Swiss banking secrecy - not so secret

There is a general public perception that individuals and companies using Swiss bank accounts to hide the proceeds of fraud do so with the full protection of Switzerland's traditional banking secrecy and commercial and professional confidentiality laws.

The same view pervades in relation to offshore accounts generally.

Jonathan Tickner looks closely at the true level of protection afforded to the fraudsterThe growth of international crime - particularly money laundering and drug trafficking - over the past decade has prompted greater efforts to improve co-operation between countries in the fight against crime.

These efforts have been driven, in part, by the abuse of banking secrecy laws.

The Criminal Justice (International Co-operation) Act 1990 finally enabled the UK to ratify the 1959 European Convention on Mutual Assistance in Criminal Matters and ensure better reciprocal co-operation with other countries in criminal proceedings and investigations.

Section 3 of the 1990 Act is concerned with obtaining evidence from overseas by prosecuting authorities for use in the UK in the investigation and prosecution of criminal offences.A prosecuting authority can apply to the court under section 3(1) of the 1990 Act to issue a letter of request for assistance in obtaining evidence from abroad.

The application has to satisfy an assisting country's specified criteria.

For example, the Swiss authorities prohibit letters of request from eliciting information that could lead to prosecution over 'fiscal matters', such as tax evasion.

This does not apply to most other European countries that have agreed to assist each other in fiscal investigations.If an individual or company has been the victim of fraud, immediate steps will often be taken to commence civil proceedings against the alleged fraudster, including obtaining from the courts interim freezing injunctions.

At the same time the claimant may make a complaint to the police.

Where there is evidence that monies have been placed outside the jurisdiction, it is open to the claimant to use the court's draconian powers to compel defendants to disclose their assets worldwide.

It is also open to the claimant to apply to the courts to issue a civil letter of request to seek to obtain documentary evidence and/or information from overseas for use in the civil proceedings [Civil Procedure Rules, rule 34.13.7 and the Hague Convention on the Taking of Evidence Abroad in Civil and Commercial Matters 1970].

However, problems may arise when a claimant attempts to obtain information from Swiss banks in this way and to deal with Swiss local Canton rules and Swiss federal banking law.

The police are far better placed to obtain evidence under the 1990 Act through letters of request to the relevant Swiss judicial authorities.

However, what use can a private litigant make of evidence obtained by the police from abroad pursuant to a letter of request, in related civil proceedings? The critical provision of the 1990 Act is section 3(7) which states that 'evidence obtained by virtue of a letter of request shall not without the consent of such an authority as is mentioned in subsection (4)(b) above be used for any purpose other than that specified in the letter'.This point came before the Court of Appeal in the recent case of BOC Ltd and Another v Barlow and Another [2001] The Times, 10 July.

In that case, the claimants alleged they were the victims of an invoicing fraud and bribery.

The police were also involved in investigating the allegations.

Freezing orders, which included provision for the disclosure of assets worldwide, were made against some of the defendants at the commencement of the proceedings.

Subsequently, the police obtained information pursuant to a letter of request to the Swiss authorities, which revealed the existence of Swiss bank accounts not previously disclosed by the defendants in apparent breach of the original freezing order.

The information was reported by the police to the claimants' solicitors, who then used the information in an application for a further freezing order.

On appeal, the defendants contended that section 3(7) of the 1990 Act operated as a wide mandatory prohibition which prevented the claimants from using the information in that way.

The duty to observe the prohibition, the defendants argued, was owed by any person who wished to use the information for a different purpose than that specified in the letter of request.

As such, there was a duty to seek and obtain the consent of the Swiss authorities who originally supplied the information.

In particular, R v Gooch (unreported, 26 June 1998, CA) was relied on by the defendants.

In that case the Court of Appeal refused to sanction the use of evidential material obtained in connection with the alleged importation of drugs for the ancillary purpose of bringing confiscation proceedings.In the BOC judgment, Lords Justice Mummery and Kay held that the 1990 Act imposes no valid legal objection to the use of the evidence in support of the civil proceedings.

The relevant provisions of the 1990 Act only operate as a prohibition in criminal proceedings, preventing the prosecution from obtaining evidence in connection with one criminal offence and then using it to prosecute another.

The 1990 Act does not expressly provide that use of such evidence would be inadmissible as evidence in civil proceedings or that such use amounted to a contempt of court.

This is in contrast to section 18, part 1 of the Criminal Procedure and Investigations Act 1996 which stipulates that misuse of unused material disclosed by the prosecution as part of criminal proceedings can constitute a contempt of court and can be rendered inadmissible in civil proceedings.The judgment is consistent with the public policy that victims of alleged crime should be encouraged to give assistance to the police and be consulted in the course of the police's investigations.

In fact, the interests of justice point to the police having a positive duty to disclose relevant information to an alleged victim of crime [Preston BC v McGrath, unreported, 12 May 2000, CA].

A by-product of this assistance is that the victim should be able to use this information to pursue rights to damages in civil proceedings.

It is worth noting that the Swiss Federal Court addressed the very issue arising in the BOC judgment [Judgment of the Swiss Federal Court, April 1996].

Its clear view was that Swiss banks did not prevent the use of evidence obtained for foreign criminal proceedings being used in civil law proceedings and that it was a legitimate aim of the criminal proceedings to assist victims in exercising their rights.The BOC judgment provides an insight into the possibilities claimants have, not only to pursue their rights in civil proceedings, but also to utilise the evidence available through the investigations carried out by a criminal prosecuting authority with wider powers.

In this regard, care must be taken not to breach the general principle that the police are subject to a duty of confidence in respect of evidence obtained by the use of statutory powers (Marcel v Commissioner of Police [1992] Ch 225).However, even then, once the bottle has been uncorked and the information is in the hands of the claimant (having been passed onto the claimant by the police) it is difficult to see, whatever argument the defendant may muster, how the cork can be put back in the bottle.Jonathan Tickner is an assistant solicitor at London-based Peters & Peters.

He acted for the claimants in BOC Ltd and Another v Barlow and Another