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Switzerland - US Relations

The founders of the two countries borrowed from each other in forming the political foundations of these “sister republics,”. Americans took the idea of the Swiss confederation of cantons, and turned it into the United States. When the Swiss wrote their constitution in the mid-19th Century, they looked first to our US Constitution. Switzerland and the US are the two longest-running continuous democracies on earth

Switzerland a stable, prosperous country occupying an important strategic position in Central Europe. It is in the best interest of the United States and Western Europe that Switzerland continue to have the necessary military strength to safeguard her independence and neutrality.

Switzerland is a democratic country subscribing to the fundamental ideals with which the United States also is identified. The country is politically stable with a fundamentally strong economy. It has played an increasingly important role in supporting the spread of democratic institutions and values worldwide, as well as providing humanitarian relief and economic development assistance. US policy toward Switzerland takes these factors into account and endeavors to cooperate with Switzerland to the extent consistent with Swiss neutrality.

Cooperation under the US-Swiss Joint Economic Commission (JEC) has invigorated bilateral ties by recording achievements in a number of areas, including consultations on anti-money laundering efforts, counterterrorism, and pharmaceutical regulatory cooperation; an e-government conference; and the re-establishment of the Fulbright student/cultural exchange program.

Recognizing the importance of the strong ties between Switzerland and the United States and the one million Americans with Swiss heritage in the United States, Swiss parliamentarians officially launched the "Parliamentary Association Switzerland-USA" in 2001, followed by the House of Representatives establishing The Friends of Switzerland Caucus in 2003.

The United States and Switzerland signed three new agreements in 2006, creating mechanisms that, in addition to the JEC, deepen our cooperation and improve our relationship: the Enhanced Political Cooperation Framework, the Trade and Investment Cooperation Forum, and the revised Operative Working Arrangement on Law Enforcement Cooperation on Counterterrorism. The centerpiece of the Enhanced Political Cooperation Framework is an annual senior-level meeting, the Joint Working Group (JWG).

The Congress of Vienna of 1815 re-established the independence and neutrality of Switzerland. Since the 1820s the United States and Switzerland have enjoyed consular relations. In 1847, the United States and Switzerland concluded a Convention on the Disposal of Property, and in 1853 the United States established a Legation in Switzerland. The Government of Switzerland sent honorary consuls to the United States as early as 1822, one located in Washington, DC, and the other in New York City. However, the first official record of United States’ recognition of Switzerland appears to have been the appointment of John Godfrey Boeker as American Consul General at Basel on November 30, 1829. He assumed his post in October 1830. John Godfrey Boeker was appointed Consul General at Basel on November 30, 1829 and began serving in October 1830. Diplomatic relations and the American Legation in Switzerland were established on June 29, 1853, when Theodore S. Fay presented his credentials as US Minister Resident in Switzerland.

Switzerland’s relationship with the United States is broad and deep, and its trade and investment relationship is large and dynamic. Today they are two of the three most competitive economies in the world. Switzerland was the single largest source of foreign investment into the United States in 2010, and Switzerland is also an important destination for US investment – there is more US capital invested in Switzerland than in China, India, Brazil and Russia combined. Switzerland also plays host to the international or European headquarters of more than 80 major US multinational companies. America is the second largest export market for Swiss goods, while the US exports more to Switzerland than we do to Norway, Finland, Sweden, Denmark, and Austria, combined. Swiss investment is responsible for half a million total jobs in the US, and the US for 120,000 jobs here.

Switzerland has a long history of bank secrecy. The Swiss financial city of Zurich is often portrayed as the archetypal capitalist center. Much of the world's money is controlled by the gnomes of Zurich. Traditionally, gnomes were considered to be guardians of the earth's treasures. The gnomes of Zurich, faceless international Swiss bankers, have a key role in the world's economy. The gnomes of Zurich, the Swiss banking community, were renowned about not letting anybody know what they were doing. They were making money, doing it on their own, and they weren’t listening to anyone else. Unlike Malefactors of Great Wealth and Economic Royalists, gnomes of Zurich had a manipulative rather than a predatory connotation.

The Swiss Government had made a proposal to the US Government in the late 1930s for a bank secrecy agreement, under which under which the would be permitted to receive material from Swiss banks and their confidential records, and they would have the same right with US banks. But President Franklin Roosevelt was so preoccupied with the impending war in Europe that the US Government never took up the Swiss offer.

