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The SWIFT Affair

Johannes Köppel


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1The story broke in 2006: Since 9/11, US intelligence services have had access to practically any international money transfer data by infiltrating the SWIFT (Society for Worldwide Interbank Financial Telecommunication) network. Banks worldwide transfer money orders and personal customer data through this network. While the surveillance was all-embracing in 2001, it was gradually limited over the course of the last few years. Revealed by the New York Times, the SWIFT affair has had global as well as national implications. While this dissertation first examines the international dimension of the SWIFT surveillance, the analysis mainly focuses on the national repercussions for Switzerland.

2Internationally, the SWIFT surveillance is part of a bigger picture: the trend towards a new kind of global security regime. Since 9/11, the global “war on terror triggered a whole series of counter terror movements. Many counter terrorist efforts try to single out terrorists through their financial and business activities.

3The surveillance of financial activities is nothing new. Many of the measures to counter the financing of terrorism are based on existing anti-money laundering regimes.(Vlcek 2008) However, terrorism financing adds one important dimension to the existing anti-money laundering laws: money laundering involves money that is acquired through the carrying out of a criminal act, such as drug trafficking. Money for the financing of terrorism, however, is not necessarily derived from an illegal source; money only becomes illegal after the event. This is why the intensity and scope of financial scrutiny has extended significantly since 2001, and it is also the reason why focus on the global SWIFT surveillance network has become an essential part of counter-terrorism efforts.

4In effect, surveillance regimes have been transformed from disciplinary measures to preemptive measures  in order to address potential future scenarios. This is problematic because prevention operates with uncertainty as a variable in determining the future. People can become guilty by simple association. The consequence is the infringement of privacy rights and civil liberties. Is such an infringement justified in light of the terrorist threat? SWIFT surveillance is part of a bigger discussion on the balance between the need for security, and the protection of civil liberties.

5Aside from the loss of civil liberties, new surveillance regimes are very costly. During the last three years, American banks have spent an estimated $ 14.8 billion on anti-money laundering and anti-terrorism software, hardware, maintenance and other compliance related activities. (Joseph 2005) Since all financial actors have to comply with the new regime, those costs eventually will be passed on to the banking customer.

6So is the SWIFT surveillance and similar regimes worth the constraints it imposes on civil liberties and the financial costs that it entails? Unfortunately, an extensive cost/benefit analysis of the fight against terror financing is not realistic; many of the achievements of the surveillance regime are confidential. But even if such an analysis about the benefits surveillance brings were publicly known, the answer to the question remains normative. However, the evolution of the SWIFT affair is but one pertinent example in a broader security discussion, and an analysis of this example enables conclusions to be drawn about certain general tendencies.

7Switzerland has a long tradition of providing strict privacy laws for financial data. Swiss banking

8 secrecy is anchored in criminal law. The SWIFT surveillance is therefore of particular concern to Switzerland. Key players in Switzerland, such as the two major banks and the Swiss Department of Finance, have known about the SWIFT surveillance since 2001. Switzerland has long been a very strong defender of privacy rights for financial data. However, there is no written evidence that Switzerland has ever actively tried to limit or even stop the SWIFT surveillance. Therefore, the main research question of this dissertation is the following: Why did Swiss banks and authorities obediently accept the dilution of financial privacy in the case of the SWIFT surveillance, when they are usually fierce advocates of banking secrecy? The author has established two hypotheses:

  • H1 assumes that Switzerland has not opposed the SWIFT program, either publicly or behind the scene. This implies that Swiss banks and authorities have silently accepted the erosion of banking privacy, the reason being that the comparative advantage of Swiss banks was not harmed.

  • H2 considers that Swiss banks and authorities were and remain actively opposed to the SWIFT surveillance, but they have done so in a discreet manner behind closed doors. This would imply that the limitation of the surveillance over the last years has partly resulted from Swiss pressure.

9The first chapter is a detailed account of the known international facts about SWIFT surveillance. Academic research on SWIFT surveillance is very limited, rendering necessary a detailed factual description of events. After some initial facts about SWIFT, all publicly known facts about the surveillance affair are chronicled. The next section deals with the legality of SWIFT surveillance under US and European law, and the evolution of the willingness of SWIFT to share data with US authorities is described. The final section of the first chapter deals with the controversy surrounding the revelation of the once secret program by the New York Times.

10The second chapter deals with the Swiss dimension of the SWIFT affair. First, the origins of Swiss banking secrecy are explored. The second part attempts to assess the importance of banking secrecy for the evolution of Switzerland into one of the major asset managing nations worldwide. The third section flags the limits of Swiss Banking secrecy today and evaluates current developments. The fourth section of the second chapter deals with the Swiss reaction immediately after the revelation of SWIFT surveillance, which caused a public controversy in Switzerland about Swiss banking secrecy. The Swiss government subsequently assured parliament and the public that Swiss banking secrecy was, and remains, intact.

11In the final section, this dissertation will demonstrate that this assurance given by the government was incorrect, and that the federal government wrongly informed the Swiss parliament.