The Rise of the Third Financial Centre (1914-1990) — a part of the book Lugano as an International Financial Centre by Dr Alexander Ressos.
Part D explains how Lugano became Switzerland's third financial centre after Zurich and Geneva, and why this growth was driven by Italy: flight capital, the lira, a long border and the Italian-speaking banker who understood the Italian client.
This part belongs to Lugano as an International Financial Centre by Dr Alexander Ressos, published here in full, section by section.
War, Fascism and the Border, 1914-1945 — overview and summary
Between 1914 and 1945 the Canton of Ticino lived on a border that twice became a front line of European politics without ever becoming a front line of war. Read more Lugano · The Rise of the Third Financial CentreA neutral canton on a belligerent border, 1914–1918
When war broke out in August 1914, Switzerland mobilized its army and declared its neutrality. For Ticino the decisive date came nine months later. Read more Lugano · The Rise of the Third Financial CentreDeserters, internees and the general strike in Lugano
The border brought people as well as goods. From the beginning of the war deserters and draft evaders from the belligerent armies crossed into Switzerland. Read more Lugano · The Rise of the Third Financial CentreA strengthened Swiss financial centre
For Switzerland as a whole, the war had a paradoxical financial effect. The Historical Dictionary concludes that the Swiss financial centre emerged from the conflict strengthened. Read more Lugano · The Rise of the Third Financial CentreBanking in Lugano between the wars
The banking system that Ticino possessed after 1920 was the product of the crash of 1914. Read more Lugano · The Rise of the Third Financial CentreModest volumes
The interwar flows of Italian capital into Ticino should not be overstated. The balance sheet of the Banca della Svizzera Italiana stood at about CHF 88.3 million in 1914 and at only CHF 102.2… Read more Lugano · The Rise of the Third Financial CentreFascism, irredentism and the Gotthard
The first Fascist group ( fascio) on Swiss soil was founded in Lugano in May 1921, among the Italian residents of the town. Read more Lugano · The Rise of the Third Financial CentreFonjallaz, Rezzonico and the march on Bellinzona
A second current was organized Fascism of Swiss nationals. In 1933 Colonel Arthur Fonjallaz, a former instructor of the Swiss army and a professor at the Federal Institute of Technology, founded in… Read more Lugano · The Rise of the Third Financial CentreFrom rhetoric to military planning
In the late 1930s the Fascist rhetoric hardened. On 30 November 1938 Mussolini told the Fascist Grand Council: "We shall carry our frontier to the Gotthard." The claim to the "median chain of the… Read more Lugano · The Rise of the Third Financial CentreThe anti-fascist exile in Ticino
The tradition of political asylum that Chapter C.II describes for the Risorgimento revived after 1922. Read more Lugano · The Rise of the Third Financial CentreThe flight of Giovanni Bassanesi
The most spectacular action of the Lugano exiles took place on 11 July 1930. At 10.30 in the morning the young pilot Giovanni Bassanesi took off from the airfield of Bellinzona, picked up a load of… Read more Lugano · The Rise of the Third Financial CentreThe lira, currency control and the first Italian flight capital
Italy's control of capital movements began in the First World War. According to the Bank of Italy's history of its own institution, the central bank financed the Treasury on a large scale during the… Read more Lugano · The Rise of the Third Financial CentreHow money crossed the border
The techniques of capital flight from Italy to Ticino in the 1920s and 1930s were simple and in principle the same as after 1945. Read more Lugano · The Rise of the Third Financial CentreThe Banking Act of 1934 and Article 47
The Federal Act on Banks and Savings Banks of 8 November 1934 was the Confederation's answer to the banking crisis of the early 1930s. Read more Lugano · The Rise of the Third Financial CentreGerman pressure and the myth of the Jewish accounts
The second strand of the debate concerns Germany. The Weimar Republic had introduced a Reich flight tax in December 1931, and after 1933 the National Socialist regime tightened the currency controls… Read more Lugano · The Rise of the Third Financial CentreThe southern border in the Second World War
From June 1940, when Italy entered the war and France was defeated, Switzerland was surrounded by the Axis powers and the territories they controlled. Read more Lugano · The Rise of the Third Financial CentreAfter 8 September 1943
The armistice between Italy and the Allies, announced on 8 September 1943, transformed the situation on the Ticinese border overnight. Read more Lugano · The Rise of the Third Financial CentreThe Ossola Republic and its fall
In the autumn of 1944 the border of Ticino witnessed one of the episodes of the Italian resistance. Read more Lugano · The Rise of the Third Financial CentreCoal, gold, rice and money: the war economy of the frontier
