37 Am. U. L. Rev. 827

American University Law Review

Spring, 1988

Comment

*827 THE SUPREME COURT'S IMPACT ON SWISS BANKING SECRECY: SOCIETE NATIONALE INDUSTRIELLE AEROSPATIALE v. UNITED STATES DISTRICT COURT

Marc G. Corrado

Copyright 1988 by Marc G. Corrado

INTRODUCTION The conflict between the American Federal Rules of Civil Procedure and the Swiss secrecy laws poses a dilemma for federal district courts. [FN1] Swiss banks invariably invoke the Swiss banker-client privilege and refuse to produce materials ordered by federal courts. [FN2] Although federal courts must protect American interests in fairness and due process, [FN3] a tension exists because these courts must also *828 respect Switzerland's secrecy laws. [FN4]

The American Federal Rules of Civil Procedure permit the parties to a suit to gain access to any material that could lead to admissible *829 evidence in court. [FN5] The Supreme Court has given these rules a broad and liberal interpretation so that the parties are apprised fully of all the relevant facts of a case prior to trial. [FN6] In this respect, American evidentiary procedures further the goal of due process guaranteed by the United States Constitution. [FN7]

Switzerland, on the other hand, considers privacy in financial affairs a matter of priority for two reasons. First, financial privacy is recognized throughout Swiss society as a personal right and as a form of liberty and independence. [FN8] Swiss laws regard the client as the master in the banker-client relationship. [FN9] The banker is revered as a person of confidence and trust, [FN10] and a breach of that trust would subject the banker to criminal sanctions under Swiss law. [FN11]

*830 Second, Swiss banks rely on the banker-client privilege to ensure their eminent status in the financial world. [FN12] The Swiss government also depends on the nation's banks to maintain a favorable balance of payments. [FN13] Any attempt to limit the scope of the secrecy privilege would, therefore, adversely affect Switzerland's banking system and national economy. [FN14] Consequently, American parties face considerable barriers when seeking evidence in a Swiss bank's possession because of Switzerland's rights to privacy and its strong interest *831 in protecting its banking system. [FN15]

Because Switzerland is a civil law nation, American litigants obtaining evidence without the participation or consent of the appropriate Swiss authorities infringe Switzerland's judicial sovereignty. [FN16] In Switzerland, courts do not merely supervise the preparation and presentation of evidence; they gather the evidence themselves. [FN17] Therefore, civil law procedures require that an American party first obtain judicial authorization before, for example, serving interrogatories upon a Swiss bank. [FN18]

Switzerland's judicial sovereignty and secrecy laws, however, facilitate the proliferation of organized crime as well as violations of *832 United States securities and tax laws. [FN19] Switzerland, sensitive to American political pressure and to the vast quantities of money that American customers deposit in Swiss banks, [FN20] has made concessions to the United States in the form of bilateral treaties that attempt to provide assistance in the discovery of evidence. [FN21] These treaties, however, have failed to pierce the banker-client privilege because they frequently include two provisions that preserve the privilege. First, they allow a party to the treaty to refuse discovery assistance if satisfying the request will prejudice the requested state's sovereignty. [FN22] Second, a state may also deny a discovery request if the *833 offense motivating the request is not punishable under the state's laws. [FN23] In addition, international agreements cause litigants difficulty in obtaining evidence because their procedures often are expensive, time-consuming, and unreliable. [FN24]

Despite Swiss secrecy laws, federal courts recently have ordered Swiss entities to present evidence at trial. [FN25] The courts have justified the issuance of such orders based on their conclusion that the procedures outlined in the bilateral treaties are not obligatory. [FN26] *834 Further, the courts have reasoned that discovery orders do not infringe upon Switzerland's sovereignty because the discovery and presentation of the evidence takes place in the United States. [FN27]

In Societe Nationale Industrielle Aerospatiale v. United States District Court, [FN28] the Supreme Court in a five to four decision held that international comity did not require American litigants seeking information located abroad to resort to the 1970 Hague Convention on the Taking of Evidence Abroad in Civil and Commercial Matters (Hague Convention). [FN29] The impact of the Court's decision will be significant. Although Switzerland is not yet a party to the Hague Convention, [FN30] the Court's treatment of the foreign state in Aerospatiale provides further justification for American lower courts to hold that discovery provisions in treaties are optional and that these provisions may be ignored for the sake of United States interests in due process. Switzerland, who is a party to two other major treaties with the United States, has depended on the use of the discovery provisions in these treaties to protect its banking secrecy. [FN31] Under the terms of the treaties, all discovery requests are channeled through the requested state's authorities. [FN32] Thus, the treaties allow the Swiss authorities to monitor the type and amount of banking information that is given to American litigants.

The Court's decision in Aerospatiale was based on its conclusion that the Hague Convention did not establish exclusive and mandatory procedures for obtaining evidence abroad. [FN33] The majority concluded that a case-by-case analysis of the particular facts, sovereign interests, and likelihood of success in obtaining the desired information would determine whether federal courts should employ *835 the Hague Convention's procedures or resort to the Federal Rules of Civil Procedure. [FN34] Therefore, depending on how the trial court balances these factors, the court could order the discovery of evidence under the broad Federal Rules of Civil Procedure. [FN35]

Although France, and not Switzerland, was involved in the Aerospatiale case, the Swiss government has expressed great concern over the far-reaching effect that the Court's holding could have on the use of the Hague Convention to obtain evidence by signatories. [FN36] Although the Swiss government signed the Hague Convention on May 21, 1985, the Swiss Parliament has not yet ratified the treaty, [FN37] and the government has warned that the Court's decision may jeopardize ratification of the treaty. [FN38] More importantly, American courts may now rely on Aerospatiale to continue ruling that the procedures outlined in the Double Taxation Convention and the Criminal Matters Treaty are not mandatory, [FN39] and that Swiss secrecy interests may be cast aside for the sake of American interests in due process. [FN40]

This Comment examines the extent to which the Supreme Court in Aerospatiale resolved the conflict between the Federal Rules of Civil Procedure and Swiss banking laws. Part I reviews Swiss secrecy and banking laws, and explains how treaties between the United States and Switzerland have traditionally promoted Swiss secrecy interests. Part I also analyzes how the federal courts have balanced American and Swiss interests in deciding whether to issue discovery orders to Swiss parties. Parts II and III focus on the potential impact of Aerospatiale on Switzerland's interest in protecting its banking and secrecy laws. This Comment concludes that the standard established in Aerospatiale is unworkable and recommends an alternative standard to facilitate American penetration of the Swiss banker-client privilege and to promote the discovery process between the United States and Switzerland.

*836 I. BACKGROUND

A. Swiss Banking Secrecy Switzerland protects the privacy of its banks not only because of economic reasons, [FN41] but also because the nation considers financial privacy part of an individual's right to liberty and personal freedom. [FN42] A banker, entrusted with the financial privacy of his or her clients, often possesses greater knowledge of the client's finances than the client's family. [FN43] Thus, Swiss society places the same trust and confidence in its bankers as it does in its clergymen, lawyers, and physicians. [FN44]

1. Legal protection of Swiss banking secrecy

Three different legal concepts safeguard Swiss banking secrecy. [FN45] First, if a bank breaches the banker-client privilege, the client may institute a cause of action for violations of Swiss personality rights under the Swiss Civil Code. [FN46] Banking secrecy is based primarily on the right to personal privacy, which is a personality right. [FN47] Swiss law thus protects the banker-client relationship as an element of the sphere of personal privacy.

Second, a bank that divulges privileged information is also liable *837 under Swiss contract law. [FN48] Under the Swiss Code of Obligations, [FN49] a Swiss bank acts as an agent for its clients and thus, has a contractual obligation of loyalty to uphold the banker-client privilege. [FN50] This obligation constitutes an implied contractual duty and banks must observe the secrecy privilege even in the absence of an express agreement. [FN51]

Third, a violation of Swiss banking secrecy is also subject to criminal sanctions under article 47 of the Swiss Banking Law (Banking Law). [FN52] This 'public law' strengthens and reaffirms the importance of the banker-client privilege established in the 'private laws' of the Swiss Civil Code and Code of Obligations. [FN53] Both the intentional [FN54] *838 and negligent [FN55] disclosure of secret banking information is punishable with criminal penalties. Under article 47, the banker-client privilege survives the banker-client relationship so that a violation of secrecy remains punishable beyond termination of the relationship. [FN56]

Although the Banking Law protects the banker-client privilege by providing strict sanctions for a breach of this privilege, it does not explicitly define the scope of a banker's obligation under the privilege. [FN57] Rather, article 47(4) of the Banking Law delegates the task of defining the scope of the banker-client privilege to the federal and cantonal procedural codes that state when a banker has a duty to testify or produce requested documents. [FN58] These codes recognize certain public law exceptions to the banker-client privilege and permit the disclosure of otherwise confidential information. [FN59]

2. Public law exceptions to Swiss banking secrecy

Procedural laws that establish a public duty to disclose information override the banker-client privilege. [FN60] Both the Swiss Federal *839 Code of Criminal Procedure and the Swiss Federal Code of Civil Procedure impose a public duty to testify as well as to produce documents, and neither law exempts bankers from its requirements. [FN61] In contrast to the two federal judicial codes, the Swiss Federal Law on Administrative Procedure allows bankers to invoke the secrecy privilege to protect professional secrets. [FN62]

Switzerland is a confederation of twenty-six cantons, each of which has an autonomous judicial system that determines bankers' obligations in criminal, civil, and administrative proceedings. [FN63] At the cantonal level, no criminal procedural code explicitly affords bankers the right to refuse to testify or produce documents. [FN64] In civil proceedings, bankers have a duty to testify and edit documents of interest in eleven cantons [FN65] and may refuse to testify in eight cantons. [FN66] The civil procedure codes of the remaining seven cantons allow the judges to decide whether to exempt bankers from providing evidence. [FN67] In administrative court proceedings, the cantons *840 either accord the banker the right to invoke the banking secrecy privilege or authorize the judge to order the banker to testify. [FN68]

3. Sources of banking secrecy disputes

Despite the public law exceptions to the Swiss banker-client privilege, the United States Internal Revenue Service (IRS) and the Securities and Exchange Commission (SEC) have failed to penetrate Swiss banking secrecy in attempting to gain possession of banking information that is essential to their investigations. [FN69] A Swiss court may annul the banker-client privilege only if the discovery of privileged banking information is permissible under Swiss law or a ratified treaty. [FN70] Because Swiss courts rarely annul the privilege, individuals engaging in tax fraud, tax evasion, or insider trading have sought refuge from the IRS and the SEC by depositing their ill-gotten funds in Swiss bank accounts. [FN71]

The success of these individuals in hiding their funds in Switzerland is largely due to Swiss laws. Swiss federal and cantonal tax laws distinguish between tax evasion and tax fraud. [FN72] In cases involving *841 tax evasion, [FN73] the Swiss tax authorities will prosecute the offender in an administrative procedure, not in criminal courts. [FN74] Because banks or other third persons are not obligated to furnish information to tax authorities, [FN75] banking secrecy is upheld in these procedures. [FN76] As a result, many Americans are able to declare minimal amounts of income on their tax returns and deposit the undeclared income in Swiss bank accounts with little fear of detection. [FN77]

Tax fraud is treated in one of two ways. [FN78] Under the first group of tax laws, prosecution of tax fraud remains an administrative procedure within the responsibility of the tax authorities. [FN79] Under these laws, bankers do not have a duty to disclose tax fraud information to the IRS. [FN80] The second group of tax laws, however, treat tax fraud like any other crime, and place it within the responsibility of the criminal courts. [FN81] Courts in these cantons apply their respective codes of criminal procedure and, therefore, require the disclosure *842 of otherwise privileged banking information. [FN82]

