COMMENTS
THE SUPREME COURT'S IMPACT ON
SWISS BANKING SECRECY: SOCIETE
NA TIONALE IND USTRIELLE
AEROSPA TIALE v. UNITED
STATES DISTRICT COURT*
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.' Swiss banks invariably invoke the Swiss banker-client privi2
lege and refuse to produce materials ordered by federal courts.
Although federal courts must protect American interests in fairness
and due process, 3 a tension exists because these courts must also
*
© 1988 Marc G. Corrado
1. 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).
2. 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).
3. 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
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[Vol. 37:827
respect Switzerland's secrecy laws. 4
The American Federal Rules of Civil Procedure permit the parties
to a suit to gain access to any material that could lead to admissible
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.
4. 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 andIts 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 (T. 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.); seeJudgment 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) (protecting 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).
1988]
SOCIETE NA7.TIONALE LVDUSTRIELLE AEROSPATIALE
829
evidence in court.5 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. 6 In this respect,
American evidentiary procedures further the goal of due process
7
guaranteed by the United States Constitution.
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. 8 Swiss laws regard the client as
the master in the banker-client relationship.9 The banker is revered
as a person of confidence and trust,' 0 and a breach of that trust
would subject the banker to criminal sanctions under Swiss law."
5. Rule 26(b)(1) states in relevant part:
Parties may obtain discovery regardingany matter not privileged, which is relevant to the
subject matter involved ti 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 ofpersons having knowledge of
any ducoverable matter. It is not ground for objection that the information sought will
be inadmissible at the trial if the information sought appearsreasonably calculated to lead to
the discovely 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 INr'L LAw. 5,
6 (1979).
6. 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).
7. 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."
8. 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).
9. SeeJudgment of Dec. 10, 1948, Bundesgericht (highest court), Switz., 74 BGE 1485,
492-93 (stressing that secrecy is right of client and not of bank); see also Honegger, Denystificalon of the Swiss Banking Serecy and Illumination of the United States-Swiss Memorandm of Understanding, 9 N.CJ. INT'L L. & CoM. REG. 1, 5 (1983) (stating that client is master of banking secrecy);
if. 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).
10. See Meyer, supra note 4, at 22 (noting that Swiss bankers are viewed in same manner
as clergyman, physician, or lawyer).
11. See Bundesgesetz uber die Banken und Sparkassen of Nov. 8, 1934, art. 47, amended
by Act of Mar. I1,1971, 1971 Sammlung der Eidgen6ssischen Gesetze, Recucil officiel des
lois et ordonnances de laConfed6ration 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:
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Second, Swiss banks rely on the banker-client privilege to ensure
their eminent status in the financial world. 12 The Swiss government
also depends on the nation's banks to maintain a favorable balance
of payments.'" Any attempt to limit the scope of the secrecy privilege would, therefore, adversely affect Switzerland's banking system
and national economy.1 4 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
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).
12. 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.2 10 (reporting
that Switzerland is world's third most important financial center).
13. 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).
14. Note, Conflict of Laws-Discoveo--Swiss Banks Can Be Compelled to Disclose Identities of
Clients Suspected of Insider Trading-Securities and Exchange Commission v. Banca Della Svizzea Italiana, 92 F.R.D. 111 (S.D.N.Vl 1981), 13 SEroN 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).
1988]
SOCIETE NATIONALE INDUSTRIELLE AEROSPATIALE
831
15
in protecting its banking system.
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.16
In Switzerland, courts do not merely supervise the preparation and
17
presentation of evidence; they gather the evidence themselves.
Therefore, civil law procedures require that an American party first
obtain judicial authorization before, for example, serving interrogatories upon a Swiss bank. 18
Switzerland's judicial sovereignty and secrecy laws, however, facilitate the proliferation of organized crime as well as violations of
15. 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).
16. 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.
17. 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.
18. See STGB, Cp, Cp art. 271 (Switz.). Article 271 of the Swiss Penal Code states the
following:
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United States securities and tax laws.' 9 Switzerland, sensitive to
American political pressure and to the vast quantities of money that
American customers deposit in Swiss banks, 20 has made concessions
to the United States in the form of bilateral treaties that attempt to
provide assistance in the discovery of evidence. 2' 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. 2 2 Second, a state may also deny a discovery request if the
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).
19. See H.R. REP. No. 975, 91st Cong., 2d Sess. 12-13, reprintedin 1970 U.S. CODE CONG.
& ADMIN. NEWS 4394, 4397-98 (stating that secret foreign financial institutions undermine
U.S. tax laws).
20. 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.
21. See Treaty on Mutual Assistance in Criminal Matters, May 25, 1973, United StatesSwitzerland, 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).
22. See Criminal Matters Treaty, supra note 21, art. 3(l)(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(l)(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(l)(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
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SOCIETE NATIONALE INDUSTRIELLE AEROSPATIALE
833
offense motivating the request is not punishable under the state's
laws.2 3 In addition, international agreements cause litigants difficulty in obtaining evidence because their procedures often are ex24
pensive, time-consuming, and unreliable.
Despite Swiss secrecy laws, federal courts recently have ordered
Swiss entities to present evidence at trial. 25 The courts have justified the issuance of such orders based on their conclusion that the
26
procedures outlined in the bilateral treaties are not obligatory.
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.
23. 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).
24. 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).
25. 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).
26. 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
(e) 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 REL4VTIONs 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
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Further, the courts have reasoned that discovery orders do not infringe upon Switzerland's sovereignty because the discovery and
27
presentation of the evidence takes place in the United States.
In Societe Nationale Industrielle Aerospatiale v. United States District
Court,28 the Supreme Court in a five to four decision held that inter-
national 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).29 The impact of the Court's decision will be
significant. Although Switzerland is not yet a party to the Hague
Convention, 30 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. 3 ' Under the
terms of the treaties, all discovery requests are channeled through
the requested state's authorities. 32 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.3 3 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
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).
27. 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 Fmeign Discovey', 16
N.Y.U.J. Ir'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).
28. 107 S. Ct. 2542 (1987).
29. 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).
30. Swiss Amicus Brief, supra note 16, at 2.
31. Criminal Matters Treaty, supra note 21; Double Taxation Convention, supra note 21.
32. 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).
33. Aerospatiale, 107 S. Ct. at 2555.
1988]
SOCIETE NATIONALE
INDUSTRIELLE AEROSPATIALE
835
the Hague Convention's procedures or resort to the Federal Rules
of Civil Procedure.3 4 Therefore, depending on how the trial court
balances these factors, the court could order the discovery of evi35
dence under the broad Federal Rules of Civil Procedure.
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
36
use of the Hague Convention to obtain evidence by signatories.
Although the Swiss government signed the Hague Convention on
37
May 21, 1985, the Swiss Parliament has not yet ratified the treaty,
and the government has warned that the Court's decision may jeopardize ratification of the treaty.3 8 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,3 9 and that Swiss secrecy interests
may be cast aside for the sake of American interests in due
40
process.
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.
34. Id. at 4848.
35. Id. at 4845-47.
36. Swiss Amicus Brief, supra note 16, at 2.
37. Id.
38. Id.
39. 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; ifra notes 134-45 and accompanying text (discussing Vetco).
40. 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
nifra notes 124-33 and accompanying text (discussing Banca Della Svizzera Italiana).
836
THE AMERICAN UNIVERSITY LAW REVIEW
I.
A.
[Vol. 37:827
BACKGROUND
Swiss Banking Secrecy
Switzerland protects the privacy of its banks not only because of
economic reasons, 4 1 but also because the nation considers financial
privacy part of an individual's right to liberty and personal freedom. 4 2 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. 43 Thus, Swiss society places the same trust
and confidence in its bankers as it does in its clergymen, lawyers,
44
and physicians.
1.
Legal protection of Swiss banking secrecy
Three different legal concepts safeguard Swiss banking secrecy. 4 5
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. 46 Banking secrecy is based primarily on
the right to personal privacy, which is a personality right. 4 7 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
41. See supra notes 12-15 and accompanying text (describing importance of banking to
Swiss economy).
42. 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).
43. Meyer, supra note 4, at 22.
44. 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).
45. Swiss statutory law does not explicitly define the phrase banking secrecy. Schellenberg, Bank Secrecy, FinancialPrivacy and Related Restrictions, 7 INr'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.
46. 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).
47. 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).
1988]
SOCIETE NATIONALE INDUSTRIELLE AEROSPATIALE
837
under Swiss contract law. 48 Under the Swiss Code of Obligations, 4 9
a Swiss bank acts as an agent for its clients and thus, has a contrac50
tual obligation of loyalty to uphold the banker-client privilege.
This obligation constitutes an implied contractual duty and banks
must observe the secrecy privilege even in the absence of an express
agreement. 5 1
Third, a violation of Swiss banking secrecy is also subject to criminal sanctions under article 47 of the Swiss Banking Law (Banking
Law). 5 2 This "public law" strengthens and reaffirms the importance
of the banker-client privilege established in the "private laws" of the
54
Swiss Civil Code and Code of Obligations. 5 3 Both the intentional
48. STGB, CP, Cp art. 162 (Switz.); Schellenberg, supra note 45, at 221.
49. SCHWEIZERISCHES OBLIGATIONENRECHT, CODE DES OBLIGATIONS, Codice delle obligazioni [OR, Co, Co] art. 397 (Switz.).
50. 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).
51. 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. SeeJudgment ofJan. 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.
