Anti-Money Laundering Measures: Our Demands

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Switzerland has long been considered a safe haven for illegally or illicitly acquired funds. Instead of actively advancing anti-money laundering measures, the Swiss government typically acts only under international pressure. Despite the accumulation of scandals, which pose a reputational risk. In August 2023, the Federal Council published a draft law which should address the known and internationally criticized gaps. However, imperfections subsist for an effective prevention of money laundering.

Corruption and money laundering deprive countries in the global South of urgently needed funds, which often end up in Swiss bank accounts or are invested in expensive villas. Money laundering and terrorism financing pose a serious threat to the integrity of the Swiss financial sector and economic location, as well as the stability of the financial system.

For years, Public Eye has been advocating for the following:

  1. Expansion of anti-money laundering legislation to cover financial advisory activities.
  2. Introduction of a register of beneficial owners of legal entities and other legal constructs frequently used for money laundering. This register must be appropriately accessible.
  3. Reforms in the criminal liability of companies.

Similar demands are also made by the Financial Action Task Force (FATF), an international intergovernmental organization focused on preventing money laundering. The FATF sets standards and regularly assesses participating countries against them. Switzerland's examinations in 2005 and 2016 identified progress but also highlighted the need for improvement. Notably, the FATF's call for expanding anti-money laundering laws to include advisors and establishing an effective sanction system remains unfulfilled.

Despite the Federal Council's attempt to address FATF criticisms in 2020, a much needed reform was blocked by the centre-right parliamentary majority, which acted under pressure of lobbies of lawyers.

The criticism of the FATF thus remained. Additionally, in March 2022, the FATF increased the requirements for the identification of beneficial owners, making reforms in Switzerland even more urgent. To address these concerns, on August 30, 2023, the Federal Council sent a draft law into consultation: The Federal Act on the Transparency of Legal Persons and the Identification of Beneficial Owners.

However, once again, the proposed reform is not thorough enough and leaves wide gaps open. Public Eye has submitted a comprehensive statement as part of the consultation process.

Our demands for a more effective anti-money laundering framework remain.

Expansion of Anti-Money Laundering Legislation to Cover Advisory Activities:

Switzerland must extend its Anti-Money Laundering Act (AMLA) to cover activities beyond banking where there is a specific money laundering risk, namely advisory activities related to the establishment and management of legal entities and trusts.

Up to now, the Anti-Money Laundering Act (AMLA) requires only banks and similar financial intermediaries to thoroughly clarify the identity of their customers and the persons for whom they are acting. Also, they are the only ones required to report suspicions of money laundering to Switzerland’s Money Laundering Reporting Office (MROS).

The FATF calls for an extension of these due diligence and reporting obligations to include casinos, real estate brokers, precious metal and gemstone dealers, lawyers, notaries, accountants, trustees, and service providers. This is justified. Those providing services frequently used for money laundering must also be involved in the prevention of crimes. For these obligations to be effective, their violation must be punishable.

Public Eye demands that advisors, including lawyers, be subject to effective due diligence and reporting obligations under the Anti-Money Laundering Act.

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An Accessible Register of Beneficial Owners:

Switzerland needs a register of beneficial owners of legal entities and other constructs. This would enable authorities, as well as journalists, non-governmental organizations (NGOs), and other relevant users, to identify individuals hiding behind such constructs. This would significantly strengthen the fight against money laundering and corruption.

White-collar criminals often hide behind shell companies and similar legal constructs (i.e., companies, foundations, associations). Currently, it is not possible from the outside to determine the natural persons ultimately behind these legal entities and trusts, who controls them, and who really owns their assets.

The disclosure of beneficial owners is one of the most effective measures against white-collar crime. This is now internationally recognized, particularly by the FATF.

Currently, law enforcement and tax authorities often have to conduct lengthy investigations into who they are dealing with regarding legal entities. Foreign authorities, for their investigations, must navigate the cumbersome mechanisms of international legal and administrative assistance. A central register of beneficial owners would significantly simplify their work.

Access to such information would also facilitate the work of journalists and NGOs exposing cases of corruption and money laundering. Given the high public interest in such cases, the media and NGOs should have access to the register.

Public Eye calls for an effective register of beneficial owners of companies accessible to authorities at home and abroad, as well as for users with a legitimate interest. This includes especially media and NGOs working on anti-money laundering and anti-corruption.