The most important economic function of Ticino in the Second World War was transit. Read more Lugano · The Rise of the Third Financial CentreThe time of rice
The war also reversed the direction of the old smuggling economy. In the First World War and in the interwar period, Ticino had supplied Italy with goods that were scarce or highly taxed there. Read more Lugano · The Rise of the Third Financial CentreOperation Sunrise: Lugano, Ascona and the end of the war in Italy
In the last months of the war, the border region of Ticino became the setting of the secret negotiations that led to the surrender of the German forces in Italy. Read more Lugano · The Rise of the Third Financial CentreFrom 1934 to today: secrecy, capital flight, dormant assets and asylum
Article 47 of the Banking Act is still in force, more than ninety years after its enactment, but its function has changed. Read more Lugano · The Rise of the Third Financial CentreDormant assets
The dormant accounts of victims of Nazi persecution became the subject of an international crisis in 1995–1998, which led to the creation of the Independent Committee of Eminent Persons under Paul… Read more Lugano · The Rise of the Third Financial CentreAsylum and the memory of the border
The refugee policy of the Second World War shaped the modern law of asylum in Switzerland more than any other experience. Read more Lugano · The Rise of the Third Financial CentreThe Lira Economy: Flight Capital, Spalloni and the Boom of Lugano Banking, 1945-1975 — overview and summary
In 1945 the Canton of Ticino had eleven banks with about five hundred employees. By 1982 it counted forty-four banking institutions employing more than seven thousand people. Read more Lugano · The Rise of the Third Financial CentreItaly after 1945: reconstruction, miracle and fear
Italy emerged from the Second World War with a destroyed infrastructure, an inflated currency and a political order that had to be rebuilt from the ground. Read more Lugano · The Rise of the Third Financial CentreFrom the centre-left to the years of lead
The political climate of the 1960s did not calm these fears. When the Christian Democrats opened their governments to the Socialist Party in 1962 and 1963, the first centre-left coalitions… Read more Lugano · The Rise of the Third Financial CentreThe Italian saver between the tax office and the exchange office
The Italian tax system of the early Republic rested on a mix of old real taxes on land, buildings and business income and a progressive surtax on total income, the imposta complementare. Read more Lugano · The Rise of the Third Financial CentreThe exchange-control regime
The second Italian constraint was exchange control. The fascist regime had established a comprehensive control of foreign exchange in the 1930s, and Chapter D.I describes how Italian money… Read more Lugano · The Rise of the Third Financial CentreHow the money crossed: couriers, banknotes and compensation
The border between Italy and the Canton of Ticino forms part of the Swiss–Italian border of 744 km, the longest border of both countries. Read more Lugano · The Rise of the Third Financial CentreThe return of the lira
A Swiss bank that bought Italian banknotes needed to dispose of them. Some were sold to Swiss residents and tourists travelling to Italy, while others were spent by Italian visitors in Ticino. Read more Lugano · The Rise of the Third Financial CentreCompensation and the invoice
Cash was the simplest method, but it was not the only one. The second classic technique was compensation ( compensazione ). Read more Lugano · The Rise of the Third Financial CentreWhere the money went: accounts, numbers and bearer paper
The banknote that crossed the border at Chiasso ended in one of a small number of instruments. Read more Lugano · The Rise of the Third Financial CentreFiduciary deposits and the withholding tax
Swiss law levied a federal withholding tax ( imposta preventiva, Verrechnungssteuer) on interest paid by Swiss banks on deposits, at a rate that rose from 15 per cent at its introduction on 1… Read more Lugano · The Rise of the Third Financial CentreThe boom of Lugano and Chiasso banking
The banking sector that received the lira economy was small. At the end of the Second World War the canton had eleven banks with about five hundred employees. Read more Lugano · The Rise of the Third Financial CentreThe big banks, the foreign banks and Chiasso
The big Swiss banks responded by expanding their own presence. Union Bank of Switzerland, Swiss Bank Corporation and Credit Suisse enlarged their branches in Lugano, opened new ones in Chiasso,… Read more Lugano · The Rise of the Third Financial CentreThe fiduciari and the parabanking sector
Alongside the banks, the lira economy created a second industry: the fiduciary and financial companies that founded, domiciled and administered the structures in which Italian wealth was held. Read more Lugano · The Rise of the Third Financial CentreFrom the fiduciary company to the regulated profession