52. See BANKING LAw, supra note 11 (citing text of article 47).
53. 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,
upra 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
I.AW, supra note 11, art. 47(4); see also BUNDESVERFASSUNG, CONSTrTUION F-DgRALE, COSTITUZIONE FEDERALE [BV, CST, COST. FED.] arts. 64(3), 64b/s(2) (Switz.) (reserving right to legislate
on procedural matters to cantons); M. AUBERT, I. KERNEN & H. SCH6NLE, LE SECRET BANCAIRE
StISSE 77 (2d ed. 1982) (stressing that bankers have always held duty to restify).
838
THE AMERICAN UNIVERSITY LAW REVIEW
[Vol. 37:827
and negligent 55 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
56
relationship.
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. 57 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. 58 These codes recognize certain public law exceptions to the banker-client privilege and
permit the disclosure of otherwise confidential information. 59
2.
Public law exceptions to Swiss banking secrecy
Procedural laws that establish a public duty to disclose information override the banker-client privilege. 60 Both the Swiss Federal
54. BANKING LAW, supra note 11, art. 47(l). 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 InternationalTaxation, 7 INT'L LAw. 16, 19 (1973) (noting that article
47(l) protects bank officials from third persons who pressure officials to supply information).
55. BANKING LAW, supra note 11, art. 47(2).
56. Id. at art. 47(3).
57. See BANKING LAw, supra note 11 (providing text of BANKING LAW).
58. 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, supranote 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).
59. 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.
60. 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 alsoJudgment ofJune 21, 1948, Bundesgericht (highest court), Switz., 74 BGE IV 102.
1988]
SOCIETE IVATIONALE INDUSTRIELLE AEROSPATIALE
839
Code of Criminal Procedure and the Swiss Federal Code of Civil
Procedure impose a public duty to testify as well as to produce doc6
uments, and neither law exempts bankers from its requirements. '
In contrast to the two federal judicial codes, the Swiss Federal Law
on Administrative Procedure allows bankers to invoke the secrecy
62
privilege to protect professional secrets.
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. 6 3 At
the cantonal level, no criminal procedural code explicitly affords
bankers the right to refuse to testify or produce documents. 64 In
civil proceedings, bankers have a duty to testify and edit documents
of interest in eleven cantons 6 5 and may refuse to testify in eight cantons. 6 6 The civil procedure codes of the remaining seven cantons
allow the judges to decide whether to exempt bankers from providing evidence. 67 In administrative court proceedings, the cantons
109 (confirming that article 273 encompasses offense of providing information to foreign fiscal or currency authorities).
61. See Bundesgesetz diber die Bundesstrafrechtspflege, Loi f~drale sur la procedure
6male [LFPE] June 15, 1984, Systematische Sammlung des Bundesrechts, Recueil systematique du droit f~d6ral § 312.0 (Switz.); Bundesgesetz fiber die Bundeszivilprozess, Loi f6d6rale de proc6dure civile f6d6rale [LFCF], Dec. 4, 1947, Systematische Sammlung des
Bundesrechts, Recueil systematique du droit fedral § 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).
62. See Bundesgesetz fiber das Verwaltungsverfahren, Loi f~d~rale sur la procedure administrative [LFPA], art. 16, Dec. 20, 1968, 1969 Sammlung der Eidgenossischen Gesetze,
Recueil officiel des lois et ordonnances de la Confederation suisse 757 (Switz.); Meier, supra
note 54, at 21 (stressing that in most administrative cases bankers are exempt from testifying).
63. M. AUBERT, I. KERNEN & H. SCHONLE, 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).
64. 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 Neuchitel, allow a banker to refuse to testify in criminal matters. Meier, supra note
54, at 22 & n.30.
65. M. AUBERT, I. KERNEN & H. SCH6NLE, supra note 53, at 94 (Appenzell AR, Appenzell
Al, Bale-Campagne, Bale-Ville, Glaris, Grisons, Lucerne, Oberwald, Schaffhaeusen, Soleure,
and Thurgovie).
66. Id. at 91-92 (Argovie, Berne, Gen6ve, Neuchfitel, Saint Gallen, Valais, and Vaud).
67. Id. at 93 (Fribourg, Nidwald, Schwyz, Tessin, Uri, Zug, and Zuirich).
840
THE AMERICAN UNIVERSITY LAW REVIEW
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either accord the banker the right to invoke the banking secrecy
privilege or authorize the judge to order the banker to testify. 68
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. 6 9 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. 70 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 ill71
gotten funds in Swiss bank accounts.
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. 72 In cases involving
68. Id. at 115.
69. 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 (198 1);
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 f~d~ral (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).
70. M. AUBERT, I. KERNEN & H. SCH6NLE, supra note 53, at 306.
71. 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: Healingi
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 Unted States: Hearings Before the
House Comm. on Banking and Currency, 90th Cong., 2d Sess. (1968) [hereinafter 1968 Hearingi]
(discussing legal and economic impact of foreign banking procedures); Note, Swiss Bank. and
the Avoidance of American Tax and Securities Laws: An Assessment Based on Proposed Legslation. 3
N.Y.U.J. IN-r'L L. & POL. 94, 101-06 (1970) (discussing U.S. legislative responses to tax and
securities violations hidden by Swiss bank secrecy).
72. Schellenberg, supra note 45, at 225. Tax evasion involves an insufficient payment of
1988]
SOCIETE NATIONALE INDUSTRIELLE AEROSPATIALE
841
tax evasion, 73 the Swiss tax authorities will prosecute the offender in
an administrative procedure, not in criminal courts. 74 Because
banks or other third persons are not obligated to furnish information to tax authorities, 75 banking secrecy is upheld in these procedures. 76 As a result, many Americans are able to declare minimal
amounts of income on their tax returns and deposit the undeclared
77
income in Swiss bank accounts with little fear of detection.
Tax fraud is treated in one of two ways. 78 Under the first group of
tax laws, prosecution of tax fraud remains an administrative procedure within the responsibility of the tax authorities. 79 Under these
laws, bankers do not have a duty to disclose tax fraud information to
the IRS. 80 The second group of tax laws, however, treat tax fraud
like any other crime, and place it within the responsibility of the
criminal courts. 8 ' Courts in these cantons apply their respective
codes of criminal procedure and, therefore, require the disclosure
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.
73. 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. Note, 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).
74. Bundesratsbeschluss fiber die Erhebung einer Wehrsteuer, Arrte du Conseil f~d~ral
sur la perception d'un imp6t f6d6ral direct [BE, AC], art. 132(2), Dec. 9, 1940, Systematische
Sammlung des Bundesrechts, Recueil systematique du droit f6d6ral § 642.11 (Switz.).
75. 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.).
76. LFPA art. 16.
77. 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).
78. 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.
79. 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).
80. See supra note 74 and accompanying text.
81. 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 Zuirich, Gen~ve, and Basel, all of which are major banking centers of Switzerland. Id.
THE AMERICAN UNIVERSITY LAW REVIEW
[Vol. 37:827
of otherwise privileged banking information. 8 2
Swiss law does not explicitly criminalize or punish the act of trading in securities on the basis of inside information or "insider trading."8 3 Therefore, bankers have no public duty to testify or disclose
materials with regard to insider trading activities. 8 4 On the con85
trary, bankers may be punished for revealing banking information.
As a result, investors trading on the basis of inside information are
able to avoid reporting their transactions by using Swiss bank accounts. 86 Moreover, a Swiss bank's clients can further disguise their
identity when engaging in insider trading because the bank is al87
lowed to trade in securities on behalf of its clients.
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. 8 8 These concessions included greater access to evidence regarding tax and securities law violations, as well as
organized crime. 89 As this Comment will explain below, in these
three areas, the United States has been able to penetrate the banker82. See supra notes 61, 64 and accompanying text (discussing federal and cantonal codes
of criminal procedure).
83. See Judgment of May 16, 1984, Bundesgericht (highest court), Switz., reprinted ti 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., reprintedin 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., reprintedin 24 I.L.M. 745, 747 (1985).
84. Only a Swiss law or ratified treaty requiring discovery of banking information may
supersede the banker-client privilege. M. AUBERT, I. KERNEN & H. SCH6NLE, su/pa 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).
85. 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.
86. 1969-1970 Hearings, supra note 71, at 13 (concluding that under this scheme no one
would know that illicit trading took place).
87. 1970 Hearings, supra note 71, at 263.
88. See Criminal Matters Treaty, supra note 21; Double Taxation Convention, supra note
21.
89. 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).
1988]
SOCIETE NATIONALE INDUSTRIELLE AEROSPATIALE
843
client privilege to obtain sought after evidence. 90
4.
Swiss secrecy interests reflected in internationalagreements
The Swiss Penal Code precludes foreign authorities, or individuals acting on behalf of foreign authorities, from performing discovery in Switzerland. 91 A ratified international agreement, however,
becomes Switzerland's internal law and thus supersedes any previously established Swiss law. 9 2 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. 93 Two international treaties purport to
facilitate discovery between the United States and Switzerland: the
Treaty on Mutual Assistance in Criminal Matters 9 4 and the Convention for the Avoidance of Double Taxation With Respect to Taxes
95
on Income.
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, 9 6 as well as offenses falling within the category of
organized crime. 9 7 With respect to offenses punishable under the
laws of both states, the Criminal Matters Treaty reflects Switzer90. 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).
91. 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).
92. 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, Infonnation
Gn'enfor Tax Purposesfrom Switzerland to Foreign CountriesEspecially to the Lnited States for the Prevenlion of Fraudor the Like in Relation to CertainAmerican 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).
93. SeeJudgment 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.
94. Criminal Matters Treaty, supra note 21.
95. Double Taxation Convention, supra note 21.
96. See Criminal Matters Treaty, supra note 21, arts. l(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).
97. 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).
