Corruption, money laundering – and the role of Switzerland
Corruption enriches a few, but weakens society as a whole – from the private sector to the state. It has long been recognised that corruption is one of the greatest obstacles to development. Not only it undermines the rule of law and democratic structures, it also leads to the misuse of public funds and distortions of competition.
There is empirical proof that shows a correlation between countries with high levels of corruption and poor human rights situations. For example, on Transparency International’s 2020 Corruption Perception Index, Venezuela, Yemen, Syria, South Sudan and Somalia rank at the bottom of the list of 180 states. Corruption and human rights violations are likely to have the same causes, such as weak institutions and poverty. As early as 26 August 1789, the preamble to the French Declaration of the Rights of Man and Citizen stated that “the ignorance, neglect, or contempt of the rights of man are the sole cause of public calamities and of the corruption of governments”.
Corruption – what exactly are we talking about?
‘Corruption’ is no terminus technicus. The debate on fighting corruption has been ongoing for over 30 years, but there is still no generally accepted, conclusive definition of the term; this includes in penal codes or international treaties. The most common definition was put forward by Transparency International:
Corruption is the abuse of entrusted power for private gain.
Abuse of this kind can take place at the level of everyday administrative activities (called ‘petty corruption’) or at the highest level of – often political – office (called ‘grand corruption’ or ‘political corruption’). These definitions are also not legal terms but simply descriptions of differing expressions of an overarching phenomenon.
In criminal law, the term ‘corruption’ only covers actual bribery, including weaker forms like the granting or accepting of advantages. These offenses of corruption were developed in light of the abuse of power by public officials. However, corruption covers other behaviours in addition to bribery and not all are covered in criminal law. They include conflicts of interest that encourage illegitimate or illegal behaviour; influence peddling which is covered under French law as “trafic d’influence“ and involves prohibited donations to an intermediary in order for them to use their (presumed) influence with a decision-maker. Corruption also covers the illegal financing of political parties or somewhat vaguer terms such as clientelism, patronage or nepotism. Activities can also be ‘corrupt’ even if they are not yet defined as such by law, for corruption is often complex and flexible – it can take on new forms that the law is unable to keep up with. Therefore, it is important to engage in prevention in addition to criminal prosecution in order to effectively fight corruption.
Money laundering
Combatting money laundering is an important means of fighting corruption and other forms of economic crime. Originally used against drug trafficking, the fight against money laundering has swiftly been expanded to cover a wide range of financial crimes. Always with the same intention of prevention: crime doesn’t pay.
What does money laundering cover?
Money laundering serves to conceal the origin of assets that have been acquired illegally to enable them to flow back into the legal financial system. In general, three steps are used to make dirty money appear legal:
- Placement: the first step is comprised of circulating the assets acquired through criminal activity into the financial system. The person laundering the money can for example deposit cash directly into a bank account.
- Layering: in a second step, the money is used in numerous transactions in order to conceal its criminal origin. For example, the funds are transferred to other bank accounts or invested in securities or other financial assets. Usually, the funds are spread around in order to make it harder to follow the trail back to the illegal transaction. Most often, offshore companies in jurisdictions with weak regulations and low transparency are used to move the funds or to place them in complex financial constructs.
- Integration: the third step involves reintroducing funds to legal economic activities, for example by buying property.
The aim of combatting money laundering is to prevent “assets of criminal origin from entering the legal financial system. The statutory provisions in place should thus help to impede organised crime and financing of terrorism”, according to the Swiss Financial Market Supervisory Authority (FINMA).
‘Stolen funds’ as a barrier to development
Corruption and money laundering are global phenomena and recognised as factors that undermine countries’ economic and political stability. Alongside other economic and financial crimes, they have crept into the economic and political fabrics of most countries. Particularly in the Global South, they have contributed to economic decline and political instability. Often, the causes are not a lack of legislative measures, but more a lax regulatory environment, vulnerable financial systems and ongoing civil and political unrest.
Wealthy countries like Switzerland play an important role in this – and benefit from it. Switzerland has long served as a safe haven for so-called ‘dictators’ assets’ – illegally acquired assets of politically exposed persons (PEP). Switzerland continues to host illegally acquired wealth belonging to PEPs (e.g. linked to Duvalier; the Arab Spring; Lebanon); the Swiss government is still looking for solutions for returning them. In addition to this, in recent years, countless Swiss bank accounts and financial service providers have made the headlines in relation to corruption scandals and global money laundering networks. These include the 1Malaysia Development Berhad scandal (1MDB); the 'Lava Jato' scandal; the Panama Papers or PDVSA.
Engaging in countries of the Global South alone is not sufficient in order to effectively fight corruption and money laundering – wealthy countries like Switzerland must shoulder their own responsibility, too.