During the Second World War, Switzerland was the principal exchange center for the gold coming from the territories dominated by the Third Reich. From the total sum of the gold sent by the Reichsbank abroad, about 80 percent went to Switzerland. The expression "stolen gold" ("Raubgold" in German) defined the gold confiscated or stolen and the gold which the National Socialist Regime robbed from the victims of the policy of extermination. The reparation negotiations between Switzerland and the Western allies started in March 1946. The victorious allies strongly suspected that the Swiss were hoarding, either in their vaults at home or in frozen accounts in the United States, large amounts of foreign exchange which the Germans could at any time use to finance a third world war. The fourth Reich remained an allied nightmare, especially since Martin Bormann and other leading Nazis had disappeared. At that stage even Hitler's death was still a source of some speculation.

Labor party politician George Brown coined the term "Gnomes of Zurich" in November 1964 during a meeting over the rapidly declining value of the British pound. Dr. Alfred Schaefer, 60, chief of the Union Bank of Switzerland, and by common consent that nation's foremost commercial banker, complained in March 1965: "We have been called Shylocks, gnomes, sinister manipulators —even greedy thieves. These campaigns really wound us. At times it makes one melancholy." In October 1966, T.R. Fehrenbach's Gnomes of Zurich: Inside Story of the Swiss Banks. Subsequently, there was great pressure to open Swiss bank accounts.

Henry Morgenthau, District Attorney for the Southern District of New York, was putting a great deal of pressure on the Swiss. They were also getting bad press, which they considered harmful to their trade and tourist relations with the United States. New negotiations on bank secrecy began in 1968. The judicial assistance treaty was signed the treaty after the November 1972 US elections. Assistant Secretary of State Walter Stoessel came to Bern in June of 1973 to sign it. This was the first bank secrecy treaty the United States ever entered into and the first ever signed by a country based on an Anglo-Saxon legal system with a country that had a judicial system based on continental law. It established a precedent for the United States.

The Nazi-era witnessed the direct and indirect theft of well over $150 billion of tangible assets of victims of Nazi persecution. To protect their assets many European Jews during the 1930s sent funds to one or more of the over 400 Swiss Banks. Many of the depositors who were victims of Nazi persecution did not survive the war and often neither did their heirs. Thus the Swiss banks, which never close an account, kept the deposits, estimated today as being worth over $1 billion. Additionally, survivors and heirs found it difficult, if not impossible, to withdraw funds for lack of a secret bank account number or the lack of a death certificate; something that the Nazis did not create at the death camps. Early in October 1996 class action lawsuits were filed in the US District Court in Brooklyn against the two largest Swiss Banks alleging that they had blocked the survivors' efforts to reclaim money that was directly deposited in the banks or that the Nazis had looted and stored in the banks. The plaintiffs sought $20 billion in compensation. Eventually, in August of 1998, the Swiss Banks agreed to a $1.25 billion out of court settlement.

Swiss bankers routinely travel to the United States to market Swiss bank secrecy to United States clients interested in attempting to evade United States income taxes. By one estimate, in 2007 Switzerland had $607 billion in assets beneficially owned by non-resident individuals who were likely avoiding tax in their home jurisdictions. Tax haven banks may be assisting US taxpayers to evade taxes, in particular by urging US clients to open accounts abroad, assisting them in structuring those accounts to avoid disclosure to US authorities, and providing financial services in ways that do not alert US authorities to the existence of the foreign accounts. A 2008 Senate report concluded that non-compliance with tax laws by US taxpayers using secret offshore bank accounts costs the US Treasury at least $100 billion annually.

Private banks in Switzerland include individually owned firms, collectives, and limited partnerships. Private bankers are subject to unlimited subsidiary liability with their personal assets. Their field of activity is asset management, chiefly for private clients. Over 150 foreign banks in Switzerland have a majority shareholder domiciled abroad. All foreign banks in Switzerland are subject to the same laws and supervision as banks whose majority shareholder is Swiss. They are the most important banking group in Switzerland, second only to the two large Swiss banks and generate approx. 2% of value added of the Swiss GDP.