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land's intent to protect its privacy in three ways. 98 First, the Criminal Matters Treaty allows Swiss authorities to refuse a request for
judicial assistance that violates Swiss sovereignty. 99 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. 10 0 Third, under the princi98. Cf. supra notes 22-24 and accompanying text (explaining how international agreements that Switzerland has signed protect Swiss privacy interests).
99. 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 fiber 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), repnnted
in 20 I.L.M. 1339 (1981). Correspondence between American and Swiss representatives reflects their intent to expand the scope of article 3(l)(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.
100. 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 ofJustice made the request on behalf of the U.S. Securities and Exchange Commission. Judgment of May 16, 1984, Bundesgericht (highest court),
Switz., reprintedin 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 ofJustice 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., reprintedin 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. Contpaie
1988]
SOCIETE NM4TIONALE LVDUSTRIELLE AEROSPATIALE
845
ple of speciality, evidence may be admitted only in the foreign proceeding for which the information was requested. 10 1
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. 10 2 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. 0 3 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. 0 4 Thus, concerning organized criminal
activities, Switzerland has discarded the principle of speciality and
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.
101. 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(I), 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 bankerclient 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).
102. 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, reprintedin 1970 U.S. CODE CONG. & ADMIN. NEws 4394, 4397.
See generallv 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.
103. See Criminal Matters Treaty, supra note 21, art. 7(1), 27 U.S.T. at 2032.
104. Id. at art. 7(2), 27 U.S.T. at 2033.
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the requirement of mutual penal liability,1 0 5 and has provided the
means necessary to prosecute members of organized crime.1 0 6
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. 10 7 First, the requested
State shall provide tax materials in order to carry out the provisions
of the Double Taxation Convention.10 8 Second, the United States
may obtain evidence for the prevention of fraud in relation to income taxes in general. 0 9
The diverse Swiss cantonal laws concerning information discoverable in tax fraud proceedings, however, obscure the scope of article
XVI's fraud clause." 0 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." I' This action is
105. See Honegger, supra note 9, at 17 (stating that Switzerland now cooperates by providing greater latitude for use of evidence in criminal proceedings).
106. See 1969-1970 Hearings,supra note 71, at 15 (statement of Will Wilson, Assistant U.S.
Attorney General) (remarking that Switzerland is as concerned as United States about organized crime). In short, Switzerland and the United States have agreed to use all means available under the Treaty in fighting against organized crime. Criminal Matters Treaty, supra note
21, art. 6(1), 27 U.S.T. at 2031.
107. Double Taxation Convention, supra note 21, art. XVI(1), 2 U.S.T. at 1760 (providing
that information exchanged shall not be disclosed to any person other than those concerned
with tax assessment and collection).
108. Id.; see also Judgment of Dec. 23, 1970, Bundesgericht (highest court), Switz., reprinted
in 10 I.L.M. 1029, 1036 (1971) (stating that banker must testify if established under terms of
ratified treaty); supra note 92 and accompanying text (noting that Swiss treaty overrides prior
Swiss law).
109. Double Taxation Convention, supra note 21, art. XVI(l), 2 U.S.T. at 1760. Although
the "carry out" clause of article XVI(1) incorporates any fraudulent claims under the terms of
the treaty, the fraud clause of article XVI(1) concerns fraudulent activities that are beyond the
scope of the Double Taxation Convention and that entail income taxes in general. Id.; see also
Meyer, supra note 4, at 58 (arguing that fraud clause cannot refer to what is already covered in
"carry out" clause).
110. See Meier, supra note 54, at 34 (stating that because of different cantonal laws, decisive issue is whether bank must provide information about clients in fraud cases). Neither
federal nor cantonal laws provide a consistent approach to a request for information in tax
fraud proceedings. See supra notes 72-82 and accompanying text (explaining that some tax
laws allow disclosure while others do not).
I 11. See United States v. Vetco, 644 F.2d 1324, 1329 (9th Cir.) (rejecting appellant's argument that compliance with an IRS summons would violate article 273 of the Swiss Penal
Code), cert. denied, 454 U.S. 1098 (1981); Meier, supra note 54, at 33 (citing instances in which
Swiss Federal Tax Administration refused to supply banking information).
In 1982, a U.S. federal grand jury investigated possible tax evasion on the part of a Swiss
corporation. Marc Rich & Co. v. United States, 707 F.2d 663, 665 (2d Cir.), cert. derned, 463
U.S. 1215 (1983). The Second Circuit found that the United States' interest in enforcing
American tax laws was greater than the Swiss interest in preventing disclosure of business
documents under article 273 of the Swiss Penal Code. Id. The circuit court affirmed the
lower court's order to produce the requested documents pursuant to a grand jury subpoena
1988]
SOCIETE NATIONALE INDUSTRIELLE AEROSPATIALE
847
permissible under article XVI of the Double Taxation Convention,
when the informawhich authorizes Switzerland to deny a request
12
tion desired is not available under Swiss law."
In the 1970's, the Swiss Federal Tribunal redefined the fraud
clause.' '3 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.' 14 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.' 15
As is reflected in the Criminal Matters Treaty and the Double
duces tecum. Id. at 670. Subsequently, Swiss authorities seized various materials that the
Swiss corporation needed to comply with the district court's order. In re Marc Rich & Co.,
A.G., 736 F.2d 864, 866 (2d Cir. 1984). The Swiss argued that compliance with the courts
would violate Swiss law, Swiss sovereignty, and international comity. Id.; see also Swiss Amicus
Brief, supra note 16, at 9-10 (stressing that Swiss Government's actions were necessary to
protect Swiss sovereignty). Once again, the Second Circuit affirmed the district court's order,
relying on the fact that the Swiss corporation, prior to the Swiss government's seizures, had
agreed to comply with the subpoena and had expressly waived the foreign law defense. In re
.MarcRich, 736 F.2d at 866-67.
112. Double Taxation Convention, supra note 21, art. XVI(1), 2 U.S.T. at 1760; see also
supra notes 107-09 and accompanying text (summarizing provisions of article XVI). But see
United States v. Vetco, 644 F.2d 1324, 1328 (9th Cir.) (ruling that article XVI did not bar the
use of an IRS summons), cert. denied, 454 U.S. 1098 (1981).
113. Judgment of May 16, 1975, Bundesgericht (highest court), Switz., reprinted in 76-1
U.S. Tax Cas. (CCH) 9452, at 84,211, 84,212 (suggesting that article XVI did not obligate
Switzerland to provide U.S. with full legal assistance in tax fraud cases);Judgment of Dec. 23,
1970, Bundesgericht (highest court), Switz., reprintedin 10 I.L.M. 1029, 1034 (1971) (concluding that fraud clause obligated Swiss authorities to provide all information that could be procured from banks under Swiss law). The United States viewed the 1975 decision as a
limitation of the 1970 decision. Meyer, supra note 4, at 63. In its 1975 decision, however, the
Swiss Federal Tribunal clearly stated that the Double Taxation Convention covered information available under Swiss law. Judgment of May 16, 1975, Bundesgericht (highest court),
Switz., reprnted in 76-1 U.S. Tax Cas. (CCH) 9452, at 84,211, 84,213.
114. Judgment of Dec. 23, 1970, Bundesgericht (highest court), Switz., reprinted in 10
I.L.M. 1029, 1036 (1971). The Federal Tribunal stated that the decisive factor was whether a
bank would have to furnish the requested materials if the fraud had been committed in Switzerland. Id. at 1034 (construing article XVI(I) of Double Taxation Convention). The Tribunal noted the divergence in Swiss cantonal laws regarding discovery in tax fraud cases, but
focused on the laws of three cantons-Zurich, Basel, and Geneva-all of which allowed disclosure of privileged bank information. Id. at 1035-36 (commenting that Zurich, Basel, and Geneva are three most important Swiss banking centers). Because the United States could have
assumed that Switzerland had agreed to include bank information in the fraud clause, the
Federal Tribunal concluded that article XVI of the Convention established a basis in federal
law for the Swiss Federal Tax Administration (FTA) to disclose privileged bank information to
the United States in tax fraud investigations or proceedings. Id. at 1036. The Tribunal
reached this conclusion while recognizing the absence of any other federal law obligating
Swiss banks to furnish bank information with respect to tax fraud. Id. at 1034.
115. Judgment of May 16, 1975, Bundesgericht (highest court), Switz., reprinted in 76-1
U.S. Tax Cas. (CCH) r 9452, at 84,211, 84,212. In 1969, the IRS asked the Swiss FTA for
books and records of a Swiss bank regarding its dealings with a U.S. citizen. Id. The FTA
summarized the results of its investigation in an official report and transmitted the report to
the IRS. Id. The IRS asserted that the report would not satisfy American procedural law and
requested evidence that was unobtainable under Swiss law. Id. Both the American citizen and
the Swiss bank successfully petitioned the Federal Tribunal to deny the request. Id.
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Taxation Convention, Switzerland has been willing to provide the
United States with privileged materials.' 16 Such concessions are
particularly significant in light of Switzerland's protection of the
banker-client privilege. 1 7 United States federal courts, however,
have chosen to ignore the procedures established in these two bilat118
eral agreements.
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. 1 9 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. 120 If the evidence is not produced, the court cannot
address the substantive rights of the nonoffending party.121 There22
fore, to uphold the principle of fairness in the judicial process,'
American courts tend to grant motions for orders compelling
23
discovery. 1
For example, in SEC v. Banca Della Svizzera Italiana,124 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.' 2 5 The district court based its decision on three conclu116. See Swiss Amicus Brief, supra note 16, at 6 n.4 (claiming that Swiss government is
extremely liberal in granting discovery requests).
