The Convention on due diligence of 1977

Genesis and parties

The Chiasso affair produced the first Swiss rules on customer identification with remarkable speed. On 1 July 1977, less than three months after the Kreditanstalt's communiqué, the Swiss Bankers Association and the Swiss National Bank signed the “Agreement relating to the due diligence to be applied by the banks when accepting funds and relating to the practice of banking secrecy”, known in German as the Vereinbarung über die Sorgfaltspflicht der Banken and abbreviated VSB.¹ Individual banks acceded to it by signing. The instrument was concluded for five years and was renewed with amendments on 1 July 1982.²

The choice of form is characteristic of Swiss financial regulation in the 1970s. Parliament could have legislated, and the Social Democrats were demanding exactly that. The National Bank, however, had no statutory power to regulate the conduct of banks towards their customers. The Federal Banking Commission, which supervised banks under the Banking Act of 1934, focused on solvency and on the proper conduct of business in a general sense. A private agreement allowed the National Bank to bring its authority to bear without waiting for legislation, while the banks kept control over the details. The Année politique summarised the core of the new accord as an undertaking by which banks were prohibited, under penalty, from facilitating illegal capital transfers or assisting customers in deceiving the authorities.³

The agreement was also a defensive measure. Its signatories hoped that visible self-regulation would take the wind out of the Social Democratic initiative and would reassure foreign governments, above all in Italy, whose citizens' money had been at the centre of the Chiasso affair. The Liechtenstein historical lexicon records that Swiss and Liechtenstein banks both adopted their first due diligence rules in 1977, and that the Principality reformed its criminal law and company law between 1977 and 1980.⁴ The scandal thus had a regional regulatory effect that reached beyond Switzerland's borders.

Content: knowing the customer

The core of the 1977 agreement was the obligation to verify the identity of the contracting party when opening an account, a securities deposit or a safe-deposit box, or when carrying out large cash transactions. Where the bank had doubts whether the contracting party was the true owner of the assets, it had to obtain a written declaration identifying the beneficial owner. This declaration became known as Form A, a name that it still carries in the current version of the agreement.⁵ In substance this was a know-your-customer rule a decade before the term entered the international vocabulary. It rested on a simple idea: banking secrecy protects the customer's privacy, but it presupposes that the bank itself knows who the customer is.

An important exception concerned lawyers, notaries and other persons bound by professional secrecy. They could open accounts for clients without disclosing the clients' names to the bank, provided they signed a declaration known as Form B. On that form they confirmed that they knew the beneficial owner and that the account served a professional mandate.⁶ Form B reflected the special position that Swiss law gave to the professional secrecy of lawyers. It also opened a gap through which beneficial owners could remain unknown to the bank, and that gap would be closed only in 1991.

The second pillar of the agreement concerned conduct towards foreign authorities. Banks undertook not to provide active assistance for capital flight from countries that restricted the export of capital, and not to assist customers in deceiving tax authorities through incomplete or misleading certificates. These rules remain in the agreement to this day. In the 2008 version they appear as Article 7 on capital flight and Article 8 on tax evasion.⁷ The restriction was narrow. Passive acceptance of undeclared foreign money remained lawful. What was forbidden was the kind of active help that the Chiasso managers had given, for instance by organising cross-border transport or by issuing false documents. The distinction between passive acceptance and active assistance would shape Swiss banking practice until the end of banking secrecy for foreign clients, which Part G of this book describes.

Enforcement through private arbitration

The agreement's most original feature was its enforcement mechanism. Breaches were to be investigated and sanctioned by a commission, whose members the National Bank and the Bankers Association appointed jointly. The sanction took the form of a contractual penalty payable by the offending bank. In the current version of the agreement a supervisory board of at least five members, most of them independent, investigates violations. It can impose a contractual penalty of up to ten million francs, which the Bankers Association pays to charitable purposes.⁸ The mechanism gave the banks a disciplinary tribunal of their own, with the credibility that came from the participation of the central bank.

The hybrid character of this arrangement soon came before the courts. In 1983 the Swiss Association of Trustees brought proceedings against the National Bank concerning the 1982 version of the agreement. The central question was whether the agreement belonged to public or to private law. In BGE 109 Ib 146 of 3 June 1983, the Federal Supreme Court held that the agreement was a contract under private law. Applying the subordination theory, the court reasoned that the agreement had resulted from negotiations between parties of equal standing and that banks were free to join it or to stay outside. The appointment of the arbitration commission by mutual agreement between the National Bank and the Bankers Association did not give it the character of a public authority. The court nevertheless added that the National Bank, even when acting in private-law form, remained bound by its public mandate and by fundamental rights.⁹

The decision is a small classic of Swiss financial law. It confirmed that self-regulation could be used to set standards of conduct that the legislature had not yet adopted. It also marked the limits of the device, because a private contract could bind only those who signed it. Asset managers, fiduciaries and lawyers outside the banking sector stayed outside its reach. That gap would motivate the legislature twenty years later to extend due diligence to the whole financial sector.

