The role of lawyers and other ‘intermediaries of corruption’

In 2010, a study carried out by the Financial Action Task Force (FATF), which sets international standards on money laundering, pointed to the shortcomings in Swiss legislation and fact that it did not sufficiently regulate these ‘service providers’.

“Gatekeepers are, essentially, individuals that ‘protect the gates to the financial system’ through which potential users of the system, including launderers, must pass in order to be successful. As a result of their status they have the ability to furnish access to the various functions that might help criminals to move or conceal their funds.”

The OECD criticises the fact that lawyers, notaries, accountants and trustees and other service providers for trusts and companies are not subject to AMLA when setting up or managing such structures.

Lawyers

In Switzerland, many lawyers play a facilitating role and offer their clients turnkey solutions. These include setting up anonymous entities, opening bank accounts and managing assets. Sometimes they even defend in court companies that they have set up and managed themselves, as well as their owners, if they are known at all.

In practice, lawyers only rarely report suspicions of money laundering to MROS. Of the over 7,705 suspicious activity reports received by MROS in 2019, only 5 (0.06%) came from lawyers or notaries.

It is possible that lawyers make only a minimal contribution to combatting money laundering because they hide behind their professional secrecy. Lawyers and notaries are not required to report suspicious activity to the authorities in fields where they are bound by professional secrecy – for example in cases of legal representation and advice. Investment advice, asset management and the management of companies or trusts are not ultimately subject to professional secrecy, but this is easily overlooked in cases of multifaceted service provision.

According to AMLA, lawyers are only subject to obligations if they have direct access to the assets under management. Advising on, setting up or managing entities like shell companies or trusts are not currently included in this category.

Lawyers thus benefit from a glaring loophole in Swiss money laundering provisions.

As long as these activities are not included in this category, the legislation lacks teeth in the fight against money laundering.

The parliament is clearly not in a hurry to close this loophole. It has just adopted a revision to the Anti-Money Laundering Act (AMLA). An ‘advisory clause’ on this issue was removed from the revision. The provision would have included a due diligence requirement for lawyers and fiduciaries that provide services to companies or trusts. As criminal law professor and anti-corruption expert Mark Pieth stated, it is high time “to shine a spotlight on Geneva, on Rue Général-Dufour, where lawyers set up offshore companies.”

Fiduciaries

As the OECD has already criticised, the Swiss authorities note in a report that “the main risk for Swiss companies in relation to money laundering connected to suspected corruption abroad […] comes from the advisory and asset management firms, financial service providers and fiduciaries who represent them” (NRA (2019) corruption as a predicate offence to money laundering).

In the case of fiduciaries, the legal weaknesses lie not only in the nature of activities, but in the corresponding supervision and lack of data. FINMA commissions a self-regulating organisation (SRO) to verify whether fiduciaries complied with AMLA’s due diligence requirements. Data on sanctions imposed on fiduciaries who failed to comply with anti-money laundering obligations are not public and there is no data on how many fiduciaries provide advisory services that are not subject to AMLA.