The fiduciary sector of Lugano became the institutional memory of the lira economy. Read more Lugano · The Rise of the Third Financial CentreLugano becomes the third financial centre
In the middle of the 1960s Lugano was a town of about 25,000 inhabitants. Its economy had rested since the opening of the Gotthard railway on tourism, trade and the services of a regional capital… Read more Lugano · The Rise of the Third Financial CentreFrontalieri and the labour market
The banks also needed staff. The Ticinese labour market could not supply the clerks, cashiers, accountants and secretaries that forty banks required, and the banks recruited from three sources: young… Read more Lugano · The Rise of the Third Financial CentreBern against the flood: federal measures against foreign money
The Swiss authorities did not regard the inflow of foreign capital as an unmixed blessing. Read more Lugano · The Rise of the Third Financial CentreInterest bans, negative commissions and the banknote limit
The statutory measures of the 1960s began with the federal decree of 1964 on combating inflation through measures in the money, capital and credit markets, which entered into force on 17 March 1964… Read more Lugano · The Rise of the Third Financial CentreWhat the measures did to Lugano
The federal measures were designed against speculative money that sought to profit from an appreciation of the franc. Flight capital from Italy behaved differently. Read more Lugano · The Rise of the Third Financial CentreRome closes the door: the criminal law of 1976
The period ends with a change in Italian law. In the lira crisis of early 1976, with the foreign exchange market suspended and the Communist Party approaching the Christian Democrats in the polls,… Read more Lugano · The Rise of the Third Financial CentreThe Swiss side of the border
Swiss law did not change in response. Switzerland did not grant mutual assistance for currency offences. Read more Lugano · The Rise of the Third Financial CentreCash across the border today
Although the spallone with his briefcase of banknotes belongs to history, cross-border cash has not disappeared. Its legal treatment today illustrates how far the law has moved since 1976. Read more Lugano · The Rise of the Third Financial CentreThe Italian and European rules
Italy, as a Member State of the European Union, applies the Union's rules on cash controls. Read more Lugano · The Rise of the Third Financial CentreFlight capital and the reputation of a financial centre
Swiss law and Swiss banking practice drew for decades a sharp line between three kinds of foreign money. Read more Lugano · The Rise of the Third Financial CentreFlight capital today
Capital flight has not disappeared from the world. Many States still restrict the export of capital, among them several of the emerging markets whose wealthy families are courted by Swiss banks… Read more Lugano · The Rise of the Third Financial CentreThe Chiasso Scandal of 1977 and the Birth of Swiss Due Diligence — overview and summary
On 14 April 1977 the Schweizerische Kreditanstalt, known in Ticino as the Credito Svizzero and abroad as Credit Suisse, announced that irregular transactions at its branch in Chiasso had exposed the… Read more Lugano · The Rise of the Third Financial CentreChiasso: a border town becomes a banking town
Chiasso lies at the southern tip of the Mendrisiotto, on the frontier with the Italian city of Como. Its modern history begins with the Gotthard railway. Read more Lugano · The Rise of the Third Financial CentreChiasso in the lira economy
The demand for the branch's services came from Italy. Chapter D.II describes the Italian economic miracle of the 1950s and 1960s, the political tensions of the 1970s and the currency regime that made… Read more Lugano · The Rise of the Third Financial CentreThe men of the Chiasso branch
Ernst Kuhrmeier was the central figure of the affair. He was deputy director of the Chiasso branch when Texon was created in 1961 and later became its director. Read more Lugano · The Rise of the Third Financial CentreTexon Finanzanstalt: the bank within the bank
Texon Finanzanstalt was established in Liechtenstein in April 1961. Its legal form, the Anstalt (establishment), was a creation of the Liechtenstein Persons and Companies Act of 1926, a flexible… Read more Lugano · The Rise of the Third Financial CentreWhere the money went: wine, tourism and plastics
The funds that passed through Texon flowed back to Italy. This was the economic logic of the construction. Read more Lugano · The Rise of the Third Financial CentreDiscovery in April 1977 and the size of the losses
The turning point came with the oil crisis of 1973 and the recession that followed it in Italy. Read more Lugano · The Rise of the Third Financial CentreThe reaction of the markets and the National Bank
The news struck a Swiss banking system that had already been unsettled by the Weisscredit failure. Read more Lugano · The Rise of the Third Financial CentreCredit Suisse after Chiasso: management, supervision and reorganization