Swiss law does not explicitly criminalize or punish the act of trading in securities on the basis of inside information or 'insider trading.' [FN83] Therefore, bankers have no public duty to testify or disclose materials with regard to insider trading activities. [FN84] On the contrary, bankers may be punished for revealing banking information. [FN85] As a result, investors trading on the basis of inside information are able to avoid reporting their transactions by using Swiss bank accounts. [FN86] Moreover, a Swiss bank's clients can further disguise their identity when engaging in insider trading because the bank is allowed to trade in securities on behalf of its clients. [FN87]

In response to American protests that violators of U.S. tax and securities laws were able to deposit their funds in Switzerland beyond the reach of the IRS and the SEC, Switzerland agreed to grant substantial concessions to the United States in the form of international treaties. [FN88] These concessions included greater access to evidence regarding tax and securities law violations, as well as organized crime. [FN89] As this Comment will explain below, in these three areas, the United States has been able to penetrate the bankerclient *843 privilege to obtain sought after evidence. [FN90]

4. Swiss secrecy interests reflected in international agreements

The Swiss Penal Code precludes foreign authorities, or individuals acting on behalf of foreign authorities, from performing discovery in Switzerland. [FN91] A ratified international agreement, however, becomes Switzerland's internal law and thus supersedes any previously established Swiss law. [FN92] Therefore, if a requesting party is able to establish that secrecy holders have a duty to testify under the terms of a treaty, the secrecy holder may be compelled to disclose the requested information. [FN93] Two international treaties purport to facilitate discovery between the United States and Switzerland: the Treaty on Mutual Assistance in Criminal Matters [FN94] and the Convention for the Avoidance of Double Taxation With Respect to Taxes on Income. [FN95]

The Treaty on Mutual Assistance in Criminal Matters (Criminal Matters Treaty) affords judicial assistance for the prosecution of offenses punishable within the jurisdictions of both the requesting and requested states, [FN96] as well as offenses falling within the category of organized crime. [FN97] With respect to offenses punishable under the laws of both states, the Criminal Matters Treaty reflects Switzerland's *844 intent to protect its privacy in three ways. [FN98] First, the Criminal Matters Treaty allows Swiss authorities to refuse a request for judicial assistance that violates Swiss sovereignty. [FN99] Second, under the requirement of mutual penal liability, Swiss authorities will provide evidence only if the misconduct punishable in the United States also constitutes a violation of Swiss law. [FN100] Third, under the principle *845 of speciality, evidence may be admitted only in the foreign proceeding for which the information was requested. [FN101]

Chapter II of the Criminal Matters Treaty, entitled 'Special Provisions Concerning Organized Crime,' contains the most significant Swiss concessions to American pressure on the issue of assisting the discovery process. [FN102] Article 7 of the Criminal Matters Treaty authorizes Swiss authorities to provide privileged banking information even if the alleged offense is not punishable in Switzerland. [FN103] Further, under article 7(2), such information may be requested and obtained for an investigation of a member of an organized criminal group and then used for the prosecution of a tax offense that the member has committed. [FN104] Thus, concerning organized criminal activities, Switzerland has discarded the principle of speciality and *846 the requirement of mutual penal liability, [FN105] and has provided the means necessary to prosecute members of organized crime. [FN106]

Like the Criminal Matters Treaty, the Convention for the Avoidance of Double Taxation (Double Taxation Convention) establishes a procedure for the exchange of information between the United States and Switzerland. Article XVI of the Double Taxation Convention provides that the United States and Switzerland shall exchange tax information for two purposes. [FN107] First, the requested State shall provide tax materials in order to carry out the provisions of the Double Taxation Convention. [FN108] Second, the United States may obtain evidence for the prevention of fraud in relation to income taxes in general. [FN109]

The diverse Swiss cantonal laws concerning information discoverable in tax fraud proceedings, however, obscure the scope of article XVI's fraud clause. [FN110] For many years Switzerland has refused to provide banking information to the IRS on the ground that Swiss law prohibits discovery of the requested materials. [FN111] This action is *847 permissible under article XVI of the Double Taxation Convention, which authorizes Switzerland to deny a request when the information desired is not available under Swiss law. [FN112]

In the 1970's, the Swiss Federal Tribunal redefined the fraud clause. [FN113] Stressing the divergent tax laws of the cantons, the Court stated that Swiss secrecy interests must yield to an American request for information relating to tax fraud. [FN114] The Court added, however, that the Swiss authorities may limit the information supplied by reducing it to a report summarizing the tax fraud investigation, and not provide the actual documents requested. [FN115]

As is reflected in the Criminal Matters Treaty and the Double *848 Taxation Convention, Switzerland has been willing to provide the United States with privileged materials. [FN116] Such concessions are particularly significant in light of Switzerland's protection of the banker-client privilege. [FN117] United States federal courts, however, have chosen to ignore the procedures established in these two bilateral agreements. [FN118]

B. Federal Court Cases The United States federal courts have chosen not to accommodate Switzerland's strong interests in its banking secrecy and banker-client privilege. [FN119] When a party to a United States proceeding refuses to produce evidence, the court may be petitioned to issue an order compelling production of the requested information. [FN120] If the evidence is not produced, the court cannot address the substantive rights of the nonoffending party. [FN121] Therefore, to uphold the principle of fairness in the judicial process, [FN122] American courts tend to grant motions for orders compelling discovery. [FN123]

For example, in SEC v. Banca Della Svizzera Italiana, [FN124] the United States District Court for the Southern District of New York balanced the Swiss interest in nondisclosure against the American interest in maintaining the integrity of the securities markets and held that the SEC's discovery requests for Swiss information were necessary and proper. [FN125] The district court based its decision on three conclusions. *849 First, the district court erroneously interpreted the Swiss Government's inaction in this case as an unwillingness to protect the Swiss banker-client privilege and therefore did not account for Switzerland's national interests. [FN126] The court reasoned that because the Swiss banker-client privilege protects the client--and not the Swiss Government or other public interest--Switzerland's Government and society have no national interest in bank secrecy. [FN127]

*850 Second, the court stressed BSI's alleged bad faith. [FN128] The court improperly concluded that BSI deliberately used Swiss secrecy laws to violate American securities laws. [FN129] The court had not yet determined whether BSI was guilty of using Swiss bank accounts for illicit means; the SEC only alleged that BSI had engaged in insider trading and thus requested the evidence to prove the bank's guilt. [FN130] The court had no basis for suggesting that BSI intentionally used Swiss laws to commit insider trading.

Third, the court's threat to impose sanctions for noncompliance ignored Switzerland's privacy interests and judicial sovereignty. [FN131] Under Swiss law, although Swiss banks may be compelled to disclose information about its activities, the banks cannot always be compelled to furnish information concerning their clients. [FN132] Swiss judicial sovereignty, as reflected in Switzerland's international agreements with the United States, allows the Swiss authorities to oversee the disclosure of information to the SEC and to ensure that the SEC does not breach the Swiss banker-client privilege. [FN133]

In United States v. Vetco, [FN134] the United States Court of Appeals for *851 the Ninth Circuit also addressed a number of important legal questions in the area of international discovery requests. [FN135] First, the Ninth Circuit ruled that the discovery procedures established in article XVI of the Double Taxation Convention are not exclusive means of discovery. [FN136] An IRS Manual, however, contradicted this conclusion. [FN137] According to the IRS Manual, the tax conventions determined whether the information requested was discoverable. [FN138] The IRS, therefore, recognized the Double Taxation Convention as the sole mechanism for obtaining evidence located in Switzerland. [FN139]

Second, the Ninth Circuit noted that the Supreme Court had not created an absolute bar to the enforcement of discovery orders when compliance required a violation of foreign law. [FN140] In applying the Supreme Court's ruling to the instant case, the Ninth Circuit relied on the lower court's finding that Switzerland was not likely to impose sanctions under article 273 of the Swiss Penal Code. [FN141] Article *852 273, contrary to the Ninth Circuit's reasoning, is not without substance. This article ensures the protection of Swiss privacy interests. [FN142] Only a Swiss federal law or international treaty, which establishes a public duty to disclose privilege materials, may supersede article 273. [FN143] The Double Taxation Convention establishes such a duty to the extent that the duty already exists under Swiss law. [FN144] In requiring Swiss tax authorities to maintain Switzerland's judicial sovereignty, the Double Taxation Convention protects the Swiss banker-client privilege in foreign tax proceedings. The Ninth Circuit, therefore, disregarded the role article 273 has played in protecting Switzerland's judicial sovereignty. [FN145]

As the decisions in Banca Della Svizzera Italiana and Vetco illustrate, the approach employed by American courts to obtain evidence from abroad has displayed an insensitivity and misunderstanding of foreign banking secrecy laws. Unfortunately, Societe Nationale Industrielle Aerospatiale v. United States District Court, [FN146] which involved choosing between the competing interests embodied in the Federal Rules of Civil Procedure and the Hague Convention on Taking Evidence Abroad, continues this trend. [FN147]

*853 II. SOCIETE NATIONALE INDUSTRIELLE AEROSPATIALE v. UNITED STATESDISTRICT COURT

In Societe Nationale Industrielle Aerospatiale v. United States District Court, the United States Supreme Court recently addressed the problem of taking evidence from abroad. In a 5-4 decision, the Court ruled that the Hague Convention of 1970 provided optional--not mandatory--procedures for the discovery of evidence located within a signatory nation. [FN148]

The Supreme Court's decision in Aerospatiale will have an adverse effect on obtaining evidence from Swiss banks. [FN149] The precedent established in Aerospatiale confirms the lower federal courts' authority to issue a discovery order directly to a Swiss bank without resorting first to the procedures articulated in the Criminal Matters Treaty or the Double Taxation Convention, a trend earlier identified in the Vetco and Banca Della Svizzera Italiana line of cases. [FN150] The Court's decision in Aerospatiale gives federal courts a constitutional mandate to use procedures beyond the scope of the Criminal Matters Treaty and the Double Taxation Convention when seeking evidence from Swiss banks. [FN151]

A. The Facts Three plaintiffs filed suit in the United States District Court for the District of Iowa claiming that two French corporations were responsible for an airplane crash in Iowa. [FN152] The two defendant corporations had designed and manufactured the planes in France, but had marketed them in the United States. [FN153] One of the corporations' planes had crashed, injuring the pilot and a passenger. [FN154] *854 The plaintiffs alleged that the defendants had manufactured a defective plane and were therefore guilty of negligence and breach of warranty. [FN155]

Upon the parties' consent, the district court referred the actions to a magistrate. [FN156] During the discovery process, the plaintiffs, pursuant to the Federal Rules of Civil Procedure, served the defendants with interrogatories as well as requests for admissions and the production of documents. [FN157] In response, the defendants filed a motion for a protective order, [FN158] asserting that the procedures set out in the 1970 Hague Convention were the exclusive means of discovery because the defendants were French corporations and the evidence requested could be found only in France. [FN159] Moreover, the defendants claimed that under a French blocking statute, they could answer only discovery requests that complied with the 1970 Hague Convention. [FN160]

*855 The Magistrate denied the motion for a protective order, stressing the need for the judiciary to protect American citizens from defective products. [FN161] The Magistrate reasoned that because compliance with the discovery requests would not take place in France, these requests would not intrude upon French sovereignty. [FN162] With respect to the French penal law defense, the Magistrate noted that the law did appear to be strictly enforced in France, that the law was intended to prevent enforcement of United States antitrust laws, and that the law probably did not apply to pretrial discovery orders. [FN163]