117. See supra notes 45-59 and accompanying text (discussing legal protection of Swiss
banking secrecy).
118. See infra notes 119-45 and accompanying text (discussing U.S. federal court cases).
119. See infra notes 124-45 and accompanying text.
120. See FED. R. Civ. P. 37(a) (stating that "[a] party, upon reasonable notice to other
parties and all persons affected thereby, may apply for an order compelling discovery"').
121. Note, Strict Enforcement of Extratemitorial Discovery, 38 STAN. L. REv. 841, 842 (1986)
(observing that ineffective discovery results in loss of vindication of substantive rights); see also
Note, Discovery of Documents Located Abroad in U.S. Antitrust Litigation: Recent Developments in the
Law Concerning the Foreign Illegality Excuse for Non-Production, 14 VA. J. INr'L L. 747, 762-67
(1974) (describing how change in verdict resulted from British Government reversing itself
and allowing evidence to be discovered).
122. See supra note 3 and accompanying text (discussing fairness and due process concerns
of 14th amendment and FED. R. Civ. P. 1).
123. See, e.g., In re Societe Nationale Industrielle Ae4rospatiale, 782 F.2d 120, 127 (8th
Cir. 1986) (ordering French parties to produce evidence located in France); In re Anschuetz &
Co., 754 F.2d 602, 615 (5th Cir. 1985) (ruling that discovery order to German party was
proper); International Soc'y for Krishna Consciousness v. Lee, 105 F.R.D. 435, 450 (S.D.N.Y.
1984) (ordering discovery of materials located in Germany); see also Societe Nationale Industrielle Aerospatiale v. United States Dist. Court, 107 S. Ct. 2542, 2555 (1987) (stressing overriding U.S. interest in fairness and speed of litigation).
124. 92 F.R.D. I ll (S.D.N.Y. 1981).
125. SEC v. Banca Della Svizzera Italiana, 92 F.R.D. II1, 112 (S.D.N.Y. 1981). In this
1988]
SOCIETE IVATIONALE INDUSTRIELLE AEROSPATIALE
849
sions. 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.12 6 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
27
and society have no national interest in bank secrecy.'
case, the SEC filed suit against Banca Della Svizzera Italiana (BSI) alleging that the Swiss bank
had engaged in insider trading. Id. The SEC obtained a court order requiring BSI to answer
the SEC's interrogatories. Id. at 113. BSI refused to comply with the order, asserting Swiss
secrecy laws as a defense. Id. The district court rejected this foreign law defense and
threatened to impose severe contempt sanctions upon BSI if it continued to refuse to comply
with the discovery order. Id. In response, BSI obtained a waiver of confidentiality from its
clients and the court then demanded that BSI complete the SEC's interrogatories. Id. at 119.
The district court relied on two primary sources to analyze this case: Supreme Court precedent and the Foreign Relations Law. In Societe InternationalePour ParticipationsIndustrielles et
Commerciales, S.A. v. Rogers, the United States Government claimed that a Swiss plaintiff possessed evidence providing a complete defense to the plaintiff's suit. 357 U.S. 197, 200
(1958). The plaintiff argued that he was unable to produce the documents because the Swiss
government had directly interdicted their disclosure. Id. The Court ruled that the plaintiff's
good faith in attempting to present the information prevented the imposition of any sanction
against the plaintiff. Id. at 212. In reaching its decision, the Court stressed the importance of
determining a foreign country's prohibition of discovery as well as the party's good faith efforts to obtain the requested information when deciding whether to impose sanctions. Id. at
211-12. In applying this standard in Banca Della Svizzera Italiana, the district court held that
Switzerland's prohibition for discovery could not be the sole basis for quashing the order. See
Banca Della Svizzera Italiana, 92 F.R.D. at 114 (citing Rogers, 357 U.S. at 208-09). In finding
that BSI deliberately used Swiss secrecy law to avoid American prohibitions of insider trading,
the court concluded that BSI's bad faith precluded the bank from relying on the protection of
Swiss law. Id. at 117.
The district court then considered the factors listed in § 40 of the Foreign Relations Law:
each state's national interests, the hardship that inconsistent enforcement actions would impose on the noncomplying party, the location of the discovery procedures, the noncomplying
party's nationality, and the estimated success of either state's enforcement actions in achieving compliance with the discovery request. Id. at 117-19; see supra note 26 (providing text of
§ 40). With respect to the national interests at stake, the court stressed the need to enforce
United States securities laws. Banca Della Svizzera Itahana, 92 F.R.D. at 117 (quoting H.R. REP.
No. 975, 91st Cong., 2d Sess. 12, reprintedin 1970 U.S. CODE CONG. & ADMIN. NEWS 4394,
4397 (expressing U.S. Government's demand that Swiss bank secrecy give way to enforcement of U.S. securities laws)). The court also emphasized the Swiss Government's failure to
take any action indicating the importance of Swiss nondisclosure law in the instant case. Id. at
117-18. Further, the court noted that the privilege was not necessary to protect the Swiss
government or other societal interest because BSI clients could waive the secrecy privilege.
Id.
The court then turned to the second factor of § 40's balancing test: the extent and nature
of the hardship that inconsistent enforcement actions would impose on the noncomplying
party. See id. at 118-19; see also RESTATEMENT (SECOND) OF FOREIGN RELATIONS LAW OF THE
UNITED STATES § 40(b) (1965). The court recognized the possibility that BSI and its officers
would be subject to fines and imprisonment, however, it decided that BSI's bad faith superseded the significance of this hardship. Banca Della Svizzera Italiana, 92 F.R.D. at 118.
126. Banca Della Svizzera Italiana, 92 F.R.D. at 117-18; see Maier, Interest Balancingand E\xtraterntorialJunsdiction,31 AM. J. COMP. L. 579, 591 (1983) (suggesting that district court in Banca
Della Svizzera Italiana did not fulfill promise to engage in careful balancing of governmental
interests).
127. Banca Della Svzzera Itahana, 92 F.R.D. at 118 (suggesting that client's option to waive
privilege eliminates protection privilege may afford Swiss Government or public interest). To
the contrary both Switzerland's government and society have an economic and cultural stake
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Second, the court stressed BSI's alleged bad faith.128 The court
improperly concluded that BSI deliberately used Swiss secrecy laws
to violate American securities laws. 12 9 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.' 30
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
131
ignored Switzerland's privacy interests and judicial sovereignty.
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. 132 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
13 3
the SEC does not breach the Swiss banker-client privilege.
In United States v. Vetco, 134 the United States Court of Appeals for
in preserving its secrecy laws. See supranotes 8-15 and accompanying text (discussing Switzerland's economic and societal interest in Swiss banker-client privilege). In addition, although
the secrecy privilege plays no role in protecting the Swiss government, the Swiss government
has a responsibility to safeguard the country's financial privacy. See BANKING LAw, supra note
11 (reflecting Swiss legislature's desire to protect Swiss banker-client privilege by establishing
criminal sanctions for banking secrecy violations).
128. See SEC v. Banca Della Svizzera Italiana, 92 F.R.D. 111, 117 (S.D.N.Y. 1981) (stating
that BSI profited from its invasion of U.S. securities markets and thus could not rely on Swiss
nondisclosure law to shield this activity).
129. See id. (holding that "one who deliberately courts legal impediments" is acting in bad
faith) (citing Societe Internationale Pour Participations Industrielles et Commerciales, S.A. v.
Rogers, 357 U.S. 197, 208-09 (1958)).
130. Id. at 112. The SEC contended that BSI's participation in illegal activities was very
probable. Id. at 113. Although a probability does not amount to a showing that BSI deliberately used Swiss secrecy law to avoid American securities law, the district court concluded that
BSI's unproven bad faith outweighed the bank's potential hardship resulting from a breach of
the Swiss banker-client privilege. Id. at 118-19.
131. See id. at 113 (giving BSI one week to submit requested information).
132. See supra notes 60-68 and accompanying text (discussing circumstances in which
banker is compelled to disclose privileged information).
133. Both the Criminal Matters Treaty and the Double Taxation Convention stipulate that
only the proper Swiss authorities may execute an American request for evidence. See Criminal
Matters Treaty, supra note 21, art. 28, 27 U.S.T. at 2050 (stating that American discovery
requests are handled by Division of Police of the Federal Department ofJustice and Police in
Bern); Double Taxation Convention, supra note 21, art. XVI(l), 2 U.S.T. at 1760 (requiring
competent authorities of each state to exchange tax information). In the past, Swiss authorities have granted the SEC insider trading information upon requests for assistance based on
the Criminal Matters Treaty. See Judgment of May 16, 1984, Bundesgericht (highest court),
Switz., reprintedin 24 I.L.M. 745, 760-61 (recognizing Division of Police's substantial discretion in compelling production of documents). Nowhere in Banca Della Svzzzera Itahana is there
any evidence to suggest that the SEC complied with the procedures established in the Criminal Matters Treaty. See SEC v. Banca Della Svizzera Italiana, 92 F.R.D. 11 (S.D.N.Y. 1981).
134. 644 F.2d 1324 (9th Cir.), cert. denied, 454 U.S. 1098 (1981).
