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The US Program for Swiss Banks vs Swiss Data Protection Laws

February 8, 2018

In three decisions of November 2017, the Swiss Supreme Court has confirmed that the “The Program for Swiss Banks” of July 2013, the Joint Statement signed between the Swiss federal Council and the Department of Justice (DOJ) of August 2013 and the Model Authorization of the Swiss Federal Council, do not prevail over the Swiss federal law on data protection.

These decisions show the strong position of the Swiss courts where data protection extends to persons, regardless of their nationality, residing in Switzerland, even when faced with Swiss banks and their agreements with the DOJ.

The Federal court followed the same reasoning to prevent the Swiss bank from transferring personal data of an employee of an asset management company as well as that of three lawyers who acted as financial intermediaries and had a signature power on accounts of an offshore company, held by US clients.

Legal setting of the case

The Program for Swiss Banks (the “Program”) concerns four categories of banks: a) Those which are excluded because they are already subject to US criminal proceedings; b) Those who believe they have breached US tax laws, who can sign a Non Prosecution Agreement (NPA) with the DOJ to avoid criminal proceedings and the last two categories for those who believe they have not breached any US tax laws.

In August 2013, the FINMA encouraged the banks to cooperate with the DOJ by advising them to assess their legal and reputational risks of not participating in the Program.

Facts

In a case where a Swiss bank was in the second category and had signed a NPA with the DOJ, the Swiss bank, under its NPA duties had to communicate to the DOJ the names and positions of persons who had structured, managed or supervised cross-border relations with the US as well as the name and position of any person who had managed or advised the client in relation to his/her “Closed US Related Account”.

In August 2014, the Swiss bank informed a third party asset management company (hereafter “X”), managing the account of three American clients of the Swiss bank that it was going to communicate its name and position to the DOJ.

X formally objected to this transmission of its personal data and seized the Swiss courts seeking an urgent injunction in November 2014 to prevent the Swiss bank from transferring any documents or information (in any form whatsoever) containing X’s name or any other personal data to the DOJ.

The above-mentioned request was formalized with a claim on the merits before the civil court in December 2014.

Position of the Swiss Federal Court

X’s claim was accepted by the Tribunal of the first instance and confirmed by the High Court. On appeal of the Swiss bank, the Swiss Federal Court also confirmed the same stating in particular the following:

  • Under article 6 para 1 LPD (Swiss federal law on data protection), any transfer of personal data to a foreign country which does not offer “adequate data protection” is not permitted if it causes a serious threat to the privacy of the concerned person. There are exceptions listed under article 6 para 2 LPD. In particular, the transfer is admissible if there is a prevailing public interest justifying it.
  •  The general interest for Swiss banks to comply with their duties in the Program does not automatically prevail over the private interest that a third party may have, in a specific case, to prevent the transfer of his personal data to the American authorities. Each case needs to be examined specifically to determine whether or not the transfer of the personal data is indispensable.
  • A pure systematic acceptance of the existence of a public interest in the transmission of personal data would leave persons such as employees and asset managers without any protection.
  •  The Swiss bank was not able to establish that a public interest prevailed over the private interest of X. It was not likely that the NPA would be cancelled for the Swiss bank just because X’s data was not transferred. The Swiss bank also did not allege that it was a bank of such crucial importance for the financial economy of Switzerland that its disappearance would have serious repercussions on the economy of the Swiss canton where it was situated.
  • The private interest of X prevailed because the US authorities had made their intention clear to prosecute any person who had participated in or facilitated the creation of offshore accounts. There was therefore a serious threat of interrogation, prosecution and even the prevention of continuing business activities for X.
  • The fact that X had signed a voluntary disclosure with the US authorities in January 2016 while the Swiss proceedings were still pending was considered by The Federal court as only relevant to confirm that US authorities already had this information and therefore its transfer was not necessary as a prevailing Swiss public interest.
  • Under article 13 LPD, transfer of personal data can be justified by law. The Swiss bank tried to invoke the Privacy Shield signed between the US authorities and the Swiss authorities in April 2017 to allege that this shield would make the USA a country offering “adequate data protection”. However, the Federal Court pointed out that the Privacy shield applies to Private US companies on a voluntary basis who need to register with the US Department of Commerce. The DOJ is obviously not a private company and is therefore not in the list of the US Department of Commerce.

It is commendable that the courts defend the objective of the Swiss federal law on data protection with its true nature, the private interests of individuals in protecting their privacy vis a vis the authorities, including the Department of Justice of the United States of America.

However, the importance of these decisions should not be overstretched. The balance of interests, in which the interest of a data subject prevailed, was made at a specific moment of the Swiss-US relationships.

Should the US-DOJ come up with new threats against Banks, participating in the Program, including large institutions causing a systemic risk, one cannot exclude that a Court, in a new examination of the Swiss public interest, strikes another balance.

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