Seeking immediate appellate review of the interlocutory discovery order, the defendants petitioned the United States Court of Appeals for the Eighth Circuit for a writ of mandamus to compel the district court to prevent discovery. [FN164] In denying the writ, the circuit court ruled that because the district court had jurisdiction over the French corporations, the 1970 Hague Convention did not apply to the discovery of evidence in the corporations' possession, even though the evidence was located in France. [FN165] The court went on to conclude that international comity did not require the plaintiffs to resort first to the 1970 Hague Convention and only as a last resort to seek discovery under the Federal Rules of Civil Procedure. [FN166] Thus, the issue before the Supreme Court was whether a federal district court was required to employ the procedures articulated in the 1970 Hague Convention, as opposed to the Federal Rules of Civil Procedure, in order to obtain evidence located in France. [FN167]

B. The Supreme Court Decision Writing for the majority, Justice Stevens examined the relationship between the 1970 Hague Convention and the Federal Rules of *856 Civil Procedure. [FN168] He focused on four interpretations of the 1970 Hague Convention. [FN169] First, the 1970 Hague Convention could constitute the exclusive means by which a federal court could obtain evidence located abroad. [FN170] Second, the 1970 Hague Convention could require that its procedures be relied upon in the first instance. [FN171] Third, because of the need to respect international comity, the 1970 Hague Convention could be viewed as providing a strictly optional set of procedures to which American courts would have to resort first. [FN172] Finally, the 1970 Hague Convention could be regarded as an option to be invoked at the discretion of a federal court, after considering the situations that the parties faced and the foreign state's concerns. [FN173]

The Court rejected the first two interpretations, reasoning that both assume that the terms of the 1970 Hague Convention determine the extent to which the treaty's procedures superseded American discovery rules, and that neither recognize the optional status of the treaty's procedures. [FN174] Justice Stevens noted that the purpose of the 1970 Hague Convention, as stated in the Preamble, is to 'facilitate' and 'improve' the discovery process. [FN175] In addition, Justice Stevens found that article 23 of the 1970 Hague Convention permits a contracting state to declare that it will not execute a letter of request in aid of pretrial discovery in a common law country. [FN176] He noted that the United States would not have agreed to a treaty that required exclusive or first use of its procedures, but also allowed other parties to revoke their consent to those procedures. [FN177] Justice Stevens concluded that the permissive and nonmandatory language of the 1970 Hague Convention reflects the intent of the treaty's authors to establish optional procedures. [FN178]

*857 The third interpretation perceives international comity as requiring American federal courts to resort first to the 1970 Hague Convention's procedures before turning to the Federal Rules of Civil Procedure. [FN179] The Court rejected this interpretation for two reasons. [FN180] First, the execution of letters of request pursuant to the 1970 Hague Convention's procedures is often more time consuming, expensive, and unreliable than applying the Federal Rules of Civil Procedure. [FN181] Second, the Court, while recognizing the different discovery procedures in common law and civil law jurisdictions, did not believe that respect for international comity required a blanket rule of first resort to the 1970 Hague Convention. [FN182] Moreover, the majority emphasized that comity required a particularized analysis of the national interests at stake. [FN183]

Thus, the majority adopted the fourth interpretation, holding that a federal court should take advantage of the 1970 Hague Convention's procedures only when it is appropriate to do so. [FN184] Accordingly, a federal court must engage in a case-by-case scrutiny of the particular facts, sovereign interests, and effectiveness of the 1970 Hague Convention's procedures. [FN185]

In rejecting the majority's interpretation of the 1970 Hague Convention, Justice Blackmun argued in favor of applying a general presumption that federal courts should resort first to the 1970 Hague Convention's procedures. [FN186] Justice Blackmun noted that the 1970 Hague Convention accounts for the American and foreign interests involved, and the mutual interests of all nations in an effective international legal regime. [FN187] According to Justice Blackmun, only when application of the 1970 Hague Convention's procedures do not produce *858 evidence should the courts adopt a more particularized case-by-case analysis to determine whether to issue a discovery order. [FN188]

III. A CRITIQUE OF AEROSPATIALE The Supreme Court in Aerospatiale held that a federal court may issue a discovery order directly to a foreign party without violating the 1970 Hague Convention. [FN189] This ruling was based on three premises. First, the Court assumed that the language of the 1970 Hague Convention is permissive and, therefore, does not preclude a federal court from issuing a discovery order directly to a foreign party. [FN190] Second, the Court found that federal courts may decide when they should employ the 1970 Hague Convention's discovery methods without interfering with international comity. [FN191] Finally, at the heart of the majority's entire rationale is an improper assumption that the fairness and due process concerns of the Federal Rules of Civil Procedure outweigh the foreign interests reflected in the 1970 Hague Convention. [FN192]

1. The language of the 1970 Hague Convention

The Supreme Court characterized the language of the 1970 Hague Convention as permissive and concluded that the Convention does not preclude a federal court from issuing a discovery order directly to a foreign party. [FN193] The Court, however, by failing to apply the rules governing the interpretation of treaties, incorrectly interpreted the 1970 Hague Convention. [FN194] These rules require that the Court analyze both the text of the treaty and the context in which the words are used. [FN195] Thus, the Court should look beyond the language of the 1970 Hague Convention to the history of negotiations *859 preceding the signing of the treaty. [FN196]

The Court, by isolating and concentrating on words such as 'facilitate' and 'improve,' dispensed with the 1970 Hague Convention's overriding objective: to overcome the conflict between civil law and common law discovery procedures. [FN197] This conflict is particularly intense with respect to the United States where the parties perform discovery themselves pursuant to the very broad Federal Rules of Civil Procedure. [FN198] In civil law nations such as Switzerland, the discovery process is a judicial function, rather than a responsibility of the parties. [FN199] Therefore, if an American party were to obtain evidence in Switzerland without the participation or consent of the Swiss authorities, that party would violate Switzerland's judicial sovereignty. [FN200]

Another example of the Court's improper treaty construction is its cursory treatment of article 1 of the 1970 Hague Convention. [FN201] *860 The Court suggested that the language of article 1 is nonmandatory. [FN202] Article 1, however, requires an American court to seek assistance from the competent authority of the foreign state in question. [FN203] Therefore, in holding that the 1970 Hague Convention permits a federal court to issue a direct order, the Supreme Court ignored the intent of the contracting states to account for the judicial sovereignty of civil law jurisdictions. [FN204]

Furthermore, to support the Court's conclusion that a federal court's discovery order is permissible under the 1970 Hague Convention, the Court suggested that articles 15, 16, and 17 of the treaty also establish optional discovery procedures. [FN205] These articles, however, require that the requested state grant permission to discover the information, and that the requesting state comply with the conditions specified in the permission. [FN206] Under articles 15, 16, and 17, the evidence requested must be obtainable and the method of discovery must be permissible under the requested state's laws. [FN207]

Articles 15, 16, and 17 contradict the Court's conclusion that the 1970 Hague Convention's procedures are optional. [FN208] The judicial sovereignty of civil law nations demands that the proper authorities be involved in extraterritorial methods of discovery. [FN209] Just as the 1970 Hague Convention requires a requesting state to seek permission before obtaining evidence, the Criminal Matters Treaty and the Double Taxation Convention also specify that the American discovery of evidence located in Switzerland must be permissible under Swiss law. [FN210]

In addition, the Court failed to address the articles in the 1970 *861 Hague Convention that afford a state the right to refuse to assist in a discovery request. [FN211] Under these articles, a request may be refused if: (i) the procedure in question is incompatible with the requested state's internal laws; (ii) the person concerned has a privilege or duty to refuse disclosure; (iii) execution of the request does not fall within the functions of the executing state's judiciary; or (iv) if the procedure entailed would prejudice the requested state's sovereignty or security. [FN212] The Court assumed that an American request will not be subject to these provisions if the request entails a method of discovery that is not established in the 1970 Hague Convention. [FN213] A 'practical construction' of these provisions, however, suggests that a requested state must be able to invoke these provisions with respect to all methods of discovery if the requested state is to protect its judicial sovereignty. [FN214]

Similarly, under both the Criminal Matters Treaty and the Double Taxation Convention, Switzerland may deny an American discovery request for banking information if the Swiss banker has the right to invoke the banker-client privilege, or if the disclosure of the requested evidence or the method of discovery would infringe upon Switzerland's judicial sovereignty. [FN215] These qualifications to Swiss cooperation with American discovery rules are not limited solely to the treaty's procedures. [FN216] If Switzerland had agreed to American discovery orders issued directly to Swiss banks, Switzerland would have endangered both its judicial sovereignty and its banking secrecy. [FN217]

Thus, the language of the 1970 Hague Convention does not permit*862 American federal courts to issue discovery orders directly to foreign parties; otherwise, the scope of a nation's judicial sovereignty would be limited to the 1970 Hague Convention's procedures. [FN218] Moreover, the civil law jurisdictions did not agree to surrender their judicial sovereignty and privacy interests when signing the 1970 Hague Convention. [FN219] The procedures articulated in the 1970 Hague Convention, therefore, are mandatory.

2. International comity's role in federal court decisions

According to the Supreme Court in Aerospatiale, international comity requires that a federal court pay due respect to a nation's legislative, executive, and judicial acts, as well as to the rights of American parties. [FN220] To further this principle, the Court established an unworkable balancing test which allows a federal court to decide when it is reasonable to issue a discovery order directly to a foreign party. [FN221] A standard of reasonableness is inappropriate for two reasons. First, the application of this standard will lead to biased federal court decisions favoring American interests [FN222] because *863 courts are unable to neutrally balance competing interests. [FN223] Second, the test assumes that a discovery order issued directly to a citizen of a civil law jurisdiction can be reasonable. [FN224]

a. The standard established in Aerospatiale legitimizes the federal courts' analyses

The Aerospatiale decision will reinforce the biased interest-balancing approach that lower federal courts have already adopted. [FN225] In Banca Della Svizzera Italiana and Vetco, the federal courts upheld discovery orders issued directly to Swiss corporations, improperly disregarding Swiss governmental and societal interests in the banker-client privilege. [FN226] The courts' analyses provided little justification for the American infringement upon Swiss judicial sovereignty. [FN227]

Similarly, after Aerospatiale, the discovery procedures established in the Criminal Matters Treaty and the Double Taxation Convention are likely to be considered optional. [FN228] Aerospatiale, therefore, authorizes the federal courts to issue discovery orders directly to Swiss banks without Switzerland's permission. [FN229] In addition, the courts are able to impose sanctions for noncompliance despite Switzerland's judicial sovereignty and banker-client privilege. [FN230]

The Court's balancing test reflects a fundamental assumption underlying the entire Aerospatiale opinion--that American fairness and due process concerns of the Federal Rules of Civil Procedure outweigh the foreign interests reflected in the 1970 Hague Convention. [FN231] The Court wants to ensure the fair and complete adjudication of all cases. [FN232] In pursuit of this goal, the federal judiciary *864 is willing to uphold American interests at the expense of Swiss banking privacy. [FN233]

Because of its unwillingness to establish specific rules concerning discovery procedures in foreign countries, the Court has failed to limit the discretion of the lower courts. Without sufficient guide-lines the federal judiciary will most likely rule in favor of American interests [FN234] and cast aside the strengths of international comity: reciprocity and goodwill. [FN235]

b. The detrimental impact of Aerospatiale on Swiss banking secrecy

In legislating the Swiss banker-client privilege, the Swiss Government sought to protect the longstanding principle of privacy in Swiss society and to generate revenues for its economy. [FN236] These goals are reflected in the agreements signed between Switzerland and the United States providing for the exchange of information. [FN237] Although Switzerland refuses endanger its banking secrecy, it has been willing to provide evidence to avoid antagonizing the United States. [FN238]

The Supreme Court in Aerospatiale threatens the Swiss Government's attainment of those objectives because a direct order allows American lawyers to pierce the Swiss banker-client privilege. Switzerland's *865 judicial sovereignty protects Swiss banking secrecy. Swiss courts collect all evidence and thus ensure that no privileged banking information is divulged. [FN239] Therefore, an American federal court's order issued directly to a Swiss party circumvents Swiss discovery procedures and constitutes a demand to release secret information. Compliance with this demand is expressly forbidden under Swiss law. [FN240] If the United States desires to continue having access to Swiss banks, American parties and courts should refrain from ignoring Switzerland's strong interest in the Swiss banker-client privilege. [FN241]

IV. RECOMMENDATIONS The Supreme Court should establish a rule instructing the federal courts to resort first to the discovery procedures of an international agreement rather than to the reasonableness standard established in Aerospatiale. A first-resort rule would force a federal court to consider a civil law nation's privacy interests as reflected in treaties such as the Criminal Matters Treaty and the Double Taxation Convention. [FN242] Only when those procedures fail to provide the necessary evidence should the federal court decide whether to issue a discovery order and ultimately impose sanctions under the Federal Rules of Civil Procedure. [FN243] If the bank information is unobtainable under the applicable treaties, this approach would allow the court to account for American fairness and due process by applying the Federal Rules.