1988]
SOCIETE NATIONALE INDUSTRIELLE AEROSPATIALE
851
the Ninth Circuit also addressed a number of important legal questions in the area of international discovery requests.1 3 5 First, the
Ninth Circuit ruled that the discovery procedures established in article XVI of the Double Taxation Convention are not exclusive means
of discovery. 136 An IRS Manual, however, contradicted this conclusion.1 3 7 According to the IRS Manual, the tax conventions determined whether the information requested was discoverable.1 3 8 The
IRS, therefore, recognized the Double Taxation Convention as the
13 9
sole mechanism for obtaining evidence located in Switzerland.
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.14 0 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.' 4 1 Arti135. United States v. Vetco, 644 F.2d 1324 (9th Cir.), cert. denied, 454 U.S. 1098 (1981).
Vetco, an American corporation, was issued a summons by the IRS for documents located in
Switzerland pursuant to an investigation of possible tax fraud. Id. at 1326. Vetco did not
comply with the summons, claiming that disclosure of the documents was inconsistent with
the Double Taxation Convention and would violate Swiss law. Id. The Ninth Circuit affirmed
the district court's order to produce the requested materials. Id. at 1327.
136. Id. at 1328-29 (finding that Double Taxation Convention's procedures are not exclusive means of discovery because it does not explicitly claim exclusivity and because foreign
source of evidence was an American subsidiary).
137. See II Audit, Internal Revenue Manual (CCH) 42(10)(10).1(4) cited in United States v.
Vetco, 644 F.2d 1324, 1329 (9th Cir.), cert. denied, 454 U.S. 1098 (1981).
138. Id. (stating that respective tax conventions determine extent of information obtainable in treaty countries).
139. See id. The Ninth Circuit argued that neither the treaty nor its legislative history
indicated that the treaty was intended to be exclusive. Id. at 1328. The language of the
Double Taxation Convention, however, suggests that parties should not resort to alternative
procedures to obtain tax information. For example, article XVI states clearly that parties cannot obtain information unless it is discoverable under the requested state's laws. See Double
Taxation Convention, supra note 22, art. XVI(1), 2 U.S.T. at 1760. Further, the lack of an
exclusivity provision is not dispositive. If the Swiss Government had agreed to permit an
American court to issue a discovery order directly to a party in Switzerland without first obtaining the proper authorization, the Government would have endangered Switzerland's judicial sovereignty and privacy interests. See Swiss Amicus Brief, supra note 16, at 8.
140. Vetco, 644 F.2d at 1329 (quoting Societe Internationale Pour Participations Industrielles v. Rogers, 357 U.S. 197 (1958)); see also supra notes 110-15 and accompanying text (discussing previous Swiss treatment of information exchange under Article XVI of Convention).
In Rogers, the Supreme Court instructed the federal courts to regard the threat of foreign
sanctions as a substantial excuse for nonproduction. Societe Internationale Pour Participations Industrielles v. Rogers, 357 U.S. 197, 211 (1958). The circuit court in Vetco interpreted
the decision in Rogers as holding only that a court could not dismiss a plaintiff's complaint if
the plaintiff had tried to comply in good faith. Vetco, 644 F.2d at 1329. The circuit court
noted that, unlike the requesting party in Rogers, there was no evidence of good faith attempts
to comply with the summonses on the part of Vetco. Id. at 1330. Although the court emphasized the lack of good faith, there was no clear evidence of bad faith. In fact, Vetco's accountants had recommended that certain information be voluntarily disclosed to the IRS. Id. at
1326-27.
141. 'etco, 644 F.2d at 1330 n.7. The Ninth Circuit in Velco stated that based on the evidence, the threat of Swiss sanctions was "not as real as it was initially suggested to me to be."
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THE AMERICAN UNIVERSITY LAW REVIEW
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cle 273, contrary to the Ninth Circuit's reasoning, is not without
substance. This article ensures the protection of Swiss privacy interests. 14 2 Only a Swiss federal law or international treaty, which establishes a public duty to disclose privilege materials, may
supersede article 273.143 The Double Taxation Convention establishes such a duty to the extent that the duty already exists under
Swiss law. 14 4 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. 14 5
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 NationaleIndustrielle
Aerospatiale v. United States District Court,14 6 which involved choosing
between the competing interests embodied in the Federal Rules of
Civil Procedure and the Hague Convention on Taking Evidence
14 7
Abroad, continues this trend.
Id. To measure the extent of Switzerland's interest in the litigation according to how real the
threat of sanctions might seem to be, however, is an unreliable method of calculation. The
threat of sanctions in Rogers was arguably no more real than in Vetco.
142. See STGB, Cp, Cp art. 273 (Switz.) (forbidding disclosure of evidence to foreign
entity).
143. See supra notes 91-95 and accompanying text (discussing Swiss Penal Code which
bars foreign authorities from performing discovery in Switzerland).
144. See Judgment of Dec. 23, 1970, Bundesgericht (highest court), Switz., reprintedin 10
I.L.M. 1029, 1036 (1971) (allowing American party to obtain tax information pursuant to
Double Taxation Convention).
145. See Vetco, 644 F.2d at 1329-30 (holding that Swiss law does not bar enforcement of
discovery).
146. 107 S. Ct. 2542 (1987).
147. In attempting to obtain evidence located abroad, courts have come to three different
conclusions about whether to apply the Federal Rules of Civil Procedure instead of the 1970
Hague Convention to discovery requests in foreign countries. A number of courts have ruled
that parties are required to resort to the Hague Convention. See, e.g., General Electric Co. v.
North Star Int'l, Inc., No. 83-C-0838, slip op. (N.D. Ill. Feb. 21, 1984); Philadelphia Gear
Corp. v. American Pfauter Corp., 100 F.R.D. 58, 60 (E.D. Pa. 1983); Goldschmidt, A.G. v.
Smith, 676 S.W.2d 443, 445 (Tex. Ct. App. 1984). Others have held that the procedures
established in the Hague Convention offer an alternative to the Federal Rules of Civil Procedure in question. See, e.g., Laker Airways Ltd. v. Sabena, 103 F.R.D. 42, 51 (D.D.C. 1984);
Lasky v. Continental Prods. Corp., 569 F. Supp. 1227, 1228 (E.D. Pa. 1983); Gebr. Eickhoff
Maschinenfabrik und Eisengieberei GmbH v. Starcher, 328 S.E.2d 492 (D.W. Va. 1985). The
remainder have favored the application of the Federal Rules. See, e.g., In re Societe Nationale
Industrielle Aerospatiale, 782 F.2d 120, 124-25 (8th Cir. 1986); In re Anschuetz & Co., 754
F.2d 602, 615 (5th Cir. 1985); International Soc'y for Krishna Consciousness v. Lee, 105
F.R.D. 435, 442-45 (S.D.N.Y. 1984).
1988]
II.
SOCIETE NATIONALE INDUSTRIELLE AEROSPATIALE
853
SOCIETE NATIONALE INDUSTRIELLE AEROSPATIALE V. UNITED
STATES DISTRICT 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.148
The Supreme Court's decision in Aerospatiale will have an adverse
effect on obtaining evidence from Swiss banks. 149 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. 150 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.15 '
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. 15 2 The two defendant corporations had designed and manufactured the planes in France, but
had marketed them in the United States. 15 3 One of the corpora154
tions' planes had crashed, injuring the pilot and a passenger.
148. Societe Nationale Industrielle Aerospatiale v. United States Dist. Court, 107 S. Ct.
2542, 2548 (1987).
149. The Government of Switzerland has stressed that the disposition of Aerospatiale could
influence the Swiss Parliament's decision to ratify the 1970 Hague Convention, and therefore
affect Switzerland's willingness to provide assistance in the discovery of evidence. See Swiss
Amicus Brief, supra note 16, at 2.
150. See United States v. Vetco Inc., 644 F.2d 1324, 1328 (9th Cir.) (stating that treaty is
not exclusive method for discovery requests), cert. denied, 454 U.S. 1098 (1981); SEC v. Banca
Della Svizzera Italiana, 92 F.R.D. 111, 114 (S.D.N.Y. 1981) (holding that foreign law's prohibition of discovery is not determinative); see also supra notes 124-45 and accompanying text
(discussing decisions in Banca Della Svizzera Italianaand Velco).
151. See iufra notes 168-85 and accompanying text (discussing majority opinion in
Aerospaliale).
152. ,-erospatiale, 107 S. Ct. at 2546. The Republic of France owned the two corporations.
Id.
153. In re Societe Nationale Industrielle Aerospatiale, 782 F.2d 120, 122 (8th Cir. 1986),
vacatedsub nor. Societe Nationale Industrielle Aerospatiale v. United States Dist. Court, 107 S.
Ct. 2542 (1987).
154. Societe Nationale Industrielle Aerospatiale v. United States Dist. Court, 107 S. Ct.
2542, 2546 (1987).
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[Vol. 37:827
The plaintiffs alleged that the defendants had manufactured a defective plane and were therefore guilty of negligence and breach of
warranty. 155
Upon the parties' consent, the district court referred the actions
to a magistrate.' 5 6 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.' 5 7 In response, the defendants filed a motion for a protective order,'5 8 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. 159 Moreover, the
defendants claimed that under a French blocking statute, they could
answer only discovery requests that complied with the 1970 Hague
0
Convention.16
155. Id.
156. Id.
157. Id.; see also FED. R. Crv. P. 33, 34, 36 (stating rules for admission of evidence and
document production).
158. Aerospatiale, 107 S. Ct. at 2546; see also FED. R. Civ. P. 26(c) (stating rule for protective
order).
159. See Societe Nationale Industrielle Aerospatiale v. United States Dist. Court, 107 S.
Ct. 2542, 2546 (1987).
