Swiss court case misleads foreign media on bribery: Swiss among world’s toughest (update 2)

Holenweger case tests tougher anti-corruption laws in country already considered one of world’s best at fighting bribery

Ed. note: AP (here, picked up by Business Week) late Saturday published a second, lengthy article about the implications of the case, which provides a balanced picture
Zurich, Switzerland (GenevaLunch) – The case against former high-flying Tempus Bank executive Oskar Holenweger in Bellinzona, Ticino, in Switzerland’s Criminal High Court, ended Friday 15 April, with the judge’s decision expected 21 April. The charges of setting up funds for French company Alstom to bribe foreign officials, against the friend of right-wing political leader Christoph Blocher, drew less international media attention Friday than did Switzerland’s reputation, based on an incorrect report that until 10 years ago Switzerland had no law against bribery.

Source: 2010 Transparency International report on perceived transparency and accountability for corruption (click on image to view larger)

Headlines of “Switzerland stakes its reputation on …” imply that the country has until recently done little to fight bribery, when the opposite is true: Switzerland in 2006 was named the top country in the world for fighting bribery, in a ranking by Transparency International. The group’s2009 report on progress (pdf) made by the 38 countries signatory to the 1997 OECD Convention on Bribery shows that only four actively enforce it, one of which is Switzerland.
And in its 2010 report on international perceptions of transparency and accountability, Switzerland and Australia shared 8th place with notes of 8.7 out of a possible 10, although Switzerland’s score slipped from 9 the previous year.

Media reports say, wrongly, that bribery was legal in Switzerland until 10 years ago

The implication that Switzerland is weak in this area is unfortunately based on a misunderstanding, reported by Associated Press (AP) and widely disseminated via the Internet by AP’s largely North American member newspapers, including Yahoo News. Even Maclean‘s, the respected Canadian news magazine, picked up the AP sentence: “Prosecutors hope the high profile trial of a Zurich private banker that ended Friday will send a message to Europe and beyond: Switzerland — where bribery was legal until a decade ago — is getting tough on corruption.”
Forbes was one of the rare AP clients to run a shorter version of the AP story, with the editors opting to leave out the misleading sentence, although it, too, picked up the “Swiss reputation at issue” headline.
Bribery was not legal in Switzerland: what changed in 2000, when the OECD’s 1997 Convention on Combating Bribery entered into force in Switzerland was the first of three key stages to tighten legislation. The crime, previously punishable by fines, became a criminal level offense, punishable by time in prison as well as a fine. The difference is comparable to that in Switzerland between tax avoidance, a non-criminal offense subject to fines, and criminal tax evasion, with the risk of prison.
Responsibility for complex corruption cases involving bribery of foreign officials was shifted from cantonal governments to the federal government. Significantly, before 2000, a bribery case would generally go before the courts only if a victim filed charges; as a criminal offense, police and other authorities have for the past decade been required to pursue suspected criminals and press charges.
In a second stage, companies became criminally liable in 2003, not just individuals.
A third stage involved tightening accounting requirements for greater transparency.
Switzerland has been slowly but steadily building up its tool kit against corruption since 2006, based in part on recommendations from the OECD and Transparency International.
Several major companies that are owned by the government, most notably La Poste in March 2011, for example, have set up web sites to encourage whistleblowing. Employees have had little incentive to report on illegal corporate practices in the past because of strict Swiss legislation covering an employee’s relationship to his or her employer. The corporate hierarchy must be respected, along with corporate privacy.

Significance of the Holenweger case

The OECD in a 2004 phase 2 review of Switzerland’s implementation of the 2000 Convention on Combating Bribery noted that

“Judicial control is generally not used in the first instance, but only when one of the parties involved invokes it, e.g. by fulfilling its reporting obligation or filing a complaint. Since 2002, police units have been set up at the federal level to deal with major economic and financial crime, to review the situation, complemented by units in a number of cantons, but until now there have been few cases in which prosecutors themselves have taken the initiative: investigations of international bribery and money laundering are most often triggered by action taken abroad (a police request or rogatory commission), reports of suspected money laundering or – more rarely – complaints from the private sector.”