In deciding whether to issue a discovery order, a federal court should make a crucial assumption--that American and Swiss interests are equally balanced. American courts have demonstrated an inability to appreciate the extent to which Switzerland considers its *866 judicial sovereignty important. [FN244] Swiss judicial sovereignty serves to protect not only the judiciary's function of gathering evidence, but also protects the Swiss banker-client privilege. [FN245]

Assuming that Swiss and American national interests are equal, the federal court should weigh the extent and nature of the hardship that enforcement of a discovery order would impose on a Swiss bank against the extent and nature of the hardship that nonenforcement would cause to the American party requesting the evidence. [FN246] By placing the burden of demonstrating hardship on each party, a court could examine the evidence of hardship presented by each litigant. As a result, the court would be considering the credibility of this evidence without having to determine the strength of the national interests.

CONCLUSION Switzerland has traditionally rejected discovery requests that seek evidence protected by the banking secrecy privilege to safeguard its judicial sovereignty as well as its economic and societal interests in privacy. The United States has succeeded in penetrating Swiss banking secrecy by means of two bilateral agreements: the Criminal Matters Treaty and the Double Taxation Convention.

Aerospatiale jeopardizes the cooperation in the exchange of evidence that these agreements have achieved. Federal courts now have Supreme Court approval to issue direct orders to Swiss banks, and if the banks fail to comply, to impose sanctions on them as well. Under the guise of reasonableness, the federal courts will persist in ignoring Switzerland's national interests. In the near future, depending on how meaningless the Criminal Matters Treaty and the Double Taxation Convention become, Switzerland may deny the United States access to evidence in the possession of Swiss banks.

[FN1]. See, e.g., Trade Dev. Bank v. Continental Ins. Co., 469 F.2d 35, 41 (2d Cir. 1972) (ruling that district court could defer to Swiss secrecy laws and refuse to order Swiss bank to disclose identity of its customers); SEC v. Banca Della Svizzera Italiana, 92 F.R.D. 111, 119 (S.D.N.Y. 1981) (ordering Swiss bank to disclose identity of its principals); SEC v. Certain Unknown Purchasers of the Common Stock, Litigation Release Nos. 9,484, 9,485 [1981- 82 Transfer Binder] Fed. Sec. L. Rep. (CCH) ¶98,323, at 92,026 (S.D.N.Y. Oct. 26, 1981) (restraining Swiss banks, Credit Suisse, and Swiss Bank Corp. from disposing of defendant's assets).

[FN2]. See, e.g., In re Marc Rich & Co., 736 F.2d 864, 866 (2d Cir. 1984) (affirming district court's decision to impose $50,000 per day fine on Swiss corporation for not complying with discovery order); Arthur Andersen & Co. v. Finesilver, 546 F.2d 338, 340 (10th Cir. 1976) (rejecting argument that disclosure would violate Swiss secrecy laws), cert. denied, 429 U.S. 1096 (1977); Trade Dev. Bank v. Continental Ins. Co., 469 F.2d 35, 39 (2d Cir. 1972) (noting Swiss bank's refusal to reveal customers' identity because to do so would violate Swiss law); SEC v. Banca Della Svizzera Italiana, 92 F.R.D. 111, 113 (S.D.N.Y. 1981) (observing that Swiss bank refused to provide information regarding options purchases and sought protection of Swiss banking secrecy).

[FN3]. These interests are protected through the Federal Rules of Civil Procedure and the due process guarantees of the U.S. Constitution. The Federal Rules of Civil Procedure are intended to 'secure the just, speedy, and inexpensive determination of every action.' FED. R. CIV. P. 1.

The 14th amendment provides that no state 'shall . . . deprive any person of life, liberty, or property, without due process of law.' U.S. CONST. amend. XIV, § 1.

[FN4]. See Hilton v. Guyot, 159 U.S. 113, 227 (1895) (finding that judgments rendered in foreign jurisdictions are not conclusive disposition on merits in U.S., but serve only as prima facie evidence of plaintiff's claim). Under the principle of international comity, a nation must recognize the legislative, executive, and judicial acts of another country, but at the same time protect the rights of its own citizens. Id. at 163-64; see also Laker Airways v. Sabena, Belgian World Airlines, 731 F.2d 909, 937 (D.C. Cir. 1984) (defining comity as extent to which court must defer to act of foreign government to promote reciprocity and cooperation); United States v. First Nat'l Bank, 699 F.2d 341, 345-47 (7th Cir. 1983) (balancing U.S. and Greek interests to determine whether to compel production of documents located in Greece); United States v. Vetco, Inc., 691 F.2d 1281, 1288-91 (9th Cir.) (balancing U.S. and Swiss interests to determine whether Swiss law precludes enforcement of IRS summons), cert. denied, 454 U.S. 1098 (1981); United States v. First Nat'l City Bank, 396 F.2d 897, 901 (2d Cir. 1968) (suggesting that nations should minimize potential conflict arising from unilateral discovery).

The reason for judicial reluctance to recognize foreign limitations placed on discovery procedures may be traced to the different attitudes prevailing in civil law and common law jurisdictions regarding privacy. See Meyer, Swiss Banking Secrecy and Its Legal Implications In the United States, 14 NEW ENG. L. REV. 18, 22 (1978) (concluding that right to privacy is not as firmly established in United States as in civil law jurisdictions). Privacy is related to the concept of personality, which is defined as 'all attributes of a person which are protected by law.' INTRODUCTION TO SWISS LAW 49 (A. Ansay & D. Wallace ed. 1983). Personality encompasses the capacity to exercise, enjoy, and be subject to rights and obligations. Id.; see also id. at 49-57 (discussing scope of personality within Swiss legal system). The Swiss Federal Tribunal has stated that privacy is an element of personality protected under the law. See e.g., Judgment of June 3, 1971, Bundesgericht (highest court), Switz., 97 Entscheidunger des Schweizerischen Bundesgerichts, Amtliche Sammlung [BGE] II 97, 100, 102 (holding that sphere of privacy cannot be restricted); Judgment of July 7, 1965, Bundesgericht (highest court), Switz., 91 BGE I 200, 204 (ruling that disclosure of secrets is violation of sphere of privacy); Judgment of Oct. 19, 1914, Bundesgericht (highest court), Switz., 44 BGE II 319, 320 (stating that invulnerability of rights to privacy is moral principle and that personality right is protected under law). Article 28 of the Swiss Civil Code affords this protection. The law provides that:

Where anyone is being injured in his person or reputation by another's unlawful act, he can apply to the judge for an injunction to restrain the continuation of the act. An action for damages or for the payment of a sum of money by way of moral compensation can be brought only in special cases provided by the law.

SCHWEIZERISCHES ZIVILGESETZBUCH, CODE CIVIL SUISSE, Codice civile svizzero [ZGB, CC, Cc] art. 28 (Switz.) (emphasis added). The Swiss Penal Code provides that any person who reveals a business secret to any foreign entity will be subject to imprisonment and perhaps a fine. SCHWEIZERISCHES STRAFGESETZBUCH, CODE PENAL SUISSE, Codice penale svizzero [STGB, CP, Cp] art. 273 (Switz.); see Judgment of Sept. 7, 1972, Bundesgericht (highest court), Switz., 98 BGE IV 209, 211 (defining business secret to include all business interests worthy of confidentiality).

In the United States, however, personal privacy is a protected right only if deemed fundamental or a part of liberty. Roe v. Wade, 410 U.S. 113, 152 (1973) (establishing a woman's right to abortion, but allowing state to interfere with that right three months after conception); see also Loving v. Virginia, 388 U.S. 1, 12 (1967) (protection privacy in marital relationship); Griswold v. Connecticut, 381 U.S. 479, 485 (1965) (finding 'zone of privacy created by several fundamental guarantees' in Constitution); Meyer v. Nebraska, 262 U.S. 390, 399 (1923) (recognizing rights to marry and raise children as essential to individual's liberty); Henkin, Privacy and Autonomy, 74 COLUM. L. REV. 1410, 1428-29 (1974) (arguing that justification must be found for upholding privacy rights).

[FN5]. Rule 26(b)(1) states in relevant part:

Parties may obtain discovery regarding any matter not privileged, which is relevant to the subject matter involved in the pending action, whether it relates to the claim or defense of the party seeking discovery or to the claim or defense of any other party, including the existence, description, nature, custody, condition and location of any books, documents, or other tangible things and the identity and location of persons having knowledge of any discoverable matter. It is not ground for objection that the information sought will be inadmissible at the trial if the information sought appears reasonably calculated to lead to the discovery of admissible evidence.

FED. R. CIV. P. 26(b)(1) (emphasis added). American pre-trial discovery rules provide lawyers broad leeway to investigate facts, preserve testimony, obtain written admissions, and authenticate documents to be introduced at trial. Carter, Existing Rules and Procedures, 13 INT'L LAW. 5, 6 (1979).

[FN6]. Hickman v. Taylor, 329 U.S. 495, 507 (1947) (allowing party to compel discovery of relevant facts in possession of other party to further interests of fairness and full disclosure); see also Carter, supra note 5, at 5-6 (describing broad scope of American discovery rules).

The Supreme Court has found the breadth of the Federal Rules to be intrusive. In analyzing the state discovery rules modeled on the Federal Rules of Civil Procedure, the Supreme Court has found that broad discovery rules may damage the reputation and privacy of both the requested party and third parties. See Seattle Times Co. v. Rhinehart, 467 U.S. 20, 30 (1984) (observing that Federal Rules do not protect against disclosure of wide variety of confidential information). The judiciary may issue protective orders to prevent this abuse. Id. at 34; see also FED. R. CIV. P. 26(c) (allowing court to protect party from excessive discovery).

[FN7]. See U.S. CONST. amend. XIV § 1. Section one provides that no state shall 'deprive any person of life, liberty or property, without due process of law.'

[FN8]. See ZGB, CC, Cc art. 28 (Switz.) (protecting against violations of Swiss personality rights); see also supra note 4 (stressing that Swiss privacy is part of personal independence).

[FN9]. See Judgment of Dec. 10, 1948, Bundesgericht (highest court), Switz., 74 BGE I 485, 492-93 (stressing that secrecy is right of client and not of bank); see also Honegger, Demystification of the Swiss Banking Secrecy and Illumination of the United States--Swiss Memorandum of Understanding, 9 N.C.J. INT'L L. & COM. REG. 1, 5 (1983) (stating that client is master of banking secrecy); cf. Trade Dev. Bank v. Continental Ins. Co., 469 F.2d 35, 41 n.3 (2d Cir. 1972) (observing that Swiss banking secrecy law was enacted to safeguard privacy rights); SEC v. Banca Della Svizzera Italiana, 92 F.R.D. 111, 118 (S.D.N.Y. 1981) (stating that secrecy privilege belongs to bank customer).