160. Id. The French blocking statute states in pertinent part:
Article 1-bis-Subject to treaties or international agreements and laws and regulations in force, it is forbidden to all persons to ask, research or communicate, by writing, orally or under any other form, documents or information on economical,
commercial, industrial, financial or technical matters leading to establishing proofs
for use directly or indirectly in foreign judicial or administrative proceedings.
Article 2-The persons affected by articles 1 and 1A must inform, without any delay,
the Minister in charge whenever they are requested in any manner to provide such
information.
Article 3-Without prejudice to heavier sanctions stipulated by the Law, any infraction to the present Law articles 1 and IA provisions will be punished with two
months to six months imprisonment and with a 10,000 to 120,000 French francs fine
or any one of these two penalties only.
Law ofJuly 18, 1980, No. 80-583 (Fr.), reprintedin In re Societe Nationale Industrielle AerospaSociete Nationale Industrielle Aerostiale, 782 F.2d 120, 126 (8th Cir. 1986), vacated sub noma.
patiale v. United States Dist. Court, 107 S. Ct. 2542 (1987) [hereinafter French Blocking
Statute].
The Supreme Court in Aerospatiale briefly discussed the significance of the French blocking
statute. See Aerospatiale, 107 S.Ct. at 2556 n.29. The majority stressed that the blocking statute does not deprive American courts of the power to order the discovery of evidence located
abroad. Id. (citing Societe Internationale Pour Participations Industrielles et Commerciales,
S.A. v. Rogers, 357 U.S. 197, 204-06 (1958)). The Court also stated that a blocking statute
should not be given the same deference as foreign substantive rules of law. Id. (citing RESTATEMENT OF FOREIGN RELATIONS LAW OF THE UNITED STATES (REvISED) § 437, Reporter's
Note 5, at 41-42 (Tent. Draft No. 7 1986)). According to the majority, the statute is relevant
only to the extent that it reflects sovereign interests in protecting specific kinds of material.
Id.
The majority, however, disregarded prior case law in analyzing the significance of foreign
blocking statutes that criminalize the unauthorized disclosure of evidence. The Supreme
Court in Rogers declared that "fear of criminal prosecution constitutes a weighty excuse for
1988]
SOCIETE NATIONALE INDUSTRIELLE AEROSPATIALE
855
The Magistrate denied the motion for a protective order,
stressing the need for the judiciary to protect American citizens
from defective products. 16 1 The Magistrate reasoned that because
compliance with the discovery requests would not take place in
France, these requests would not intrude upon French sovereignty. 162 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
163
discovery orders.
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.' 64 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.' 65 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. 16 6 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 Proce16 7
dure, in order to obtain evidence located in France.
B.
The Supreme Court Decision
Writing for the majority, Justice Stevens examined the relationship between the 1970 Hague Convention and the Federal Rules of
nonproduction." Rogers, 357 U.S. at 211. Further, the majority in Aerospatiale ignored the
concerns that civil law jurisdictions have in preserving their judicial sovereignty and that are
reflected in their blocking statutes. Compare French Blocking Statute, supra with STGB, Cp, Cp
art. 273; see also supra notes 8-15 and accompanying text (discussing Switzerland's reasons for
enacting banking secrecy laws).
161. Aerospatiale, 107 S. Ct. at 2547.
162. Id.
163. Id.
164. Id.
165. In re Societe Nationale Industrielle Aerospatiale, 782 F.2d 120, 124 (8th Cir. 1986)
(agreeing with analysis in In re Anschuetz & Co., GmbH, 754 F.2d 602, 611 (5th Cir. 1985)),
vacatedsub nom. Societe Nationale Industrielle Aerospatiale v. United States Dist. Court, 107 S.
Ct. 2542 (1987).
166. Id. at 125-26.
167. Societe Nationale Industrielle Aerospatiale v. United States Dist. Court, 107 S. Ct.
2542, 2548 (1987).
856
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[Vol. 37:827
Civil Procedure.' 6 8 He focused on four interpretations of the 1970
Hague Convention. 169 First, the 1970 Hague Convention could
constitute the exclusive means by which a federal court could obtain
evidence located abroad.' 70 Second, the 1970 Hague Convention
could require that its procedures be relied upon in the first instance. 17 1 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. 172 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
1 73
foreign state's concerns.
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. 174 Justice Stevens noted that the purpose
of the 1970 Hague Convention, as stated in the Preamble, is to "facilitate" and "improve" the discovery process. 1 75 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
76
of request in aid of pretrial discovery in a common law country.'
He noted that the United States would not have agreed to a treaty
that required exclusive or first use of its procedures, but also al77
lowed other parties to revoke their consent to those procedures.
Justice Stevens concluded that the permissive and nonmandatory
the intent of the
language of the 1970 Hague Convention reflects 78
procedures.
treaty's authors to establish optional
168. Id. at 2550 (stating that both Federal Rules of Civil Procedure and 1970 Hague Convention are law of the land in United States). Id. The United States Senate ratified the Hague
Convention in 1972 with a unanimous vote. 118 CONG. REC. 20,623 (1972).
169. Aerospatiale, 107 S. Ct. at 2550.
170. Id.
171. Id.
172. Id.
173. Id.
174. See id. (reasoning that first two interpretations are inconsistent with language and
negotiating history of 1970 Hague Convention).
175. Id.; 1970 Hague Convention, supra note 22, preamble, 23 U.S.T. at 2557.
176. Societe Nationale Industrielle Aerospatiale v. United States Dist. Court, 107 S. Ct.
2542, 2552 (1987) (construing 1970 Hague Convention, supra note 22, art. 23, 23 U.S.T. at
2568).
177. Id.
178. Id. at 2551-53. In ruling that the 1970 Hague Convention's procedures were optional, the majority in Aerospatiale found error in the circuit court's decision that the Convention did not apply to the production of evidence by a foreign party that is subject to the
jurisdiction of an American court. Id. at 2554 (quoting In re Societe Nationale Industrielle
Aerospatiale, 782 F.2d 120, 124 (8th Cir. 1986), vacatedsub nor. Societe Nationale Industrielle
1988]
SOCIETE NATIONALE INDUSTRIELLE AEROSPATIALE
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.' 79 The Court rejected this interpretation for two reasons.' 80 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.' 8 1 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. 8 2 Moreover,
the majority emphasized that comity required a particularized analy83
sis of the national interests at stake.'
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. 1 84 Accordingly, a federal court must engage in a case-by-case scrutiny of the
particular facts, sovereign interests, and effectiveness of the 1970
18 5
Hague Convention's procedures.
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. 8 6 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.' 8 7 According to Justice Blackmun, only when
application of the 1970 Hague Convention's procedures do not proAerospatiale v. United States Dist. Court, 107 S. Ct. 2542 (1987)). The Court held that the
1970 Hague Convention's procedures were available whenever they facilitated the discovery
of evidence. Id.
179. Id. at 2550. The majority rejected the circuit court's argument that an American
court defeats international comity if it requires discovery which a foreign court refused pursuant to the terms of the 1970 Hague Convention. Id. at 2554-55. Justice Stevens also noted
that the breadth of U.S. discovery rules is well known to many nations, such that "foreign
tribunals will recognize that the final decision on the evidence to be used in litigation conducted in American courts must be made by those courts." Id.
180. Id.
181. See id. (emphasizing that rule of first resort would be contrary to "overriding" interest articulated in the Federal Rules of Civil Procedure ofjust, speedy, and inexpensive determination of every action).
182. See id. (stating that drafters of 1970 Hague Convention could have expressly provided for this rule).
183. Id.
184. Id. at 2550-51.
185. Id. at 2555-56.
186. Id. at 2558 (Blackmun, J., concurring in part, dissenting in part).
187. Id. at 2561-62 (Blackmun, J., concurring in part, dissenting in part).
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THE AMERICAN UNIVERSITY LAW REVIEW
[Vol. 37:827
duce evidence should the courts adopt a more particularized caseby-case analysis to determine whether to issue a discovery order. a 8
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.' 8 9 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.1 9 0 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. 19 1 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
the foreign interests reflected in the
of Civil Procedure outweigh
92
1970 Hague Convention.
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.19 3 The Court, however, by failing to
apply the rules governing the interpretation of treaties, incorrectly
interpreted the 1970 Hague Convention. 9 4 These rules require
that the Court analyze both the text of the treaty and the context in
which the words are used.1 9 5 Thus, the Court should look beyond
the language of the 1970 Hague Convention to the history of nego188. Id. at 2558 (Blackmun, J., concurring in part, dissenting in part).
189. Id. at 2554 (noting that 1970 Hague Convention does not state preemptive intent).
190. See id. at 2550-53 (arguing that 1970 Hague Convention was intended to establish
optional procedures).
191. Id. at 2555-56 (stating that comity does not require resort to 1970 Hague Convention procedures without prior case-by-case analysis).
192. Id. (noting overriding interest in fair, speedy, and inexpensive determination of cases
(quoting FED. R. Civ. P. 1)).
193. Id. at 2550-51 (suggesting that 1970 Hague Convention does not require use of its
procedures).
194. See Air France v. Saks, 470 U.S. 392, 400 (1985) (analyzing negotiating history to
interpret 1970 Hague Convention); Choctaw Nation of Indians v. United States, 318 U.S. 423,
431-33 (1943) (noting that courts may look beyond the written words of a treaty to ascertain
its meaning). The majority does recognize the rules governing the interpretation of treaties.
Societe Nationale Industrielle Aerospatiale v. United States Dist. Court, 107 S. Ct. 2542, 2550
(1987). Nevertheless, the majority relied almost exclusively on the words of the 1970 Hague
Convention to conclude that the treaty's procedures were optional. Id. at 2550-53.
