Swiss Secrecy: Don't Bank on It

By Gordon Bock

As Special U.S. Prosecutor Lawrence Walsh probes the intricacies of the Iran- contra affair, he is receiving invaluable help from Switzerland. Among the potentially incriminating documents he is studying are thousands of pages of Swiss bank records relating to Geneva accounts once controlled by Lieut. Colonel Oliver North and other alleged conspirators. The relative speed and alacrity with which Switzerland turned over the records may have surprised many Americans, who have always considered the Swiss bank account to be synonymous with anonymity and protection. Is money held in the vaults of Zurich and Geneva no longer safe from the prying eyes of U.S. investigators?

The confusing answer: sometimes yes and sometimes no. Switzerland has always been willing to help the U.S. track down criminals who used Swiss accounts to stash their loot. But the two countries do not always agree on what constitutes a crime. In the Iran-contra case, there was no problem: North and his associates are accused of fraud, which is clearly a crime in Switzerland. Tax evasion, though, is not against Swiss law. An American who underreports his income can still hide the extra money from the Internal Revenue Service by putting it in a Swiss account.

Over the years, however, the Swiss have gradually become more flexible about the conditions under which they will cooperate with investigations. In 1977 Switzerland agreed in a treaty with the U.S. to give special help in cases involving organized crime. In practice, this has meant that the Swiss cooperate in tax-evasion cases if the suspect can be shown to have ties to the mob. Last month the U.S. and Switzerland signed a "memorandum of understanding" recognizing that drug traffickers and money launderers in some cases meet the definition of mobsters and are thus covered by the treaty.

Washington is now hot on the trail of Wall Street's insider traders, some of whom have sent their ill-gotten gains to Zurich. In 1982 Switzerland signed a special accord with the U.S. in which it agreed to cooperate in the investigation of these stock-swindle cases, and next year the Swiss parliament intends to make insider trading a crime.

For all the increased cooperation, things have not always gone smoothly. The sorest point has been the case of U.S. Commodities Broker Marc Rich, who fled to Switzerland in 1983 with the largest delinquent tax bill in American . history: $48 million. In 1982 a federal judge in New York ordered a Swiss company owned by Rich to submit documents that would prove his tax delinquency. After the judge threatened to impose a $50,000-a-day fine on Rich's company, the fugitive agreed to supply the papers. But just as the documents were to be shipped to the U.S., they were impounded at Rich's Zug offices by Swiss authorities, who argued that the U.S. judge had exercised "extraterritorial power" in blatant disregard of Swiss sovereignty.

Switzerland eventually released some of the documents to the U.S., but bitterness over the affair helped lead to the new memorandum. In it, Switzerland agreed to speed up the legal help it offers the U.S., while Washington pledged not to use "extraterritorial power," as in Rich's case.

Given the closer collaboration between Swiss and U.S. officials, more American criminals are likely to switch to such havens as Luxembourg, Austria, Panama and Hong Kong. Says Richard Stricof, a tax expert with Manhattan's Seidman & Seidman accounting firm: "If I were doing something that I didn't want federal authorities to know about, I would pick a place that was inconspicuous. Switzerland isn't."

With reporting by Jerome Cramer/Washington and Margaret Studer/Zurich