"It's a myth," said Peter R Schmid, an executive at Credit Suisse. "Transparency has been a key strength of Swiss banking, The reality is, there are no anonymous bank accounts and Switzerland is not a safe haven for ill-gotten gains."

Whether or not it was influenced by its fictional reputation, Switzerland has put in place stringent "know-your-client" rules for its banks that make it more difficult to open a client account there than in most other countries. It is also serious about tackling money laundering, and boasts very strict laws to ensure the credibility of Swiss banks.

All banks in Switzerland have to strictly comply with the rules, even though they result in higher operating costs than those of banks in other countries.

According to Andrea Pfiffner, a lawyer who works to ensure that Credit Suisse complies with anti-money laundering regulations,

the costs incurred by Swiss banks in complying with the rules have reached 4.1 per cent of operating costs. Comparable costs for British banks amount to only 1.6 per

cent.

"Compliance is very costly, while [at the same time] Swiss banks have to compete with those in other cities like Dubai, London and Singapore," she said.

The United Nations estimates that billions of US dollars are laundered worldwide each year. There was a time when "ill-gotten gains" consisted mostly of profits from narcotics business and terrorism finances. Then, the definition has been extended to cover gains from economic or organised crime, bribery and breaches of public duty.

On the table is the move to expand it to include the proceeds from commercial piracy, sales of fake goods and insider trading. And this means compliance with Switzerland's anti-money laundering laws is not restricted to financial institutions. Regular reports could also be filed by

property managers, art dealers, traders in precious stones and precious metals, as well as accountants.

The anti-money laundering laws have also been strengthened out of an understanding that government policies in many countries can be bent to benefit politicians and their peers. It is the rule that Swiss banks must ensure that such money is never deposited in Switzerland.

The new measures were implemented in Switzerland in 1997 with the Money Laundering Act. Money-launderers are also subject to the criminal law, while banks risk being punished for breaking the rules. One of the penalties is the revocation of business licences.

"The authorities are very tough," Pfiffner said. "If we are caught breaking the rules, we need to improve the internal control system, which requires millions of investment."

Under the "know-your-client" rules, Swiss banks are required to verify the identity of clients by checking account numbers, passport numbers and excerpts from commercial registries. Transactions are not allowed without this verification.

It is also a rule to verify the beneficial owner, or the ultimate owner, of money on deposit, as well as the origin of the money, which could be known through a clients' background and the backgrounds of his or her family. Then, banks must monitor unusual transactions - those that don't match the client's profile - including large cash transactions and quick in-and-out money movements.

"It is easier to detect the money before it gets into the system," Pfiffner said.

Once the money is in the system, banks still have to monitor their accounts and they have "relationships managers" to observe clients' activities. Above-the-limit withdrawals must be checked, and if the reasons for withdrawals are not clear, banks must promptly report them to the authorities. During the reporting process, the transactions are blocked for as long as five days while the authorities decide if they can proceed.

The rules apply not only to banks' branches in Switzerland, but also to overseas branches and units.

Pfiffner said that in 2005 the Swiss authorities received 729 reports from financial institutions and 69 per cent of them resulted in criminal proceedings. Notably, 91 per cent of reports filed by Swiss banks resulted in criminal proceedings.

Despite the tough measures, millionaires from around the world are still attracted to Swiss bank accounts. Pfiffner attributed that to Switzerland's safe political environment, the country's long history of private banking, and its low inflation rate, all adding up to safety for their money.

And all comers are welcomed, except those with ill-gotten gains, who are now forced to turn to other so-called safe havens like the British Virgin Islands or the Cayman Islands.

Achara Deboonme

The Nation

Zurich