BANKING: Less Go-Go in Switzerland

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God, after all, created Switzerland for one purpose—to be the clearinghouse of the world.

—Paul Rossy, former vice chairman, Swiss Banking Commission

By all appearances, divine purpose is still faithfully served along Zurich's elegant Bahnhofstrasse, where the great names of Swiss banking conduct their worldwide affairs behind stately fagades of Alpine granite. Yet the air of heavenly serenity on the stylish street provides a curtain for mundane turmoil. After the worst scandal in Swiss banking history, that sedate and secretive industry has moved—or rather been pushed—to tighten up some practices that have proved shockingly loose. The changes may turn out to be far-reaching.

First Step. Swiss officials are considering a variety of measures aimed at toughening the regulation of the country's 553 banks, which currently have assets totaling $139 billion. Until now, these banks had operated virtually by their own rules. Many of the possible reforms affect the way the banks handle funds from abroad—including stolen funds, flight capital, tax-dodge money and other unsavory negotiables that have found their way into the Swiss system, no questions asked.

The first step in Switzerland's bank reform program took effect this month: a new code of conduct, drawn up by the Swiss National Bank, the country's central financial institution, and the Swiss Bankers' Association. No longer are clients allowed to open a Swiss account without revealing their true identity. Anonymous banking, when it was allowed, was a powerful attraction for corrupt dictators and Mafiosi, among others, seeking to hide their funds. Under the new rules, Swiss bankers are barred from providing active assistance to customers who evade taxes or export capital illegally from foreign countries. The code also forbids bankers to accept funds that they have reason to believe were acquired by acts punishable under Swiss law, such as fraud and trafficking in narcotics. However, the code does not require the banks to investigate the background of every customer to ascertain the origin of his money.

No one expects the new code, which carries penalties ranging up to $4 million for infractions, to halt completely the flow of tainted funds into Switzerland. But Swiss National Bank President Fritz Leutwiler, who has long crusaded for such reforms, hopes that the code will deter banks from actively assisting their customers in breaking national laws. Says he: "We are no longer assuming that every banker is a gentleman and that he observes the rules." Leutwiler speculates that the new code may even force the eventual closing of a "small minority" of lesser banks that have operated on the fringes of the vaunted Swiss system.