Corporate Criminal Liability: Increased Fines and Clearer Rules:

There is a need for reform in the area of sanctioning and prosecuting companies, particularly because the current fine amounts are not sufficiently deterrent.

Corporate Criminal Liability

The current maximum fine of CHF 5 million must be increased to have a deterrent effect. We demand an increase to CHF 10 million and, if the maximum fine seems inadequate in proportion to the severity of the allegation and the sum of the offense, up to 10% of the average turnover of the past three years before the conviction. Such an increase is appropriate both due to general price increases since the introduction of corporate fines in 1998 and because the Federal Department of Justice and Police's consultation draft for the AMLA (March 11, 1991) already provided for a penalty of up to CHF 10 million.

In addition to increased corporate fines, Switzerland must enshrine other sanctioning options in the law. In this regard, the legislator can refer to the consultation draft of 1991: instructions, probation, work bans, and the dissolution of the company.

Clear rules are also needed for the distribution of confiscated illicit gains or compensation claims between the affected civilian population in the affected state and the Swiss treasury.

Criminal Proceedings Against Companies

Criminal proceedings against companies should only be concluded with a summary penalty order in cases of minor delinquency. This requires new legislation restricting the use of summary penalty orders in the prosecution of companies.

Law enforcement authorities should publish joint guidelines on the conditions under which voluntary disclosures and full cooperation of offending companies are considered mitigating. The U.S. Principles of Federal Prosecution of Business Organizations can serve as inspiration.

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Switzerland rarely sees convictions for white-collar crime. To learn why and what needs to change, click here.

 

Public Eye demands that companies be held more accountable criminally. In particular, maximum fines must be increased to have a deterrent effect.

Innovative Anti-Money Laundering Approaches

In the field of money laundering, there is a need to develop scientific and innovative approaches. Swiss banks invest significant resources and funds in their monitoring systems, and the number of suspicious activity reports to MROS is increasing. Despite these efforts, spectacular cases keep on surfacing.

Authorities, financial intermediaries, academia, and other interested parties must engage in a dialogue to systematically strengthen the fight against money laundering. In doing so, they should explore and, if necessary, implement novel approaches, such as:

  • Sharing of Information between Financial Intermediaries: If an institution identifies a customer as problematic and reports it to the money laundering reporting office MROS, it should be allowed to warn other institutions. Such a regulation could, for example, come into effect only above a certain amount or in specific case patterns. The Monetary Authority Singapore (MAS) is currently developing a digital platform, called COSMIC (Collaborative Sharing of Money Laundering/Terrorism Financing (ML/TF) Information & Cases), to facilitate such exchanges.
  • Information on Newly Observed Patterns: FINMA and MROS regularly inform in their annual reports about common patterns of money laundering. Such information should be expanded and supplemented with hints on how institutions can recognize corresponding cases. Publication should happen promptly, not just in the annual report.
  • Sharing Insights from Supervisory Work: FINMA should share examples of best and worst practices with supervised financial institutions to a much greater extent and in a more timely manner. Professional secrecy rules should not hinder such disclosure in the interest of the stability of the financial center, especially as the naming of institutions is not necessary.
  • Identifying Top-Down Patterns: Specific crimes lead to certain payment patterns, where individual payments may remain inconspicuous. Analogous to the "Finance Against Slavery and Trafficking" initiative of the United Nations University for Policy Research, Swiss stakeholders should actively develop guidelines for identifying such payment patterns related to specific crimes.
  • Analysis and, if necessary, Revision of FINMA Examination Points for the AMLA Banks 2023: FINMA provides guidelines to auditing firms for the examination of AMLA aspects. Based on cases at hand, it should be determined why auditors did not identify issues, especially systematic problems. Examination points should be adjusted and additional measures taken if necessary.
  • Facilitated Conditions for Assuming Personal Liability Derived from Corporate Liability for Corporate Officers (Management and Board), Analogous to Owner Liability when Operating a Motor Vehicle: Such liability should be both of a criminal nature and include at least a simplified claw-back, i.e., the recovery of paid bonuses.
  • Implementation of FATF Recommendations: Switzerland generally follows a minimalist approach in the prevention of money laundering and implements FATF recommendations only to the extent necessary to avoid a poor rating. However, the goal should be to effectively and efficiently combat money laundering. The recommendations and detailed comments should generally be considered valuable improvement suggestions and be implemented as such.