The two largest banks, UBS AG [formerly Union Bank of Switzerland] and the Credit Suisse Group, together account for over 50% of the balance sheet total of all banks in Switzerland. They are universal banks engaged in all types of banking business. The Wealth Management Americas business division of the UBS Group provides advice-based solutions through financial advisors who deliver a fully integrated set of products and services specifically designed to address the needs of ultra high net worth, high net worth and core affluent individuals and families.

In 2000, after it purchased the brokerage firm Paine Webber, UBS voluntarily entered into an agreement with the IRS that required UBS to report to the IRS income and other identifying information for its United States clients who held United States securities in a UBS account. The agreement also required UBS to withhold income taxes from United States clients who directed investment activities in foreign securities from the United States. In order to evade those new reporting requirements, employees and managers within the cross-border business, with the knowledge of certain UBS executives, helped United States taxpayers open new UBS accounts in the names of nominees and/or sham entities.

“UBS executives knew that UBS’s cross-border business violated the law,” said R. Alexander Acosta, U.S. Attorney for the Southern District of Florida. “They refused to stop this activity, however, and in fact instructed their bankers to grow the business. The reason was money -- the business was too profitable to give up. This was not a mere compliance oversight, but rather a knowing crime motivated by greed and disrespect of the law.”

On 19 February 2009, UBS AG, Switzerland’s largest bank, has entered into a deferred prosecution agreement on charges of conspiring to defraud the United States by impeding the Internal Revenue Service (IRS). As part of the deferred prosecution agreement and in an unprecedented move, UBS, based on an order by the Swiss Financial Markets Supervisory Authority (FINMA), has agreed to immediately provide the United States government with the identities of, and account information for, certain United States customers of UBS’s cross-border business. Under the deferred prosecution agreement, UBS has also agreed to expeditiously exit the business of providing banking services to United States clients with undeclared accounts. As part of the deferred prosecution agreement, UBS has further agreed to pay $780 million in fines, penalties, interest and restitution.

On June 15, 2010, the National Council, Switzerland's lower house of parliament, reversed its initial, June 8 rejection of the deal and approved an agreement with the United States to settle tax evasion lawsuits lodged by US authorities against the Swiss banking giant UBS AG. The vote was 81-61, made possible after 53 members of the largest parliamentary group, the Swiss People's Party, abstained. Under the agreement (originally arranged in August 2009), UBS is to supply the details of 4,450 secret bank accounts held by US clients suspected of evading US taxes.

On 18 March 2010, the United States enacted provisions commonly referred to as the Foreign Account Tax Compliance Act (FATCA), which introduce reporting requirements for foreign financial institutions (FFIs) with respect to certain accounts. Because of certain legal or contractual restrictions in Switzerland, however, financial institutions in Switzerland may not be able to comply directly with all the reporting, withholding, and account closure requirements of FATCA. Intergovernmental cooperation to facilitate FATCA implementation would address these legal or contractual impediments to compliance, simplify practical implementation, and reduce FFI costs. Switzerland and the United States declare their intent to negotiate an agreement providing a framework for cooperation to ensure the effective, efficient, and proper implementation of FATCA by financial institutions located in Switzerland.

On 21 June 2012, The US Department of the Treasury jointly issued a statement with Switzerland expressing mutual intent to pursue a framework for intergovernmental cooperation to facilitate the implementation of the Foreign Account Tax Compliance Act (FATCA) and improve international tax compliance based on the bilateral tax treaty between the United States and Switzerland.

An unprecedented number of taxpayers - nearly 18,000 in the 18-month period concluding in February 2011, in contrast to the fewer than 100 typical in previous years - had "come in from the cold" and voluntarily disclosed to the IRS their previously hidden foreign accounts and also to agree to pay hundreds of millions of dollars to the US Treasury.

There is a prodigious amount of relationship building every day between our two nations, in commerce, in people, and in diplomacy. From struggling over how to bring justice to Americans who broke US laws using Swiss banks, to liberating Americans held in Iran, to negotiating the normalization of diplomatic ties between Armenia and Turkey, to wide areas of cooperation on international terrorism, organized crime, illegal drug seizures, trafficking in persons, and so much more -- Switzerland and the United States are excellent and productive partners in making the world more secure and humane.