[FN10]. See Meyer, supra note 4, at 22 (noting that Swiss bankers are viewed in same manner as clergyman, physician, or lawyer).

[FN11]. See Bundesgesetz uber die Banken und Sparkassen of Nov. 8, 1934, art. 47, amended by Act of Mar. 11, 1971, 1971 Sammlung der Eidgenössischen Gesetze, Recueil officiel des lois et ordonnances de la Confédération suisse, Raccolta ufficiale delle leggi, decreti e regolamente della Confederazione svizzera 808 (Switz.), reprinted in UNION BANK OF SWITZERLAND, FEDERAL LAW RELATING TO BANKS AND SAVINGS BANKS 21 (1972) [hereinafter BANKING LAW]. Article 47 of the Swiss Banking Law states:

1. Whoever divulges a secret entrusted to him in his capacity as officer, employee, mandatory liquidator or commissioner of a bank, as a representative of the Banking Commission, officer or employee of a recognized auditing company, or who has become aware of such a secret in this capacity, and whoever tries to induce others to violate professional secrecy, shall be punished by a prison term not to exceed six months or by a fine not exceeding 50,000.00 francs.

2. If the act has been committed by negligence, the penalty shall be a fine not exceeding 30,000.00 francs.

3. The violation of professional secrecy remains punishable even after termination of the official or employment relationship or the exercise of the profession.

4. Federal and Cantonal regulations concerning the obligation to testify and to furnish information to a government authority shall remain reserved.

Id.; see also STGB, CP, Cp art. 321 (subjecting clergymen, attorneys, notaries, midwives, physicians, and those who assist them to imprisonment or fine if they divulge professional secrets).

The American Federal Rules of Civil Procedure also prohibit the discovery of privileged materials. FED. R. CIV. P. 26(b)(1); see also supra note 5 (providing text of Rule 26(b)(1)). The federal discovery provisions, however, are subject to the requirement that courts construe the rules to ensure that the parties have access to all relevant evidence. See Herbert v. Lando, 441 U.S. 153, 177 (1979) (interpreting FED. R. CIV. P. 1).

American and Swiss standards concerning privilege are strikingly different. See Meyer, supra note 4, at 20-24 (noting difference between American banker-client relationship and confidence and trust of Swiss banker-client relationship). This difference is reflected in the severity of sanctions imposed in each country for divulging confidential information. In Switzerland a banker's breach of secrecy is a crime. See BANKING LAW, supra. In the United States, a breach of any secrecy obligation is a violation of professional ethics followed by relatively less severe disciplinary actions. See Baird v. Koerner, 279 F.2d 623, 627 (9th Cir. 1960) (affirming decision to place attorney in custody for not disclosing requested information); MODEL CODE OF PROFESSIONAL RESPONSIBILITY Canon 4 (1986) (prohibiting attorney from revealing client's secrets). Moreover, governmental authorities may compel U.S. banks to disclose information regarding accounts, provided that the disclosure is necessary. See United States v. Miller, 425 U.S. 435, 441-43 (1976) (holding that no cognizable fourth amendment right exists in depositor's bank records). In general, U.S. business transactions are subject to strict disclosure requirements. See, e.g., Securities Act of 1933, 15 U.S.C. §§ 77(a)-(bbbb) (1982 & Supp. III 1985) (requiring full disclosure of securities sold in interstate and foreign commerce); Securities Exchange Act of 1934, 15 U.S.C. §§ 78(a)-(kk) (1982 & Supp. III 1985) (regulating securities exchange and over-the-counter markets operating in interstate and foreign commerce); Commodity Exchange Act, 7 U.S.C. §§ 1-24 (1982 & Supp. III 1985) (regulating commodity futures contracts).

[FN12]. See H. BAR, BANKING SYSTEM OF SWITZERLAND 52 (1957) (noting that Swiss secrecy is main attraction of Swiss bank accounts); see also Meyer, supra note 4, at 53 n.210 (reporting that Switzerland is world's third most important financial center).

[FN13]. See Meyer, supra note 4, at 53 n.209 (observing that total of Swiss bank balance sheets was $139 billion or 2.36 times Switzerland's Gross National Product in 1976).

[FN14]. Note, Conflict of Laws--Discovery--Swiss Banks Can Be Compelled to Disclose Identities of Clients Suspected of Insider Trading--Securities and Exchange Commission v. Banca Della Svizzera Italiana, 92 F.R.D. 111 (S.D.N.Y. 1981), 13 SETON HALL L. REV. 91, 110 (1982) (noting that economic factors encourage Swiss to maintain banking secrecy); see also Meyer, supra note 4, at 53 (describing Swiss economic dependency on banking).

[FN15]. See Trade Dev. Bank v. Continental Ins. Co., 469 F.2d 35, 39 (2d Cir. 1972) (noting Swiss bank's refusal to furnish identity of customers whose accounts were misused); SEC v. Banca Della Svizzera Italiana, 92 F.R.D. 111, 113 (S.D.N.Y. 1981) (describing Swiss bank's refusal to disclose its principals).

[FN16]. See Report of the United States Delegation to the Eleventh Session of the Hague Conference on Private International Law, reprinted in 8 I.L.M. 785, 806 (1969) [hereinafter 1969 Hague Report] (noting that taking of evidence in civil law country may violate judicial sovereignty of host country unless authorities participate); Carter, supra note 5, at 6-7 (explaining that conflict arises when American party seeks evidence in civil law country). Judicial sovereignty is the set of customs and rules under which Swiss courts play the primary role in gathering and presenting the evidence to be used at trial. Id. Switzerland believes that its judicial sovereignty, derived from the doctrine of territorial jurisdiction in international law, allows only the state in which the requested evidence is located to enforce a discovery request. Brief for the Government of Switzerland as Amicus Curiae in Support of Petitioners at 8, Societe Nationale Industrielle Aerospatiale v. United States Dist. Court, 107 S.Ct. 2542 (1987) (No. 85-1695) [hereinafter Swiss Amicus Brief]. Therefore, Switzerland concludes that when a U.S. federal court issues a discovery order and ultimately imposes fines for noncompliance, the court violates Swiss sovereignty and international law. Id.

[FN17]. See Carter, supra note 5, at 6-7 (noting pre-trial testimony and discovery of documents are considered part of civil law litigation and not isolated episode prior to litigation); see also Swiss Amicus Brief, supra note 16, at 8 (commenting that civil law countries exercise more control over discovery process than U.S.).

The Swiss judiciary consists primarily of the cantonal courts and the Federal Tribunal. INTRODUCTION TO SWISS LAW 4 (F. Dessemontet & T. Ansay ed. 1983). A Swiss canton is analogous to an American state. Each canton has its own complete judicial system. Id. The trial and initial appeal of a case take place in the civil, criminal, and administrative courts of the cantons. Final appeal of questions of federal law are brought to the Federal Tribunal. Id. The Federal Tribunal's power to review appeals from the cantonal courts ensures uniformity in the application of federal law. Id.

A ruling by the Federal Tribunal or by a canton's appellate court is binding only on the court who made the initial decision. Id. at 7. Thus, unlike the United States Supreme Court's holdings, the Swiss Federal Tribunal's decisions are not binding on all courts. Id. (distinguishing common law systems). Although Swiss courts often deviate from judicial precedent of other cantons because of its nonbinding nature, Swiss judges place great emphasis on prior court decisions. Id.

In Switzerland, enacted law is the most important source of law. Id. at 5. The following rules determine the relative importance of the different forms of enacted law. Id. First, federal law takes priority over cantonal law. Id. Second, constitutional rules take precedence over ordinary statutes. Id. Finally, legislative statutes prevail over governmental regulations. Id.

[FN18]. See STGB, CP, Cp art. 271 (Switz.). Article 271 of the Swiss Penal Code states the following:

Acting without Authorization for a Foreign State.

1. Anyone who, without authorization, takes in Switzerland for a foreign state any action which is within the powers of the public authorities,

Anyone who takes such actions for a foreign party or for any other foreign organization,

Anyone who facilitates such actions,

Shall be punished with imprisonment, in serious cases with penitentiary confinement.

Id., reprinted in Swiss Amicus Brief, supra note 16, at 9. By contrast, under the U.S. Federal Rules, any party may serve written interrogatories directly to any other party who is believed to have information within the scope of discovery. FED. R. CIV. P. 33(a). After an action is commenced, any party may take the oral testimony of any party or non-party. FED. R. CIV. P. 30(a).

[FN19]. See H.R. REP. NO. 975, 91st Cong., 2d Sess. 12-13, reprinted in 1970 U.S. CODE CONG. & ADMIN. NEWS 4394, 4397-98 (stating that secret foreign financial institutions undermine U.S. tax laws).

[FN20]. See id. at 12, 1970 U.S. CODE CONG. & ADMIN. NEWS at 4397. Testimony before the House Committee on Banking and Currency reveals that hundreds of millions of dollars has been funneled to foreign jurisdictions that enforce strict secrecy laws. Id. The report noted that Swiss bank accounts provided a method for U.S. tax evasion and described secret foreign bank accounts as the largest U.S. tax loophole. Id. at 13, 1970 U.S. CODE CONG. & ADMIN. NEWS at 4398.

[FN21]. See Treaty on Mutual Assistance in Criminal Matters, May 25, 1973, United States--Switzerland, 27 U.S.T. 2019, T.I.A.S. No. 8302 [hereinafter Criminal Matters Treaty]; Convention for the Avoidance of Double Taxation with Respect to Taxes on Income, May 24, 1951, United States--Switzerland, 2 U.S.T. 1751, T.I.A.S. No. 2316 [hereinafter Double Taxation Convention]; see also infra notes 91-118 and accompanying text (discussing Swiss concessions reflected in agreements).

[FN22]. See Criminal Matters Treaty, supra note 21, art. 3(1)(a), 27 U.S.T. at 2028; Double Taxation Convention, supra note 21, art. XVI(3), 2 U.S.T. at 1760-61. Article 3(1)(a) of the Criminal Matters Treaty provides that the requested state may deny assistance if the state 'considers that the execution of the request is likely to prejudice its sovereignty, security, or similar essential interests.' Criminal Matters Treaty, supra note 21, art. 3(1)(a), 27 U.S.T. at 2028; see also supra notes 16-18 and accompanying text (explaining how American discovery can prejudice Switzerland's judicial sovereignty). Article XVI(3) of the Double Taxation Convention states that the United States and Switzerland may refuse:

to carry out administrative measures at variance with the regulations and practice of either contracting State or which would be contrary to its sovereignty, security, or public policy or to supply particulars which are not procurable under its own legislation or that of the State making application.

Double Taxation Convention, supra note 21, art. XVI(3), 2 U.S.T. at 1760-61; see also Hague Convention on the Taking of Evidence Abroad in Civil and Commercial Matters, Mar. 18, 1970, art. 12(b), 23 U.S.T. 2555, 2562, T.I.A.S. No. 7444 [hereinafter 1970 Hague Convention]; European Convention on Mutual Assistance in Criminal Matters, Apr. 20, 1959, art. 2(b). Europ. T.S. 30, at 2 [hereinafter European Convention] (United States not a party); Convention Relating to Civil Procedure, Mar. 1, 1954, art. 4, 286 U.N.T.S. 265, 269 (United States not a party). Although not officially party to the 1970 Hague Convention, the Swiss Government has signed the agreement and is seeking ratification of the Convention by the Swiss Parliament. See Swiss Amicus Brief, supra note 16, at 2, n.1 (noting Switzerland's active participation in negotiation of Hague Convention); see also infra notes 36-38 and accompanying text (discussing Swiss Government's consideration of Hague Convention).