195. Air France, 470 U.S. at 397.
1988]
SOCIETE NATIOVALE INDUSTRIELLE AEROSPATIALE
859
196
tiations preceding the signing of the treaty.
The Court, by isolating and concentrating on words such as "fa-
cilitate" and "improve," dispensed with the 1970 Hague Convention's overriding objective: to overcome the conflict between civil
law and common law discovery procedures.'
97
This conflict is par-
ticularly intense with respect to the United States where the parties
perform discovery themselves pursuant to the very broad Federal
Rules of Civil Procedure.198 In civil law nations such as Switzerland,
the discovery process is ajudicial function, rather than a responsibility of the parties. 199 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
200
sovereignty.
Another example of the Court's improper treaty construction is
20
its cursory treatment of article 1 of the 1970 Hague Convention. '
196. Choctaw Nation of Indians v. United States, 318 U.S. 423, 431-32 (1943) (holding
that courts may construe treaties by looking at history, negotiations, and practical constructions that parties adopt). In its analysis in Aerospatiale, the Court argued that the purpose of
the 1970 Hague Convention, as articulated in the preamble, is to facilitate and improve extraterritorial discovery. Societe Nationale Industrielle Aerospatiale v. United States Dist. Court,
107 S. Ct. 2542, 2550-51 (1987) (asserting permissiveness of 1970 Hague Convention's language by observing that under article 1 contracting state "may" ask for evidence by means of
letter of request). The same may be said of the Double Taxation Convention and the Criminal Matters Treaty between the Untied States and Switzerland. Criminal Matters Treaty, supra
note 21; Double Taxation Convention, supra note 21. In these agreements, both nations wish
to provide each other with mutual assistance in the discovery of evidence. Criminal Matters
Treaty, supra note 21, at art. 1, 27 U.S.T. at 2025; Double Taxation Convention, supra note 21,
art. XVI(l), 2 U.S.T. at 1760.
197. See 1969 Hague Report, supra note 16, 8 I.L.M. at 806 (stating that objective of
Hague Convention was to facilitate discovery between civil and common law nations). The
Report of United States Delegation to Eleventh Session of the Hague Conference on Private
International Law stated in pertinent part:
In drafting the Convention, the doctrine of 'judicialsovereignty" had to be constantly borne in
mind. Unlike the common-law practice, which places upon the parties to the litigation the duty of privately securing and presenting the evidence at trial, the civil law
considers obtaining of evidence a matter primarily for the courts, with the parties in
the subordinate position of assisting the judicial authorities.
The act of taking evidence in a common-law country from a willing witness, without compulsion and without a breach of peace, in aid of a foreign proceeding, is a
purely private matter, in which the host country has no interest and in which its
judicial authorities have normally no wish to participate. To the contrary, the same act
in a cwil-lau' country may be a public matter, and may constitute the perfornance of a public
judicial act by an unauthorizedforeign person. It may violate the 'Judicialsovereignty' of the
host countr., unless its authoritiesparticipate or give their consent.
Id. at 806 (emphasis added).
198. See supra notes 5-7 and accompanying text (discussing American discovery process).
199. 1969 Hague Report, supra note 16, 8 I.L.M. at 806; see also Swiss Amicus Brief, supra
note 16, at 8; supra note 197 (providing pertinent text of 1969 Hague Report).
200. See Swiss Amicus Brief, supra note 16, at 8 (stating that United States court's substitution of its own authority for that of Swiss court infringes upon Swiss sovereignty and international law); see also 1969 Hague Report, supra note 16, 8 I.L.M. at 806 (noting that
unauthorized discovery request violates "judicial sovereignty" when taking evidence).
201. Societe Nationale Industrielle Aerospatiale v. United States Dist. Court, 107 S. Ct.
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[Vol. 37:827
The Court suggested that the language of article 1 is nonmandatory. 20 2 Article 1, however, requires an American court to seek
assistance from the competent authority of the foreign state in question. 20 3 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 judi20 4
cial sovereignty of civil law jurisdictions.
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. 20 5 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. 20 6 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.
20 7
Articles 15, 16, and 17 contradict the Court's conclusion that the
1970 Hague Convention's procedures are optional. 20 8 Thejudicial
sovereignty of civil law nations demands that the proper authorities
be involved in extraterritorial methods of discovery. 20 9 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.210
In addition, the Court failed to address the articles in the 1970
2542, 2551 (1987) (quoting 1970 Hague Convention, supra note 22, art. 1, 23 U.S.T. at 2557
(emphasizing that article 1 contains permissive language)).
202. Id. (stating that word "may" in article 1 of 1970 Hague Convention gives states discretion as to whether treaty's procedures apply).
203. 1970 Hague Convention, supra note 22, art. 1, 23 U.S.T. at 2557. The Court noted
that, under article 1, a state "may" request assistance from the competent authority of another contracting state. Aerospatiale, 107 S. Ct. at 2551. The United States' option to request
assistance does not mean that an American court can ignore the rest of the provision. Id. at
2559 (Blackmun, J., concurring in part, dissenting in part). Article I unequivocally requires a
state to obtain evidence from the proper authorities of the requested state. 1970 Hague Convention, supra note 22, art. 1, 23 U.S.T. at 2557.
204. See 1969 Hague Report, supra note 16, 8 I.L.M. at 806 (noting that Hague Convention was intended to protect judicial sovereignty of civil law nations).
205. Aerospatiale, 107 S.Ct. at 2551.
206. 1970 Hague Convention, supra note 22, arts. 15-17, 23 U.S.T. at 2564-65.
207. Id., art. 21(a), (d), 23 U.S.T. at 2567.
208. See Societe Nationale Industrielle Aerospatiale v. United States Dist. Court, 107 S.
Ct. 2542, 2563-64 (1987) (arguing that articles provide optional procedures).
209. 1969 Hague Report, supra note 16, 8 I.L.M. at 806.
210. Criminal Matters Treaty, supra note 21, art. 4(2)(a), 27 U.S.T. at 2029; Double Taxation Convention, supra note 21, art. XVI(1), 2 U.S.T. at 1760.
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,4TIONALE INDUSTRIELLE AEROSPATIALE
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Hague Convention that afford a state the right to refuse to assist in a
discovery request. 211 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. 212 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.2 13 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
214
is to protect its judicial sovereignty.
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. 215 These qualifications to Swiss
cooperation with American discovery rules are not limited solely to
the treaty's procedures. 216 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. 217
Thus, the language of the 1970 Hague Convention does not per211. See Aerospatiale, 107 S. Ct. at 2542-57 (neglecting to mention state's right of refusal
found in 1970 Hague Convention, arts. 9-12).
212. 1970 Hague Convention, supra note 22, arts. 9-12, 23 U.S.T. at 2561-62.
213. Societe Nationale Industrielle Aerospatiale v. United States Dist. Court, 107 S. Ct.
2542, 2551-53 (1987). In ruling that the 1970 Hague Convention's procedures are optional,
the Court exempts American discovery requests from the provisions of the Convention. Id.
214. See Choctaw Nation of Indians v. United States, 318 U.S. 423, 431-32 (1943) (interpreting treaty between the United States and Indian nations by looking at practical construction of treaty's provisions). Without any supporting evidence, the Court in Aeospatiale
declared that the absence of an exclusivity provision stating that the 1970 Hague Convention's procedures were exclusive and obligatory, indicates the desire of the contracting states
to avoid making the Convention's procedures mandatory. Aerospatiale, 107 S. Ct. at 2552 n.
23. This argument relies on the flawed assumption that judicial sovereignty does not apply to
alternative discovery methods not specified in the 1970 Hague Convention. See 1969 Hague
Report, supra note 16, 8 I.L.M. at 806 (noting that unauthorized discovery request violates
judicial sovereignty of civil-law nation).
215. Criminal Matters Treaty, supra note 21, arts. 3-4, 27 U.S.T. at 2028; Double Taxation
Convention, supra note 21, art. XVI, 2 U.S.T. at 1760.
216. SeeJudgment ofJan 26. 1983, Tribunal Fbd~ral (highest court), Switz., reprinted i 22
I.L.M. 785, 798 (1983) (denying insider trading information to SEC because insider trading
was not crime under Swiss law).
217. Swiss Amicus Brief, supra note 16, at 8-9.
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mit American federal courts to issue discovery orders directly to foreign parties; otherwise, the scope of a nation's judicial sovereignty
218
would be limited to the 1970 Hague Convention's procedures.
Moreover, the civil law jurisdictions did not agree to surrender their
judicial sovereignty and privacy interests when signing the 1970
Hague Convention. 219 The procedures articulated in the 1970
Hague Convention, therefore, are mandatory.
2.
Internationalcomity'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. 220 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. 22 1 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 2 22 because
218. See supra notes 193-214 and accompanying text (discussing mandatory nature of 1970
Hague Convention's language).
219. 1969 Hague Report, supra note 16, 8 I.L.M. at 807.
220. Societe Nationale Industrielle Aerospatiale v. United States Dist. Court, 107 S. Ct.
2542, 2555 & n.22 (1987) (construing Hilton v. Guyot, 159 U.S. 113, 163-64 (1895)).
221. Id. at 2555-56. Under the majority's standard, the following factors must be taken
into consideration in each case: the particular facts of the case, the sovereign interests at
stake, the nationality of the foreign party or the location of its operations, and the relative
effectiveness of the 1970 Hague Convention's procedures when applied to the particular case.
Id.