The Holenweger case to some extent tests the changes that have been made in the system, sparked as it was by a federal prosecutor in 2003, about the time the OECD made its on-site visit.
The case may well be more of a test of the Swiss system at the start of the last decade than the current situation.

Switzerland is one of four countries “actively enforcing” Convention on Bribery

A slow steady climb to a better position against corruption, bribery

Germany, Norway, Switzerland and the US are the four countries that have enforced the OECD Convention, according to Transpareny International. Switzerland’s 36 cases of foreign bribery under investigation at the time of the 2009 report were surpassed only by more than 80 in Germany and 69 in the US at the time. Switzerland’s exports are less than 2 percent of the world total, far smaller than the share of Germany and the US, but its role as a financial centre has made it a target of money launderers.
The Holenweger case has been eight years in the making and has been marred by political intrigue and mistakes. He is accused of setting up funds to help French company Alstom bribe foreign officials during the time when he ran the Tempus Bank in Zurich. The federal prosecutor who aggressively went after him is no longer in the job.
Swissinfo, in a background story as the trial opened last week, noted: “The trial is being seen in some sections of the media as a make or break case to test the efficiency of the country’s prosecutors in clamping down on financial crimes.”

Swiss public perception of the problem has grown in past 20 years

Switzerland’s sensitivity to the problem of bribery has grown steadily since the early 1990s, linked in part to more requests from foreign governments for assistance in money laundering cases, but also to heavier media coverage at home that has raised awareness of the issues.
The OECD’s 2004 review of Switzerland pointed out that from 1985 to 1997, Swiss news agency ATS published more than 4,000 stories on bribery and money laundering, an increase of roughly 300 percent. included in its key points:

“In recent years, bribery and tainted bribe money have become an important topic of public debate in Switzerland, in the media and on the political scene. At both the federal and cantonal levels, the number of criminal investigations into bribery allegations has risen, and each year there are an average of 12 convictions for active or passive corruption of Swiss public officials. Investigative committees have been formed to shed light on domestic bribery cases. No fewer than some 60 written questions on the subject of bribery have been submitted by members of the federal parliament since the beginning of the 1990s.
“Domestic bribery of Swiss public officials has been the subject of three reports initiated by the federal government – the first dating from October 1996 on security controls and corruption; the second from March 1998 on corruption risks and security measures within the federal administration; and the third published in June 2003 and dealing with the prevention of corruption within the federal administration.
“An equally great amount of attention has been paid to the theme of the Swiss financial centre’s exposure to money laundering, including proceeds from bribery abroad. Switzerland has been a driving force in developing innovative measures within FATF. An entire legislative arsenal aimed at keeping funds of dubious origin from being injected into the financial sector has been developed over the past 15 years to impose numerous obligations on banks that accept and keep client assets on deposit, or that provide investment advice.
“The fact that, since 2000, bribery of foreign public officials has been included on the list of basic violations for the purpose of enforcing money laundering legislation has strengthened the control mechanism. These legislative efforts have been seconded by industry professionals through numerous instructions, guidelines and training sessions for financial intermediaries, including banks, fiduciaries, wealth managers, and so on.”

Nevertheless, the report adds, a public perception in Switzerland that the problem is linked only to foreign officials and companies remains, and needs to change.

Room for improvement: access to information, statutory and legal problems

Switzerland still has much work to do in the anti-corruption fight, the OECD, Transparency International and the Swiss government agree. Top of the list: the Swiss government needs to provide better access to statistics and information about legal action, and enforcement and awareness of the problem within Switzerland itself need to be stepped up. Seco, the economics ministry, noted after the December 2009 OECD review that a number of issues “may need to be reviewed,” including better protection for whistleblowers”.
Holenweger risks up to five years in prison if found guily on the Alstom charges. A company found guilty of bribery faces a maximum CHF5 million fine, an amount that the OECD argues is not high enough to act as a discouragement. It has recommended that Switzerland raise the ceiling.
But the tougher Swiss stance of several years is slowly beginning to show its effects as cases come to court.
Background story: Zurich ex-private banker indicted in Alstom bribe case, 10 May 2010
Swiss criminal law on corruption, an overview, SECO (Swiss State Secretariat for Economic Affairs)