Under the Hague Convention, a party may choose between two procedures for obtaining evidence. First, the party may execute a Letter of Request to the 'Central Authority' of the requested state. 1970 Hague Convention, supra, art. 2, 23 U.S.T. at 2558. Second, the party may process its request through a diplomatic officer, consular agent, or commissioner of the requested state. Id., arts. 15-17, 23 U.S.T. at 2564-65. Under the Hague Convention, the requesting state must satisfy certain conditions in order to obtain the evidence. See infra notes 205-14 and accompanying text.

[FN23]. See Criminal Matters Treaty, supra note 21, art. 4(2)(a), 27 U.S.T. at 2029. Article 4(2)(a) states that a party to the treaty will provide the evidence requested only if the offense in question 'would be punishable under the law in the requested State if committed within its jurisdiction.' Id.; see also 1970 Hague Convention, supra note 22, art. 9, 23 U.S.T. at 2561 (denying discovery request if it is incompatible with internal law of state); European Convention, supra note 22, art. 5(1)(a), Europ. T.S. 30, at 3 (stating that offense motivating discovery must be punishable under laws of both states).

[FN24]. See Societe Nationale Industrielle Aerospatiale v. United States Dist. Court, 107 S. Ct. 2542, 2555 (1987) (noting difficulties of Letter of Request procedure authorized by Hague Convention).

[FN25]. See, e.g., United States v. Vetco, Inc., 644 F.2d 1324, 1333 (9th Cir.) (upholding district court's enforcement of IRS summonses), cert. denied, 454 U.S. 1098 (1981); Ohio v. Arthur Andersen & Co., 570 F.2d 1370, 1376 (10th Cir.) (affirming sanctions imposed for noncompliance with court order), cert. denied, 439 U.S. 833 (1978); SEC v. Banca Della Svizzera Italiana, 92 F.R.D. 111, 119 (S.D.N.Y. 1981) (ordering Swiss bank to respond to SEC's interrogatories).

[FN26]. The lower courts have usually adopted the interest-balancing test outlined in § 40 of the Foreign Relations Law:

Where two states have jurisdiction to prescribe and enforce rules of law and the rules they may prescribe require inconsistent conduct upon the part of a person, each state is required by international law to consider, in good faith, moderating the exercise of its enforcement jurisdiction, in the light of such factors as

(a) vital national interests of each of the states,

(b) the extent and the nature of the hardship that inconsistent enforcement actions would impose upon the person,

(c) the extent to which the required conduct is to take place in the territory of the other state,

(d) the nationality of the person, and

(c) the extent to which enforcement by action of either state can reasonably be expected to achieve compliance with the rule prescribed by that state.

RESTATEMENT (SECOND) OF FOREIGN RELATIONS LAW OF THE UNITED STATES § 40 (1965); see also United States v. Vetco, Inc., 644 F.2d 1324, 1333 (9th Cir.) (ruling that Double Taxation Convention did not preclude use of IRS summonses to obtain records of Swiss subsidiaries of American companies), cert. denied, 454 U.S. 1098 (1981); cf. Societe Nationale Industrielle Aerospatiale v. United States Dist. Court, 107 S. Ct. 2542, 2550-54 (1987) (deciding that Hague Evidence Convention does not impose exclusive or mandatory procedures); SEC v. Banca Della Svizzera Italiana, 92 F.R.D. 111, 114-19 (S.D.N.Y. 1981) (deciding that application of test favored issuance of discovery order).

[FN27]. See Vetco, 644 F.2d at 1332 (reasoning that discovery takes place in U.S. if production of documents takes place in this country); see also In re Anschuetz & Co., 754 F.2d 602, 615 (5th Cir. 1985) (suggesting that examinations of witnesses and production of documents in U.S. avoids any infringement of Germany's sovereignty), vacated, 107 S. Ct. 3223 (1987); Rosenthal & Yale-Loehr, Two Cheers for the ALI Restatement's Provisions on Foreign Discovery, 16 N.Y.U. J. INT'L L. & POL. 1075, 1075 (1984) (stating that U.S. may be only country that believes unilateral discovery of evidence abroad does not violate international law).

[FN28]. 107 S. Ct. 2542 (1987).

[FN29]. Societe Nationale Industrielle Aerospatiale v. United States Dist. Court, 107 S. Ct. 2542, 2555 & n.27 (1987); see also supra note 4 and accompanying text (defining international comity).

[FN30]. Swiss Amicus Brief, supra note 16, at 2.

[FN31]. Criminal Matters Treaty, supra note 21; Double Taxation Convention, supra note 21.

[FN32]. Criminal Matters Treaty, supra note 21, art. 28(1), 27 U.S.T. at 2050 (stating that Central Authority handles requests for assistance); Double Taxation Convention, supra note 21, art. XVI(1), 2 U.S.T. at 1760 (declaring that only competent authorities will exchange information).

[FN33]. Aerospatiale, 107 S. Ct. at 2555.

[FN34]. Id. at 4848.

[FN35]. Id. at 4845-47.

[FN36]. Swiss Amicus Brief, supra note 16, at 2.

[FN37]. Id.

[FN38]. Id.

[FN39]. See United States v. Vetco, 644 F.2d 1324, 1328-29 (9th Cir.) (holding that Double Taxation Convention's procedures are not exclusive means of obtaining evidence), cert. denied, 454 U.S. 1098 (1981); see also Criminal Matters Treaty, supra note 21; Double Taxation Convention, supra note 21; infra notes 134-45 and accompanying text (discussing Vetco).

[FN40]. See SEC v. Banca Della Svizzera Italiana, 92 F.R.D. 111, 117 (S.D.N.Y. 1981) (holding that U.S. interests in enforcing U.S. securities laws outweigh Swiss secrecy interests); see also infra notes 124-33 and accompanying text (discussing Banca Della Svizzera Italiana).

[FN41]. See supra notes 12-15 and accompanying text (describing importance of banking to Swiss economy).

[FN42]. See BANKING LAW, supra note 11 (criminalizing disclosure of banking secrets); see also supra notes 8-11 (noting that financial privacy is personal right under Swiss law).

[FN43]. Meyer, supra note 4, at 22.

[FN44]. See STGB, CP, Cp art. 321 (Switz.). Article 321 of the Swiss Penal Code states in pertinent part: 'Clergymen, attorneys, defenders, notaries public, . . . auditors . . ., doctors, dentists, pharmacists, midwives, and their assisting personnel, who divulge a secret entrusted to them, or of which they have become aware in their professional capacity, shall, on petition, be punished by imprisonment or by a fine. . . .' Id. Similarly, article 47 of the Swiss Banking Law imposes criminal sanctions on bankers who divulge banking secrets. See BANKING LAW, supra note 11 (providing text of article 47); see also Meyer, supra note 4, at 22-23 (concluding that Swiss bankers are subject to similar obligations and sanctions as clergymen, physicians, or lawyers).

[FN45]. Swiss statutory law does not explicitly define the phrase banking secrecy. Schellenberg, Bank Secrecy, Financial Privacy and Related Restrictions, 7 INT'L BUS. LAW. 221, 221 (1979). Banking secrecy is defined as a bank's obligation to maintain the secrecy of its client's business and personal affairs. Id.

[FN46]. See ZGB, CC, Cc art. 28 (Switz.) (allowing individual who is injured in person or reputation to sue for damages). The Swiss Federal Tribunal has ruled that privacy is an attribute of personality that the law protects. See supra note 4 (citing Swiss cases that protect privacy as moral principle and attribute of personality).

[FN47]. See ZGB, CC, Cc art. 28 (Switz.) (protecting personality rights); BANKING LAW, supra note 11 (criminalizing disclosure of banking secrets); see also Schellenberg, supra note 45, at 221 (stating that primary basis for banking secrecy on article 28 of Swiss Civil Code places right to personal privacy); Honegger, supra note 9, at 2 (arguing that Swiss banker's discretion is based on Swiss personality rights); supra notes 8-11 and accompanying text (explaining how financial privacy is element of Swiss personality rights).

[FN48]. STGB, CP, Cp art. 162 (Switz.); Schellenberg, supra note 45, at 221.

[FN49]. SCHWEIZERISCHES OBLIGATIONENRECHT, CODE DES OBLIGATIONS, Codice delle obligazioni [OR, CO, Co] art. 397 (Switz.).

[FN50]. See OR, CO, Co art. 397 (Switz.) (establishing agent's duty to follow principal's directions); see also Schellenberg, supra note 45, at 221 (stating that Swiss bank's contractual obligation derives from its duty of loyalty to client). Article 398 of the Swiss Code of Obligations establishes the agent's duty to be responsible to the master for faithful compliance. OR, CO, Co art. 398 (Switz.). In the Swiss banker-client relationship, the client is the master and the bank is his agent with respect to banking secrets. See supra note 9 and accompanying text (stating that Swiss laws regard client as master in banker-client relationship).

[FN51]. Mueller, The Swiss Banking Secret From a Legal View, 18 INT'L & COMP. L.Q. 360, 361 (1969) (citing unpublished opinion of Swiss Federal Tribunal, nation's highest court).

The banker also has a contractual duty to abide by the banker-client privilege with respect to agreements that are not subject to agency law. See Judgment of Jan. 21, 1937, Bundesgericht (highest court), Switz., 63 BGE II 240, 242; see also Schellenberg, supra note 45, at 221 (citing credit agreements and safe custody agreements that are not subject to agency law but must comply with banker-client privilege). Where no contract exists, a Swiss banker must exercise discretion in the disclosure of client information once negotiations have begun between the banker and the client under the good faith principle. See ZGB, CC, Cc art. 2 (Switz.) (setting forth good faith principle); see also Honegger, supra note 9, at 3 (observing that beginning of negotiations establishes banker's duty of discretion). In addition, if the parties terminate their contract, the banker's duty of discretion continues as long as the information in question is confidential. Honegger, supra note 9, at 3-4.

[FN52]. See BANKING LAW, supra note 11 (citing text of article 47).

[FN53]. Meyer, supra note 4, at 27. 'Private Law' defines, regulates, and enforces the rights of private individuals. BLACK'S LAW DICTIONARY 1076 (5th ed. 1979). In contrast, 'public law' defines, regulates, and enforces the:

rights in cases where the state is regarded as the subject of the right or object of the duty--including criminal law and criminal procedure--and the law of the state, considered in its quasi private personality, i.e., as capable of holding or exercising rights, or acquiring and dealing with property, in the character of an individual.

Id. at 1106-07.

In Switzerland, public law supersedes any obligation created under private law. Meyer, supra note 4, at 27. Arguably, the public Banking Law allows Swiss banks to invoke the secrecy privilege despite the private procedural laws of the Swiss cantons. See Meyer, The Banking Secret and Economic Espionage in Switzerland, 23 GEO. WASH. L. REV. 284, 291 (1954-55) [hereinafter The Banking Secret]. The Office of the Federal Attorney, however, has ruled that the procedural laws of the cantons regulate the duty of the bank to testify and produce documents. Id. at 292. Furthermore, in 1971 the BANKING LAW was amended to include a clause establishing that banking secrecy was subject to federal and cantonal procedural rules. See BANKING LAW, supra note 11, art. 47(4); see also BUNDESVERFASSUNG, CONSTITUTION FÉDÉRALE, COSTITUZIONE FEDERALE [BV, CST, COST. FED.] arts. 64(3), 64bis(2) (Switz.) (reserving right to legislate on procedural matters to cantons); M. AUBERT, I. KERNEN & H. SCHÖNLE, LE SECRET BANCAIRE SUISSE 77 (2d ed. 1982) (stressing that bankers have always held duty to restify).

[FN54]. BANKING LAW, supra note 11, art. 47(1). An unsuccessful attempt to induce a third person to disclose such information is subject to the same punishment. Id.; see also Meier, Banking Secrecy in Swiss and International Taxation, 7 INT'L LAW. 16, 19 (1973) (noting that article 47(1) protects bank officials from third persons who pressure officials to supply information).