Justice Blackmun's dissent in Aerospatiale offers an equally inadequate standard. Id. at 2562
(Blackmun, J., concurring in part, dissenting in part). Justice Blackmun suggested that courts
weigh the United States' interests, foreign interests, and the mutual interest in an efficient
international legal system. Id. (Blackmun, J., concurring in part, dissenting in part). This
balancing test is biased in favor of foreign interests and does not sufficiently account for
American interests in fairness and due process. See supra note 3 and accompanying text (discussing due process considerations found in Federal Rules of Civil Procedure and 14th
amendment). It would be anomalous to suggest that nations are not interested in an efficient
international legal regime. Therefore, even assuming that the United States interests in providing evidence to all parties are perceived as more important than foreign interests in nondisclosure, the third factor in Justice Blackmun's analysis inevitably tips the scale in favor of
applying the 1970 Hague Convention's procedures. Aerospatiale, 107 S. Ct. at 2562 (Blackmun, J., concurring in part, dissenting in part). Justices Stevens and Blackmun thus provide
unworkable standards which inevitably tilt in favor of one side.
222. See Maier, supra note 126, at 590 (observing that application of interest-balancing test
leads to biased federal court decisions). Contrary to what the majority believes,judges do not
possess the knowledge and experience necessary to make such determinations. Aerospahale,
107 S. Ct. at 2560-61 (Blackmun, J., concurring in part, dissenting in part). As the dissent
stated, the Court has acknowledged its own inability to appreciate the sensitivities of foreign
nations. Id.; see Container Corp. v. Franchise Tax Bd., 463 U.S. 159, 194 (1983); see also,
Ristau, Overview of InternationalJudicialAssistance, 18 INT'L LAw. 525, 531 (1984) (noting that
few judges are capable of balancing American and foreign interests).
1988]
SOCIETE NATIONALE INDUSTRIELLE AEROSPATIALE
863
courts are unable to neutrally balance competing interests. 2 23 Second, the test assumes that a discovery order issued directly to a citi2 24
zen of a civil law jurisdiction can be reasonable.
a.
The standard establishedin Aerospatiale legitimizes the federal
courts' analyses
The Aerospatiale decision will reinforce the biased interest-balancing approach that lower federal courts have already adopted. 225 In
Banca Della Svizzera Italiana and Vetco, the federal courts upheld dis-
covery orders issued directly to Swiss corporations, improperly disregarding Swiss governmental and societal interests in the banker-
client privilege. 226 The courts' analyses provided little justification
22 7
for the American infringement upon Swiss judicial sovereignty.
Similarly, after Aerospatiale, the discovery procedures established
in the Criminal Matters Treaty and the Double Taxation Convention are likely to be considered optional. 228 Aerospatiale, therefore,
authorizes the federal courts to issue discovery orders directly to
Swiss banks without Switzerland's permission. 229 In addition, the
courts are able to impose sanctions for noncompliance despite Switzerland's judicial sovereignty and banker-client privilege. 230
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.2 3 '
The Court wants to ensure the fair and complete
adjudication of all cases. 232 In pursuit of this goal, the federaljudi223. Maier, supra note 126, at 590; see also infra note 225 (citing cases where court gave
foreign interests minimal consideration).
224. See Societe Nationale Industrielle Aerospatiale v. United States Dist. Court, 107 S.
Ct. 2542, 2555-56 (1987) (stating that trial court must determine reasonableness of direct
discovery order).
225. See United States v. Vetco, 644 F.2d 1324, 1331 (9th Cir.), cert. denied, 454 U.S. 1098
(1981); SEC v. Banca Della Svizzera Italiana, 92 F.R.D. 111, 115 (S.D.N.Y. 1981). Both of
these cases adopted the interest-balancing test articulated in RESTATEMENT (SECOND) OF FOREIGN RELATIONS LAiW OF THE UNITED STATES § 40 (1965).
226. See supra notes 119-45 and accompanying text (discussing Banca Della Svizzera Italiana
and Vetco).
227. Id.
228. See supra notes 193-219 and accompanying text (discussing similarities between 1970
Hague Convention and two Swiss-American treaties).
229. See Societe Nationale Industrielle Aerospatiale v. United States Dist. Court, 107 S.
Ct. 2542, 2554 (1987) (concluding that district court may order foreign party to produce
evidence located in foreign nation).
230. Id.; see also FED. R. Civ. P. 37(b) (authorizing imposition of sanctions for noncompliance with discovery order).
231. See ,erospatiale, 107 S. Ct. at 4848 (describing American fairness and due process as
overriding interests in case).
232. Id. (quoting Federal Rule of Civil Procedure 1); see also FED. R. Civ. P. 26(b)(1) (al-
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ciary is willing to uphold American interests at the expense of Swiss
2 33
banking privacy.
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 guidelines the federal judiciary will most likely rule in favor of American
interests 2 34 and cast aside the strengths of international comity: rec23 5
iprocity and goodwill.
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. 23 6 These
goals are reflected in the agreements signed between Switzerland
and the United States providing for the exchange of information. 2 37
Although Switzerland refuses to endanger its banking secrecy, it has
been willing to provide evidence to avoid antagonizing the United
2 38
States.
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. Switlowing parties to obtain all relevant evidence); supra notes 5-7 and accompanying text (discussing American interests in providing parties with all relevant facts).
233. See supra notes 119-45 and accompanying text (discussing decisions in Banca Della
Svizzera Italiana and Velco).
234. See, e.g., United States v. Bank of Nova Scotia, 691 F.2d 1384, 1388 (11 th Cir. 1982)
(holding United States' interests in grand jury is more important than sovereignty of Bohemian government), cert. denied, 454 U.S. 1084 (1983); Mannington Mills, Inc. v. Congoleum
Corp., 595 F.2d 1287, 1299 (3d Cir. 1979) (stating Sherman Antitrust Act does not require
court to consider international comity); Timberlane Lumber Co. v. Bank of America, 549 F.2d
597, 615 (9th Cir. 1976) (holding that United States' interest in free trade is more important
than economic interests of Honduras); see also Maier, supra note 126, at 592 (arguing that
United States courts perceive American interests as more significant than foreign interests).
235. See Maier, ExtraterritorialDiscovery, Cooperation, Coercion and the Hague Convention, 19
VAND. INT'L L., 239, 252 (1986) (noting cases deciding whether to give priority to 1970 Hague
Convention definition of comity as the need to avoid insulting foreign government) (citing In
re Societe Nationale Industrielle Aerospatiale, 782 F.2d 120 (8th Cir. 1986), vacated sub nora.
Societe Nationale Industrielle Aerspatiale v. United States Dist. Court, 107 S. Ct. 2542 (1987);
In re Anschuetz & Co., 754 F.2d 602 (5th Cir. 1985)).
236. See supra notes 8-15 and accompanying text (discussing importance of banking secrecy in Swiss society).
237. Criminal Matters Treaty, supra note 21; Double Taxation Convention, supra note 21;
see also supra notes 91-118 and accompanying text (discussing these agreements).
238. Criminal Matters Treaty, supra note 21; Double Taxation Convention, supra note 21;
see also supra notes 91-118 and accompanying text (discussing Swiss concessions to U.S. interests in these agreements). The United States files approximately 20 requests per year for
evidence to be used in civil proceedings and the Swiss Government has executed all of them.
Swiss Amicus Brief, supra note 16, at 6 n.4. With respect to criminal cases, the Swiss government has granted almost all of the hundreds of American requests filed pursuant to the Criminal Matters Treaty. Id. at 5 n.2.
1988]
SOCiETE NATIONALE INDUSTRIELLE AEROSPATIALE
865
zerland's judicial sovereignty protects Swiss banking secrecy. Swiss
courts collect all evidence and thus ensure that no privileged banking information is divulged. 2 39 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. 2 40 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
24 1
privilege.
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. 2 42 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. 2 43 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
239. See supra notes 16-18 and accompanying text (explaining concept of judicial
sovereignty).
240. ZGB, Cc, Cc art. 273 (Switz.) (punishing with fines or imprisonment any person who
discloses manufacturing of business secret to foreign entity).
241. See Brief for the United States and Securities and Exchange Commission as Amicus
Curiae at 7, Societe Nationale Industrielle Aerospatiale v. United States Dist. Court, 107 S.
Ct. 2542 (1987) (No. 85-1695) (arguing that United States should avoid ordering discovery
which violates another nation's laws or policies); Swiss Amicus Brief, supra note 16, at 3 (noting need for cooperation between United States and Switzerland in discovery process).
242. Criminal Matters Treaty, supra note 21; Double Taxation Convention, supra note 21.
Justice Blackmun would apply a general presumption that courts should resort first to the
Hague Convention's procedures. Societe Nationale Industrielle Aerospatiale v. United States
Dist. Court, 107 S. Ct. 2542, 2558 (1987) (Blackmun, J., concurring in part, dissenting in
part).
243. See FED. R. Civ. P. 37 (providing sanctions for party's failure to comply with discovery order).
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judicial sovereignty important. 2 44 Swiss judicial sovereignty serves
to protect not only the judiciary's function of gathering evidence,
245
but also protects the Swiss banker-client privilege.
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.2 46 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.
244. See supra notes 119-45 and accompanying text (discussing federal cases involving
Swiss sovereignty).
245. See supra notes 236-41 and accompanying text (explaining relationship between judicial sovereignty and privacy interests).
246. This factor is similar to one of the elements of the § 40 balancing test. See RESTATEMENT (SECOND) OF FOREIGN RELATIONS LAW OF THE UNITED STATES § 40(b) (1965) (suggesting
that courts should consider competing hardships).