The first question after April 1977 concerned the responsibility of the bank's leadership. Read more Lugano · The Rise of the Third Financial CentreSupervision without new law
The Commission's conclusion in its report for 1977 was cautious. Only after the full use of the existing supervisory instruments, it wrote, would it become apparent "whether changes are necessary… Read more Lugano · The Rise of the Third Financial CentreThe criminal proceedings and the trial of 1979
The criminal investigation lay with the public prosecutor's office of the Sottoceneri in Lugano. Read more Lugano · The Rise of the Third Financial CentreThe verdict of 3 July 1979
The Court of Assizes delivered its verdict on 3 July 1979. Kuhrmeier and Laffranchi, whom the court regarded as equal in professional responsibility, were each sentenced to four and a half years'… Read more Lugano · The Rise of the Third Financial CentreThe Liechtenstein dimension
Texon and the Weisscredit establishment in Schaan belonged to a type of entity that Liechtenstein had made available in large numbers since the 1920s. Read more Lugano · The Rise of the Third Financial CentrePolitical consequences in Ticino and in Bern
In Ticino the affair reached the cantonal government. Fabio Vassalli, a young member of the Council of State for the Christian Democratic People's Party (PPD), had entered the government in 1975… Read more Lugano · The Rise of the Third Financial CentreThe banking initiative of the Social Democrats
The Social Democratic Party took the argument to the people. Its popular initiative "against the abuse of banking secrecy and the power of the banks" ( gegen den Missbrauch des Bankgeheimnisses und… Read more Lugano · The Rise of the Third Financial CentreThe due diligence agreement of 1977 (CDB 77)
The agreement that the Swiss banks concluded in the weeks after Chiasso had been under discussion before the scandal broke. Read more Lugano · The Rise of the Third Financial CentreIdentification of the client and the beneficial owner
The first obligation of the agreement was the verification of the identity of the contracting partner. Read more Lugano · The Rise of the Third Financial CentreThe arbitration commission and the penalties
The agreement created its own enforcement mechanism. Violations were investigated and judged by an arbitration commission ( Schiedskommission ), whose secretariat was run by the National Bank. Read more Lugano · The Rise of the Third Financial CentreFrom CDB 77 to CDB 20: self-regulation becomes law
The agreement of 1977 was concluded for five years, and its renewal in five-year cycles became the method by which the banks adapted it to new problems. Read more Lugano · The Rise of the Third Financial CentreThe CDB 98 and the Anti-Money Laundering Act
The next step was federal legislation. The Federal Act on Combating Money Laundering and Terrorist Financing of 10 October 1997 (Anti-Money Laundering Act, AMLA) extended due diligence duties to the… Read more Lugano · The Rise of the Third Financial CentreThe CDB 20 and its place in federal law
The current version, the CDB 20, was adopted on 13 June 2018, approved by FINMA in the same year and entered into force on 1 January 2020. Read more Lugano · The Rise of the Third Financial CentreKnow your customer today: the practitioner's view after Chiasso
The relationship manager who opens an account in Lugano today works within a statutory framework whose architecture still reflects the agreement of 1977. Read more Lugano · The Rise of the Third Financial CentreAMLO-FINMA and the risk-based approach
The FINMA Anti-Money Laundering Ordinance turns these statutory duties into a risk-based system. Read more Lugano · The Rise of the Third Financial CentreThe prohibitions on capital flight and tax evasion today
The prohibitions of active assistance in capital flight and tax evasion remain in Chapters 6 and 7 of the CDB 20 with substantially the same content as in 1977. Their practical meaning has changed. Read more Lugano · The Rise of the Third Financial CentreMoney Laundering, Mafia and the Criminal Law Response, 1980-1990 — overview and summary
In February 1987 the police in Bellinzona seized about 100 kilograms of morphine base and heroin, at that time the largest drug seizure ever made in Switzerland. Read more Lugano · The Rise of the Third Financial CentreLugano around 1980: a financial centre without a money laundering offence
By the end of the 1970s Lugano had become, in the words of the Ticino bankers' association, "la terza piazza finanziaria svizzera, dopo Zurigo e Ginevra", a position built above all in the 1960s and… Read more Lugano · The Rise of the Third Financial CentreThe Ticino prosecution service
The Ticino criminal justice system of the time was organized in two districts. The public prosecutor of the Sottoceneri sat in Lugano and covered the districts of Lugano and Mendrisio, where nearly… Read more Lugano · The Rise of the Third Financial CentreThe Pizza Connection: heroin, pizzerias and Swiss accounts