[FN55]. BANKING LAW, supra note 11, art. 47(2).

[FN56]. Id. at art. 47(3).

[FN57]. See BANKING LAW, supra note 11 (providing text of BANKING LAW).

[FN58]. BANKING LAW, supra note 11, art. 47(4); see also T. FEHRENBACH, THE SWISS BANKS 64 (1966) (noting that Swiss federal and cantonal provisions define obligations to testify or produce documents); Meier, supra note 54, at 19 (suggesting that article 47(4) may signal effort to do away with notion that banking secrecy enjoys absolute legal protection). In Switzerland almost all trial cases take place in the cantonal courts and are governed by the cantonal procedural codes. Meyer, The Banking Secret, supra note 53, at 291. Therefore, whether a banker has a duty to testify or produce requested documents concerning otherwise privileged information usually will depend on the cantonal procedural code in question. See infra note 60 and accompanying text (noting that procedural laws override banker-client privilege).

[FN59]. A number of private law exceptions also limit the scope of the Swiss banker-client privilege. For example, under Swiss family law, a husband, parent, or guardian who has the legal obligation to manage another person's property can obtain information about that person's financial situation that would otherwise be considered confidential. Meyer, supra note 4, at 29-30. In addition, Swiss law allows heirs access to banking information unless the information is of a highly personal nature. Id. at 30.

[FN60]. See BANKING LAW, supra note 11, art. 47(4) (providing that, despite general prohibition against disclosure of financial information, banker-client privilege cannot supersede obligation to furnish requested information). Under article 273 of the Swiss Penal Code, however, a Swiss banker must invoke the privilege when faced with a foreign discovery request or otherwise face potential imprisonment and fines. See STGB, CP, Cp art. 273 (Switz.). Article 273 states in relevant part:

Whoever makes available a manufacturing or business secret to a foreign governmental agency or a foreign organization or private enterprise or to an agent of any of them; shall be subject to imprisonment and in grave cases to imprisonment in a penitentiary.

The imprisonment may be combined with a fine.

Id.; see also Judgment of June 21, 1948, Bundesgericht (highest court), Switz., 74 BGE IV 102, 109 (confirming that article 273 encompasses offense of providing information to foreign fiscal or currency authorities).

[FN61]. See Bundesgesetz über die Bundesstrafrechtspflege, Loi fédérale sur la procédure émale [LFPE] June 15, 1984, Systematische Sammlung des Bundesrechts, Recueil systematique du droit fédéral § 312.0 (Switz.); Bundesgesetz über die Bundeszivilprozess, Loi fédérale de procédure civil fédérale [LFCF], Dec. 4, 1947, Systematische Sammlung des Bundesrechts, Recueil systematique du droit f edèral § 273 (Switz.); see also LFPP art. 77 (extending right to refuse disclosure only to clergymen, attorneys, notaries, physicians, pharmacists, midwives, and their professional assistants but not to bankers). Nevertheless, in federal criminal cases, the bank must be careful to reveal only those facts that are relevant to the trial and should avoid disclosing facts involving third parties. Schellenberg, supra note 45, at 225. The Swiss Federal Code of Civil Procedure allows persons listed in article 321(1) of the Penal Code to refuse to testify. LFCF art. 42(1); see also STGB, CP, Cp art. 321 (Switz.) (listing professions subject to imprisonment or fine for revealing secrets). In federal civil proceedings, however, the judge may waive the obligation to disclose professional business secrets if the witnesses' interest in keeping the secret outweighs a party's interest in having it disclosed. LFCF art. 42(2).

[FN62]. See Bundesgesetz über das Verwaltungsverfahren, Loi fédérale sur la procédure administrative [LFPA], art. 16, Dec. 20, 1968, 1969 Sammlung der Eidgenossischen Gesetze, Recueil officiel des lois et ordonnances de la Conf edération suisse 757 (Switz.); Meier, supra note 54, at 21 (stressing that in most administrative cases bankers are exempt from testifying).

[FN63]. M. AUBERT, I. KERNEN & H. SCHÖNLE, supra note 53, at 90. Criminal and civil procedure are fields of primarily cantonal legislation. Honegger, supra note 9, at 5-6; see also Meyer, supra note 4, at 31 & n.82 (noting that bulk of criminal, civil, and administrative cases takes place before cantonal courts); supra note 18 (discussing Swiss judicial system).

[FN64]. Schellenberg, supra note 45, at 224-25 (noting that, unless otherwise stated, banks must cooperate in discovery processes of criminal proceedings); cf. Schellenberg, supra note 45, at 225 (emphasizing that banks responding to discovery requests should provide only relevant materials and avoid disclosure of facts involving third parties). Only two cantons, Vaud and Neuchâtel, allow a banker to refuse to testify in criminal matters. Meier, supra note 54, at 22 & n.30.

[FN65]. M. AUBERT, I. KERNEN & H. SCHÖNLE, supra note 53, at 94 (Appenzell AR, Appenzell AI, Bale-Campagne, Bale-Ville, Glaris, Grisons, Lucerne, Oberwald, Schaffhaeusen, Soleure, and Thurgovie).

[FN66]. Id. at 91-92 (Argovie, Berne, Genève, Neuchâtel, Saint Gallen, Valais, and Vaud).

[FN67]. Id. at 93 (Fribourg, Nidwald, Schwyz, Tessin, Uri, Zug, and Zurich).

[FN68]. Id. at 115.

[FN69]. See, e.g., United States v. Vetco, 644 F.2d 1324, 1327 (9th Cir.) (noting that companies refused to give IRS documents located in Switzerland), cert. denied, 454 U.S. 1098 (1981); SEC v. Banca Della Svizzera Italiana, 92 F.R.D. 111, 112 (S.D.N.Y. 1981) (stating that Swiss bank refused to provide SEC with information regarding options purchases); Judgment of Jan. 26, 1983, Tribunal fédéral (highest court), Switz., reprinted in 22 I.L.M. 785, 798 (1983) (refusing to satisfy SEC's request for assistance).

Swiss entities have generally refused to provide evidence to American parties. See, e.g., Marc Rich & Co. v. United States, 707 F.2d 663, 667 (2d Cir.) (noting that Swiss corporation invoked article 273 of Swiss Penal Code to frustrate tax fraud investigation), cert. denied, 463 U.S. 1215 (1983); Arthur Andersen & Co. v. Finesilver, 546 F.2d 338, 342 (10th Cir. 1976) (suggesting that Swiss secrecy laws cannot control U.S. law), cert. denied, 429 U.S. 1096 (1977); Trade Dev. Bank v. Continental Ins. Co., 469 F.2d 35, 39 (2d Cir. 1972) (commenting on Swiss bank's refusal to comply with discovery request because compliance would violate article 47(1) of Swiss Banking Law); see also BANKING LAW, supra note 11, art. 47(1) (establishing criminal penalties for violation of secrecy privilege); STGB, CP, Cp art. 273 (Switz.) (suggesting that American party cannot go to Switzerland to do discovery without permission from Swiss judge); supra notes 11, 60 and accompanying text (providing texts of article 47 of Swiss Banking Law and article 273 of Swiss Penal Code respectively).

[FN70]. M. AUBERT, I. KERNEN & H. SCHÖNLE, supra note 53, at 306.

[FN71]. See generally Foreign Bank Secrecy: Hearings on S. 3678 and H.R. 15073 Before the Subcomm. on Financial Institutions of the Senate Comm. on Banking and Currency, 91st Cong., 2d Sess. (1970) [hereinafter 1970 Hearings] (reviewing legislation to prevent use of foreign banking for circumvention of U.S. tax and securities laws); Foreign Bank Secrecy and Bank Records: Hearings on H.R. 15073 Before the House Comm. on Banking and Currency, 91st Cong., 1st and 2d Sess. (1969-1970) [hereinafter 1969-1970 Hearings] (reviewing legislation requiring certain transactions in U.S. currency to be reported to IRS to require banks to maintain certain records); Legal and Economic Impact of Foreign Banking Procedures on the United States: Hearings Before the House Comm. on Banking and Currency, 90th Cong., 2d Sess. (1968) [hereinafter 1968 Hearings] (discussing legal and economic impact of foreign banking procedures); Note, Swiss Banks and the Avoidance of American Tax and Securities Laws: An Assessment Based on Proposed Legislation, 3 N.Y.U. J. INT'L L. & POL. 94, 101- 06 (1970) (discussing U.S. legislative responses to tax and securities violations hidden by Swiss bank secrecy).

[FN72]. Schellenberg, supra note 45, at 225. Tax evasion involves an insufficient payment of taxes based on faulty tax returns or procedural errors. Id. Tax fraud contemplates the deception of tax authorities by fraudulent means. Id. This distinction is not always clear and the terminology of the tax laws is often inconsistent. Id. In fact, the line between tax evasion and tax fraud varies from canton to canton and, in this regard, there is no uniform federal tax law. Id.; see also Meier, supra note 54, at 25 (stating that Swiss laws do not contain uniform terminology of tax offenses). The cantons collect taxes according to their respective procedural laws. Honegger, supra note 9, at 7. Individual cantons, therefore, may differ in their determination of income and capital tax as well as fiscal charges. Meyer, supra note 4, at 32.

[FN73]. Tax evasion is the non-reporting or the incomplete reporting of income or capital without further manipulations. Meyer, supra note 4, at 34; see Schellenberg, supra note 45, at 225. Under Swiss law, tax evasion is not a crime. Notice, The 'Secret' Swiss Account: End of an Era, 38 BROOKLYN L. REV. 384, 390 (1971). In fact, a proposal to make 'serious' tax evasion a crime was defeated in 1965. Id.; see also Meier, supra note 54, at 25 (observing that person guilty of tax evasion is usually subject only to fines).

[FN74]. Bundesratsbeschluss über die Erhebung einer Wehrsteuer, Arrête du Conseil fédéral sur la perception d'un impôt fédéral direct [BE, AC], art. 132(2), Dec. 9, 1940, Systematische Sammlung des Bundesrechts, Recueil systematique du droit fédéral § 642.11 (Switz.).

[FN75]. See BE, AC art. 90(6) (Switz.); see also Judgment of Dec. 23, 1970, Bundesgericht (highest court), Switz., 96 BGE I 737, 746 (suggesting that banks do not have to provide evidence directly to tax authorities). A Swiss bank is obligated only to give tax information to his client. BE, AC art. 90(5) (Switz.).

[FN76]. LFPA art. 16.

[FN77]. See 1968 Hearings, supra note 71, at 14 (noting that ways in which secret Swiss accounts are used to avoid taxes are almost as numerous as ways of earning income).

[FN78]. Tax fraud under Swiss law involves participation in general fraudulent practices or falsification of documents to mislead tax authorities. Meyer, supra note 4, at 34. Tax fraud usually entails higher penalties than tax evasion, and occasionally results in fines or even imprisonment. Schellenberg, supra note 45, at 225.

[FN79]. See Meier, supra note 54, at 26 (noting that administrative procedure for handling tax fraud is identical to procedure used for tax evasion); see also Schellenberg, supra note 45, at 225 (stating that banking secrecy does not come into operation in administrative proceedings).

[FN80]. See supra note 74 and accompanying text.

[FN81]. BE, AC art. 133bis(b) (Switz.); see also Meyer, supra note 4, at 34 (noting that certain tax laws transfer tax fraud cases to criminal courts). Cantons treating tax fraud as an ordinary crime include Zürich, Genève, and Basel, all of which are major banking centers of Switzerland. Id.

[FN82]. See supra notes 61, 64 and accompanying text (discussing federal and cantonal codes of criminal procedure).