From central bank accord to industry code

The National Bank's participation did not last. When the agreement came up for renewal in 1987, it was replaced by a new agreement concluded between the Swiss Bankers Association and the signatory banks alone.¹⁰ From that date the VSB was an industry code of the banks themselves. The Federal Council's dispatch on the Anti-Money Laundering Act of 1996 described how the agreement had been revised several times in cooperation with the Banking Commission and credited it with rules that were internationally pioneering in the fight against money laundering.¹¹

Revisions followed at regular intervals, among them the versions of 2008, 2016 and 2020, each of which adapted the agreement to new criminal and supervisory law. The version in force since 1 January 2020, VSB 20, lowered the threshold for identification in cash transactions from 25,000 to 15,000 francs and formalised video and online identification.¹² The agreement's stated purposes today include the preservation of the reputation of Swiss banks and the fight against money laundering and terrorist financing. The word “reputation” connects the modern text directly to 1977, when the Kreditanstalt and the whole Swiss banking sector had learned how quickly reputation could be lost.

The experience of working with the VSB shaped the professional culture of Zurich banks long before statutory money laundering law existed. Account opening became a formal procedure with forms, checks and signatures. The internal audit and later the compliance function acquired a mandate to verify that procedures had been followed. The external auditors, who had to confirm compliance with the agreement, became part of the enforcement chain. When the Anti-Money Laundering Act arrived in 1997, the banks already possessed two decades of practice in customer identification. The non-bank financial sector, as the next sections show, had to build that practice from nothing.

Notes

1. “Switzerland”, The International Lawyer, vol. 26, no. 2 (1992), article 13, https://scholar.smu.edu/cgi/viewcontent.cgi?article=2893&context=til, at 545, which gives the date of 1 July 1977 and names the Swiss Bankers Association and the Swiss National Bank as signatories. ↩
2. The International Lawyer, vol. 26, no. 2 (1992), at 545. ↩
3. Année politique suisse 1977 (above), on the accord between the National Bank and the Bankers Association on due diligence and banking secrecy. ↩
4. HLFL, Lussy, “Chiasso-Skandal” (above). ↩
5. Swiss Bankers Association, “Praxis der Aufsichtskommission zur Sorgfaltspflicht der Banken 2005–2010”, section V/2.2.1, pp. 28–29, stating that the original version of the agreement dates from 1 July 1977, that Article 3 VSB 1977 required identification of the “wahrer Berechtigter” (the term “wirtschaftlich Berechtigter” being used consistently from the VSB 1982), and discussing the current Form A, https://www.swissbanking.ch/_Resources/Persistent/a/6/c/f/a6cf3bd5e977aaf369ca224c3aa0f9f23b57bf77/T%C3%A4tigkeitsberichte%20der%20Aufsichtskommission%20zur%20VSB%202005%20-%202010%20%28PDF%29.pdf. ↩
6. The International Lawyer, vol. 26, no. 2 (1992), at 546–547. ↩
7. Swiss Bankers Association, Vereinbarung über die Standesregeln zur Sorgfaltspflicht der Banken (VSB 08), Articles 7 and 8, https://www.finma.ch/finmaarchiv/ebk/d/ebk/taetigkeit/pdfs/20080925_SBVg_VSB_08_d.pdf. ↩
8. VSB 08, Articles 11 and 12 (above); on the use of penalties for charitable purposes and on the current VSB 20, German-language Wikipedia, “Vereinbarung über die Standesregeln zur Sorgfaltspflicht der Banken”, https://de.wikipedia.org/wiki/Vereinbarung_%C3%BCber_die_Standesregeln_zur_Sorgfaltspflicht_der_Banken. ↩
9. Federal Supreme Court, BGE 109 Ib 146 of 3 June 1983, Schweizerischer Treuhänder-Verband v. Schweizerische Nationalbank, https://entscheide.weblaw.ch/cache.php?link=bge-109-ib-146&sel_lang=de. ↩
10. The International Lawyer, vol. 26, no. 2 (1992), at 547. ↩
11. Federal Council, Botschaft zum Bundesgesetz zur Bekämpfung der Geldwäscherei im Finanzsektor (96.055) of 17 June 1996, BBl 1996 III 1101, https://www.finma.ch/FinmaArchiv/gwg/d/dokumentationen/gesetze_und_regulierung/bundesgesetzgebung/PDF/Botschaft_GwG_d.pdf. ↩
12. German-language Wikipedia, “Vereinbarung über die Standesregeln zur Sorgfaltspflicht der Banken” (above), on VSB 20. ↩

For general information only. This article does not constitute legal or tax advice, does not replace advice on an individual case and creates no lawyer-client relationship. It reflects the legal position as of September 2025.