Swiss bankers

In January's Scrapbook I listed a few of the big issues that Switzerland was going to have to face in the coming year. One thing I hadn't foreseen was yet another Swiss banking scandal. The last big Swiss banking scandal took place in the 1990s, so for the benefit of the Gen-Z crowd perhaps we have to take a little run at the story.

In the 1980s I was working and living in Germany and in Switzerland. I had bank accounts in both countries. Every month a letter would arrive at my German residence. It was an absolutely plain B5 envelope, with a normal stick-on stamp and the recipient address written in ball-pen in a nice, legible, rounded hand of the sort that young women write – one's niece, say. The sender's address was also given, which seemed to be the home address of the writer.

In the envelope was a monthly statement from my Swiss bank. I wasn't using the account at that time and it held about fifty Swiss Francs. The letter may even have been posted in Germany – I can't remember.

I found it a bit embarrassing, actually, that in the cause of discretion, for this pittance, some young woman was beginning her banking career addressing my statement letter by hand and sticking a stamp on it, again by hand.

Such levels of discretion were a highly saleable commodity in the financial turmoil of Europe after the First World War: the war itself; then ruinous inflation brought about by insane French reparation demands; then the gigantic Ponzi scheme that was National Socialist economics, kept afloat by forced appropriations, confiscations, debt, conquest and looting. For the wealthy (and not so wealthy) there were thirty years of trying to hang on to whatever wealth you had.

Those Germans who could do so converted as much as they could of their wealth into transportable forms such as cash and precious metals and stowed it in the discrete safety of a Swiss bank.

Some survived the Second World War, many did not: the Holocaust, the bombing and the slaughter in the theatres of war killed who knows how many.

For obvious reasons, those with wealth in Switzerland kept the knowledge of that fact to themselves, so that when they were wiped out, their wealth was left orphaned. For the Swiss banks, what the obliterated ones left in bank accounts and safe boxes became Nachrichtenloses Vermögen, 'unreported/unowned wealth'.

The banks made no attempt to trace the owners of this wealth, for to do so would be to break the oath of discretion they had taken. In the case of my fifty Swiss Franc peanuts, after a few years had passed without any transactions, the SKA bank just closed the account and pocketed the balance. Today's article may be considered late revenge – a fifty Franc soup best eaten cold.

Our tale has now got to the point in the 1990s where particularly the Jewish diaspora in the United States got to wondering whether their parents had a stash in Switzerland and where it had got to.

There was a sideshow with a lot of talk about 'Nazi-gold' when it became clear that not only innocents had left their wealth behind, but the Nazi functionaries had also found Switzerland a good place to keep their loot. Business is business: the money from the victims and their persecutors became the bank's.

The irony is that the legal requirement for bank secrecy had been introduced in 1934, primarily to protect Jews from the Nazis. What a mess. In the end (1998), the two big Swiss banks paid $1.25 billion restitution to Holocaust victims.

The Kraken wakes

Crossing some Jewish-American palms with silver in 1998 was not to be the end of it. On 3 February this year the Senate Committee on the Judiciary held a hearing which made everything much worse for Switzerland and its banking system. At its centre was the testimony of Neil Barofsky, a lawyer who had invested much time in investigating the role the Swiss banks played in the Nazi era.

As a fan of Switzerland I have always imagined that during the Nazi period the Swiss authorities (including bankers) more or less scrupulously walked the thin line between neutrality and collaboration with one side or the other, holding their noses as needed. I was mistaken. Barofsky has collected much information that some Swiss banks were very much the Nazis' little helpers.

Not only have many accounts been identified that are linked with Nazis or Nazi organisations (12'000 from Argentina alone), there are also accounts belonging to National Socialist organisations based in Switzerland. Worse, one particular Swiss bank has been identified that went above and beyond its banking duties: Bank Hofmann.

This bank had a particularly close connection with the German chemical giant, IG Farben. So close, in fact, that the suspicion is that the bank was merely a puppet run by IG Farben.

The bank was able to sell (often stolen) Swiss Franc bonds owned by Germans on the Swiss Stock Exchange. The owners of the bonds were pressured into making the forced sale. Bank Hofmann would do its helpful bit in identifying Germans holding such bonds. The proceeds would then be pumped into indebted German companies to keep them solvent (I repeat, 'Ponzi scheme').

In 1973 Bank Hofmann was sold to the SKA, which then became part of Credit Suisse, which then became part of the UBS. The actions of Bank Hofmann are bad enough, but it appears that this was all known and documented in a report prepared in the 1990s, which was then hidden, with the knowledge of the entire Credit Suisse board, presumably to reduce the liability for the settlement payment.

And this is the point at which the US authorities will stick in the crowbar, arguing that the previous settlement was made under false pretences. It will be the second battle between the descendants of Holocaust survivors and Big Swiss Banking. We know who will win.

2026 will not just be a bad year for Switzerland, it could turn out to be a very expensive year, too.

The revelations of the Hofmann scandal and its coverup have strengthened my theory about why Switzerland was never invaded by the Nazis. It certainly wasn't because of the fatuous reduit in the mountains which left three-quarters of Switzerland – the valuable bit with all the infrastructure and population – effectively undefended. It was because they didn't need to invade: plucky little Switzerland was useful enough as it was. Which may be the reason that it survived the war intact.