[FN83]. See Judgment of May 16, 1984, Bundesgericht (highest court), Switz., reprinted in 24 I.L.M. 745, 746-47 (1985) (mentioning that Swiss laws do not contain anything similar to U.S. insider trading laws); Jenckel & Rider, The Swiss Approach to Insider Dealing, 128 NEW L.J. 683, 683 (1978) (stressing that insider trading does not violate Swiss law). Insider trading may fall within the scope of article 162 of the Swiss Penal Code, which prohibits the disclosure of a business secret to a third party. Judgment of May 16, 1984, Bundesgericht (highest court), Switz., reprinted in 24 I.L.M. 745, 746 (1985). Article 162 criminalizes the revelation of a business or manufacturing secret in violation of a legal or contractual obligation. See STGB, CP, Cp art. 162 (Switz.). Therefore, article 162 punishes only third parties who purchase stock based on privileged information, and not principals of the companies involved or other persons entitled to such information. Judgment of May 16, 1984, Bundesgericht (highest court), Switz., reprinted in 24 I.L.M. 745, 747 (1985).

[FN84]. Only a Swiss law or ratified treaty requiring discovery of banking information may supersede the banker-client privilege. M. AUBERT, I. KERNEN & H. SCHÖNLE, supra note 53, at 306. No Swiss law or treaty establishes a duty to disclose insider trading activities because in Switzerland insider trading is not a crime. See supra note 83 (noting that insider trading is not illegal under Swiss law).

[FN85]. See BANKING LAW, supra note 11 (criminalizing breaches of the banker-client privilege); see also supra notes 45-59 and accompanying text (describing legal protection of Swiss banking secrecy). Information that the banker may not reveal includes the client's name, the amount of money in the client's account, and the client's deposits and withdrawals. T. FEHRENBACH, supra note 58, at 51.

[FN86]. 1969-1970 Hearings, supra note 71, at 13 (concluding that under this scheme no one would know that illicit trading took place).

[FN87]. 1970 Hearings, supra note 71, at 263.

[FN88]. See Criminal Matters Treaty, supra note 21; Double Taxation Convention, supra note 21.

[FN89]. See Swiss Amicus Brief, supra note 16, at 5-6 & n.2 (citing 'long and successful history' of cooperation between U.S. and Switzerland in resolving legal disputes).

[FN90]. See infra notes 91-118 and accompanying text (discussing Swiss concessions regarding disclosure of privileged materials as reflected in international agreements between United States and Switzerland).

[FN91]. See STGB, CP, Cp art. 273 (Switz.); see also supra notes 18, 60 (providing text of articles 271 and 273); Schellenberg, supra note 45, at 226 (suggesting that international cooperation is necessary because foreign authorities cannot perform discovery in Switzerland).

[FN92]. Judgment of Dec. 23, 1970, Bundesgericht (highest court), Switz., reprinted in 10 I.L.M. 1029, 1035 (stating that under Swiss Constitution, treaty approved by Federal Assembly and ratified by Federal Council becomes Switzerland's internal law); Kronauer, Information Given for Tax Purposes from Switzerland to Foreign Countries Especially to the United States for the Prevention of Fraud or the Like in Relation to Certain American Taxes, 30 TAX L. REV. 47, 53 (1974) (noting that ratified international agreement supersedes previous Swiss law). A Swiss court may not examine the constitutionality of ratified treaties. See BV, CST, COST. FED. 113(3) (Switz.) (requiring federal tribunal to confirm treaties ratified by federal assembly).

[FN93]. See Judgment of Dec. 23, 1970, Bundesgericht (highest court), Switz., 96 BGE I 737, 746. The Federal Tribunal has suggested that because of a treaty obligation, Swiss banks may be compelled to disclose privileged information for the assessment of foreign taxes, although they may not be obliged to provide such information for the assessment of Swiss taxes. Id.

[FN94]. Criminal Matters Treaty, supra note 21.

[FN95]. Double Taxation Convention, supra note 21.

[FN96]. See Criminal Matters Treaty, supra note 21, arts. 1(1)(a), 4(2)(a), 27 U.S.T. at 2025, 2029. The Treaty does not apply to political or military offenses, the enforcement of cartel or antitrust laws, or violations with respect to taxes, customs duties, governmental monopoly charges, or exchange control regulations. See id., art. 2(1), 27 U.S.T. at 2026-27 (listing situations in which Treaty is not applicable).

[FN97]. See id., art. 6(1), 27 U.S.T. at 2031 (providing that contracting parties agree to assist each other in fight against organized crime).

[FN98]. Cf. supra notes 22-24 and accompanying text (explaining how international agreements that Switzerland has signed protect Swiss privacy interests).

[FN99]. See Criminal Matters Treaty, supra note 21, art. 3(1)(a), 27 U.S.T. at 2028 (providing that requested state may deny assistance if execution of request prejudices state's sovereignty, security, or essential interests); see also Bundesgesetz über internationale Rechtshilfe in Strafsachen [BGST] art. 1(2) (Switz.) (requiring that Swiss sovereignty and security be taken into account when considering foreign request for judicial assistance in criminal matters), reprinted in 20 I.L.M. 1339 (1981). Correspondence between American and Swiss representatives reflects their intent to expand the scope of article 3(1)(a) to include Swiss banking secrecy. See Letter from Shelby Cullom Davis, Ambassador of the United States, to Albert Weitnauer, Ambassador of Switzerland (May 25, 1973), reprinted in 27 U.S.T. 2149, 2149, T.I.A.S. No. 8302 [hereinafter Letter from Amb. Davis] (stating agreement that Swiss banking secrecy shall not limit assistance provided for under treaty); see also Letter from Albert Weitnauer, Ambassador of Switzerland, to Shelby Cullom Davis, Ambassador of the United States (May 25, 1973), reprinted in 27 U.S.T. 2155, 2156, T.I.A.S. No. 8302 (confirming that Swiss Federal Council agrees to terms of Ambassador Davis's letter dated May 25, 1973). Thus, in exceptional circumstances, Switzerland may refuse to provide privileged banking information that prejudices its essential interests. Letter from Amb. Davis, supra.

[FN100]. See Criminal Matters Treaty, supra note 21, art. 4(2)(a), 27 U.S.T. at 2029 (stating that requested state will provide evidence only if offense to which evidence pertains would be punishable under its own laws).

Suspension of the banker-client privilege is a compulsory measure. See M. AUBERT, I. KERNEN & H. SCHONLE, supra note 53, at 306-08. Therefore, a Swiss court may annul banking secrecy only if the measure is permissible under Swiss law or under a treaty ratified by the Swiss Parliament. Id. Accordingly, the Criminal Matters Treaty authorizes the suspension of the Swiss banker-client privilege if Swiss laws governing criminal investigations or proceedings permit the disclosure of the requested banking information. See Criminal Matters Treaty, supra note 21, art. 4(1), 27 U.S.T. at 2028 (providing that in satisfying request, requested state may employ compulsory measures established under its laws).

Switzerland, however, has made significant concessions to the United States with respect to activities that are not punishable under Swiss law. In 1984, the Swiss Federal Tribunal considered a request seeking to compel Swiss banks to reveal the identity of individuals suspected of insider trading. Judgment of May 16, 1984, Bundesgericht (highest court), Switz., reprinted in 24 I.L.M. 745, 746; see also supra note 83 (noting that insider trading does not violate Swiss law). The United States Department of Justice made the request on behalf of the U.S. Securities and Exchange Commission. Judgment of May 16, 1984, Bundesgericht (highest court), Switz., reprinted in 24 I.L.M. 745, 745. On June 30, 1982, the Swiss Federal Division of Police (Division of Police) complied with the request. Id. at 746. Having found that insider trading was not listed in the Criminal Matters Treaty, the Division of Police nevertheless granted judicial assistance pursuant to article 4(3) of the Treaty. Id. at 759; see also Criminal Matters Treaty, supra note 21, art. 4(3), 27 U.S.T. at 2029 (delegating to Division of Police of the Federal Department of Justice and Police in Bern task of determining whether importance of offense justifies use of compulsory measures). In upholding the Division of Police's decision, the Swiss Federal Tribunal ruled that the alleged offenses were serious enough to warrant special consideration under article 4(3) of the Criminal Matters Treaty. Judgment of May 16, 1984, Bundesgericht (highest court), Switz., reprinted in 24 I.L.M. 745, 760. The Court emphasized that the Division of Police should be given substantial discretion in reaching its decisions concerning discovery requests because article 4(3) specifically refers to it. Id.

The Swiss Federal Law on International Judicial Assistance in Criminal Matters, a law granting discovery assistance in criminal matters to any country, appears to concede less banking privacy than the Criminal Matters Treaty between Switzerland and the United States. Compare BGST art. 10 (Switz.) with Criminal Matters Treaty, supra note 21, art. 4, 27 U.S.T. at 2028-29 (demonstrating greater willingness to provide parties with evidence). Under the terms of the Federal Law, information affecting persons that is unrelated to the criminal proceedings abroad will be revealed only 'if it appears imperative to establish the facts and if the seriousness of the crime justifies it.' BGST art. 10(1) (Switz.) (emphasis added). Similarly, a bank may offer secret evidence only if the disclosure will not cause serious prejudice to Switzerland's economy and if it is justified in relation to the offense. BGST art. 10(2) (Switz.). In addition, a foreign party may order compulsory measures only if the request demonstrates that the offense contains the objective elements of an offense punishable under Swiss law. BGST art. 64 (Switz.). Thus, the United States has obtained greater judicial assistance from Switzerland than other countries.

[FN101]. See Criminal Matters Treaty, supra note 21, art. 5, 27 U.S.T. at 2029 (prohibiting use of evidence for any proceeding other than one mentioned in request); see also BGST art. 67 (Switz.) (disallowing use of information in proceedings or for investigations relating to offenses for which judicial assistance could not be given); cf. Double Taxation Convention, supra note 21, art. XVI(1), 2 U.S.T. at 1760 (forbidding disclosure to anyone other than tax authorities). Without the requirement of speciality, an American party could avoid the Swiss banker-client privilege in an investigation or proceeding in which a Swiss banker has no duty to testify or produce otherwise privileged materials under Swiss law. Thus, for example, a party may not request and obtain banking information and then use the evidence for the prosecution of tax evasion in the United States. See supra notes 73-76 and accompanying text (noting that Swiss banking secrecy is upheld in Swiss tax evasion proceedings).

[FN102]. See Criminal Matters Treaty, supra note 21, arts. 6-8, 27 U.S.T. at 2031-34 (listing Swiss concessions). The United States Government has criticized Swiss and other foreign secrecy laws as contributing greatly to organized crime in the United States. H.R. REP. NO. 975, 91st Cong., 2d Sess. 12, reprinted in 1970 U.S. CODE CONG. & ADMIN. NEWS 4394, 4397. See generally 1970 Hearings, supra note 71; 1969-1970 Hearings, supra note 71; 1968 Hearings, supra note 71; supra note 71 and accompanying text (discussing effects of foreign banking on production of evidence in U.S. courts and increased crime in U.S.).

Though Chapter II of the Criminal Matters Treaty attempts to address this problem, it applies to only cases involving individuals who are members of or affiliated with an organized criminal group. Criminal Matters Treaty, supra note 21, art. 6(2), 27 U.S.T. at 2031. Further, special regulations govern these individuals' tax offenses. See id., art. 7(2), 27 U.S.T. at 2033 (providing for assistance in investigations involving violations of income tax provisions). Switzerland will consider disclosure only if the United States reasonably concludes that the discovery of evidence is not possible without the cooperation of Swiss authorities. See id., art. 7(3), 27 U.S.T. at 2033.

[FN103]. See Criminal Matters Treaty, supra note 21, art. 7(1), 27 U.S.T. at 2032.

[FN104]. Id. at art. 7(2),

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