks --in Panama, Nassau and West Germany as well as in Switzerland--account for at least 8% of the transactions on the New York Stock Exchange. In singling out Switzerland, U.S. officials seemed most disturbed about their lack of precise knowledge about all that may be going on. Swiss bankers, Assistant U.S. Attorney General Fred M. Vinson Jr.* told the committee, "are difficult to get information from of any sort."

That difficulty is understandable. Switzerland owes its famous banking prowess to the soundness of its currency, the secrecy of its financial men and the neutrality of its politicians. Numbered accounts were introduced in the 1930s to thwart Nazi Germany from hunting down assets hidden abroad by its citizens, mostly German Jews. As a rule, only one or two top bank officers know the identity of holders of such accounts. Under Swiss law, those who do know have a "duty to observe silence of professional secrecy." Otherwise they face a fine of up to $5,000 and six months in jail.

Swiss bankers admit that numbered accounts have been exploited, but they put most of the blame on the 100 or so foreign-owned banks in their country and only a handful of small, Swiss-owned institutions. They insist that, contrary to legend, the biggest banks do not cater to South American dictators or Mafia magnates. Moreover, the overwhelming majority of the thousands of numbered accounts belong to Europeans rather than Americans.

The Swiss insist that they are trying to cooperate with Washington as best they can. As one piece of evidence, they note that the Swiss Bankers Association recently advised all members to abide by U.S. stock margin requirements. When it comes to tax dodging, however, the Swiss show a remarkable tolerance. Their own law forbids local tax authorities to obtain information from a taxpayer's bank, and the Swiss are understandably reluctant to supply information to foreign tax officials that they do not provide to their own. Felix Schulthess, chairman of the Swiss Credit Bank, argues that "it cannot be our responsibility to play district attorney for foreign countries."

Slap at Sovereignty. Still, Switzerland could easily take some helpful steps. One would be to tighten control over foreign-owned banks. A measure that would do just that is currently before the Swiss parliament, but few additional reforms seem likely soon.

Though U.S. officials have reason for concern, Wright Patman's proposed curb on financial dealings with secretive foreign banks is characteristically excessive. As TIME European Economic Correspondent Robert Ball notes, Patman's proposal bears some chilling similarities to Hitler's actions in prohibiting Germans from maintaining bank accounts abroad. "If it were ever enacted," says Ball, "little damage would be done to Swiss banks, whose American clients account for only a small share of their business. The Swiss would undoubtedly interpret such an action as a slap at their sovereignty, and the banks would surely batten down the hatches of bank secrecy even more tightly." Thus, before it takes drastic unilateral action, Washington is more likely to exhaust other efforts to win Switzerland's informal--and voluntary-help in dealing with the problems that its banking system now raises for U.S. law enforcement

* By coincidence, the hearing's two chief witnesses were sons of former U.S. Secretaries of the U.S. Treasury. Henry Morgenthau Jr., Robert's father, occupied that position longer than anybody else (1934-45), and was succeeded by Fred M. Vinson Sr. (1945-46).

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