The name "Pizza Connection" was coined by the American press for a trafficking network in which Sicilian Mafia families refined morphine base into heroin in laboratories around Palermo and shipped it… Read more Lugano · The Rise of the Third Financial CentreSwiss proceedings in Lugano and Bellinzona
Swiss law made the Ticino prosecutors' task difficult. Since laundering was not an offence, they had to prosecute the Swiss end of the network as participation in drug trafficking, which required… Read more Lugano · The Rise of the Third Financial CentreProsecutors across the border: Bernasconi, Falcone and Del Ponte
The public prosecutor's office of the Sottoceneri in Lugano was in the 1970s and early 1980s one of the few Swiss prosecution authorities that dealt regularly with international financial crime. Read more Lugano · The Rise of the Third Financial CentreCarla Del Ponte in Lugano
Carla Del Ponte, born in Ticino in 1947, opened her own law and notary's office in Lugano in 1975 and then joined the Lugano prosecution service as investigating magistrate and public prosecutor. Read more Lugano · The Rise of the Third Financial CentreBanco Ambrosiano, Roberto Calvi and the Lugano link
The largest Italian banking failure of the post-war period also passed through Switzerland. Read more Lugano · The Rise of the Third Financial CentreGelli in Geneva and the limits of Swiss law
The Ambrosiano case reached Switzerland a second time through the person of Licio Gelli. Read more Lugano · The Rise of the Third Financial CentreThe Lebanon Connection and the Kopp affair, 1987–1990
The case that ended the career of a Federal Councillor began with drugs found in Ticino. Read more Lugano · The Rise of the Third Financial CentreParliament, the commission of inquiry and the Federal Court
The affair turned at once into a debate on the law. On 15 December 1988 the National Council discussed four interventions on money laundering. Read more Lugano · The Rise of the Third Financial CentreMaking laundering a crime: Articles 305bis and 305ter SCC (1990)
The legislative history of the Swiss money laundering offence began in Lugano. After Bernasconi delivered his report in September 1986, the Federal Department of Justice and Police submitted a… Read more Lugano · The Rise of the Third Financial CentreArticle 305bis: money laundering
In its current wording, Article 305bis(1) SCC punishes "any person who carries out an act that is aimed at frustrating the identification of the origin, the tracing or the forfeiture of assets which… Read more Lugano · The Rise of the Third Financial CentreSelf-regulation alongside the criminal law
The criminal provisions gave the banks' self-regulation a sharper edge. The due diligence agreement had been renewed in 1987 after its first ten years, and the 1987 version required the bank to… Read more Lugano · The Rise of the Third Financial CentreThe second package of 1994: criminal organizations, reporting and confiscation
The criminal provisions of 1990 did not stand alone. On 7 February 1990 the Financial Action Task Force, created by the G7 summit of 1989 and counting Switzerland among its members, adopted its forty… Read more Lugano · The Rise of the Third Financial CentreThe right to report: Article 305ter(2) SCC
The same Act added a second paragraph to Article 305ter SCC. It provides that the persons covered by paragraph 1 "are entitled to report to the internal law enforcement authorities or the federal… Read more Lugano · The Rise of the Third Financial CentreMutual assistance with Italy: from the convention of 1959 to the agreement of 1998
The cooperation between the prosecutors of Lugano, Bellinzona, Milan and Palermo rested on three layers of law. Read more Lugano · The Rise of the Third Financial CentreHow a request from Milan was executed in Lugano
The procedure that the Ticino prosecutors followed can be described in a sequence of steps. Read more Lugano · The Rise of the Third Financial CentreThe Swiss–Italian agreement of 1998
The bilateral agreement of 10 September 1998 aimed to simplify and accelerate the application of the European Convention between the two States. Read more Lugano · The Rise of the Third Financial CentreMani Pulite, Swiss accounts and the reputation crisis of the 1990s
On 17 February 1992 the Milan prosecutors arrested Mario Chiesa, the socialist president of a Milan old people's home, while he was taking a bribe. Read more Lugano · The Rise of the Third Financial CentreTicino's own cases
The 1990s also brought cases in which the Swiss intermediaries themselves were tried in Ticino. Read more Lugano · The Rise of the Third Financial CentreThe modern framework for an institution's defence
The criminal provisions of 1990 and 1994 punished laundering after the fact. They did not create an administrative system that obliged all financial intermediaries to prevent it. Read more Lugano · The Rise of the Third Financial CentreCorporate criminal liability: Article 102 SCC
The second pillar of an institution's exposure is its own criminal liability. The Federal Council had refused in 1989 to make companies criminally liable for money laundering and had referred the… Read more