Historical Notes: A rotten episode in Swiss history

ALMOST A year after it was signed, the terms of the historic $1.25bn settlement between Swiss banks and Holocaust survivors have nearly been finalised. In New York Judge Edward Korman has approved the final draft of the agreement. But it is already too late for Estelle Sapir of Brooklyn, who died on 15 April.

Sapir was among the first Jewish claimants to appear on our television screens and newspapers with a story that wartime Switzerland and its banks had taken money from her family and never given it back. Sapir's groundbreaking - and ultimately successful - individual legal action against Credit Suisse had been among the first claims seriously to challenge the notion of "neutral Switzerland".

The Sapir settlement of $500,000, and a string of wider actions seen in the US courts in recent years, have shattered the notion that any country in a time of total war can remain neutral. More specifically, the Holocaust assets affair has thrown light for the first time on the business opportunities that multinational financial insitutions can exploit in a neutral state. In wartime Switzerland those opportunities were given extra menace with the presence of "secret" bank accounts.

As the debate over Holocaust assets widens to include everything from looted art masterpieces to slave labour, Switzerland is no longer the prime target for Jewish pressure groups. But inside Switzerland the increasing international acceptance that the banks have made a decent effort at "closure" on this issue has been little consolation to a nation whose core identity has been filleted by five years of criticism and ridicule.

Switzerland will never recover from this affair. Neither will its banks. Now that we know an elite corps of Swiss bankers thrived on the spoils of war as the Nazis murdered millions outside their neutral Alpine borders, we can never trust the chocolate-box view of Swiss history presented to the world in the decades after the Second World War. At worst, the gnomes of Zurich have become the poison dwarfs of international finance.

And what of secret banking? If the courts keep demanding the Swiss banks to reveal details from the vaults, then secret accounts are hardly secret any more.

But is this fair? Should we criticise a nation where the majority of the population diligently believed in neutrality just because senior bankers took money from Nazis and Jewish refugees alike? In 1939 the majority of Swiss people had no idea what the bankers were doing with secret accounts. No doubt this is still true today.

In essence the question boils down to business regulation. What will major financial institutions do when left unfettered? Well, in Switzerland during the war the big banks took a little nation for a ride. They traded with the Nazis. They took money from Jewish families they knew would never come back from concentration camps, and neutrality oiled the wheels of a particularly malevolent brand of laissez-faire capitalism.

Making matters worse, the secrecy of the Swiss banking system ensured the bankers were safe from public inspection. Switzerland invented secret banking in 1934. It coincided perfectly with the ascension to power of the Nazis in next-door Germany. If people like Estelle Sapir had not come along, a rotten piece of Swiss history might never have come to light. Maybe Switzerland was just the first country to get caught.

Neutrality, though noble in concept, is invariably flawed in practice. Secret banking, though legally acceptable, is fraught with moral ambiguities. Put the two concepts together and it is a recipe for exploitation of the worst possible kind.

The historical issues now being faced by Switzerland will surface again for other neutral countries in times of war. What is more, in an era of real-time global trading, the opportunities for profiting from misery will multiply. Remember back in 1939 it took days to send money from Berlin to Basle. Today it would take seconds.

James Kirby is the author of `My Mother's Diamonds - in search of the Holocaust assets' (Allen and Unwin, pounds 9.99)