Closing legal loopholes – demands on combatting money laundering

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In order to stop acting as a haven for money laundering and corruption, Switzerland urgently needs to implement measures to combat them effectively: firstly, the Anti-Money Laundering Act needs to be expanded to cover advisory services, and secondly a public register of beneficial owners of companies must be set up. Reforms are also needed in the area of law enforcement and sanctions as well as transparency.

Corruption and money laundering deprive the Global South of desperately needed resources – resources that repeatedly end up in Swiss bank accounts. This is not the only reason why Switzerland needs to finally progress efforts to combat corruption – as happened with banking secrecy, burying one’s head in the sand until forced to adapt by further scandals and international pressure is damaging Switzerland’s reputation.

Due diligence requirements for advisors at offshore companies

Switzerland should expand the Anti-Money Laundering Act (AMLA) to cover non-financial activities, particularly the advisory services on setting up and managing companies.

The Federal Council recently revised the Anti-Money Laundering Law (AMLA) in a bid to close legal loopholes that have long been criticised by the Financial Action Task Force (FATF), the body that sets international standards in the fight against money laundering.

The revision was primarily focused on new due diligence requirements for lawyers and fiduciaries who provide services to domicile companies or trusts. The clause that stipulates ‘advisors’ was included following the revelations of the Panama Papers. The giant data leak highlighted the troublesome role played by Swiss lawyers and fiduciaries in setting up and managing large-scale offshore companies and trusts that are often used to conceal illegal or illegitimate activities. The bourgeois parliamentary majority removed this essential provision following pressure from lawyer’s lobby groups.

It also rejected new measures seeking to combat money laundering more effectively. The currently applicable threshold of CHF 100,000 under which it is possible to accept payments in the trade in precious metals and stones without any verification will not be lowered. The scope of application of AMLA will not be expanded to include companies that commercially manufacture of melt products, i.e. in particular gold refineries. This is despite the fact that the sector itself has announced that it would be in favour of such an expansion.

Clearly, the target has been missed – the revision did not bring AMLA in line with international standards advocated by the FATF.

Public Eye calls on Minister of Finance Ueli Maurer to draft a new bill that includes due diligence requirements for advisors (including lawyers, notaries and fiduciaries). In addition, gold refineries should be subject to AMLA.

A public register of beneficial owners

In order for Switzerland to stop acting as a safe haven for illegal activities and assets, it is imperative for another legal loophole to be closed. The Swiss authorities should set up a public register of beneficial owners of companies. This could identify individuals hiding behind corporate constructs and thus support the fight against money laundering and corruption.

More infos

  • Why is this important?

    An obligation for companies to publish a list of their beneficial owners – i.e. the natural persons who really control them – has now been recognised at the international level as one of the most effective measures to fight white-collar crime.

    Publishing beneficial owners in a public register would make it possible to significantly simplify the work of the fiscal authorities or of foreign law enforcement authorities, who nowadays still must pass through burdensome information sharing mechanisms in order to carry out their investigations. Access to essential information would facilitate the work of not only the authorities, but also journalists and NGOs that fight corruption.

    This is not the opinion of the Federal Court which, when responding to a query on transparency of legal structures in 2014, stated that the measures [currently in force] in the fight against money laundering already provided the ‘necessary transparency’. The Federal Council also considered that setting up a public register was not in itself a guarantee of adherence to international standards, because its effectiveness would depend on a number of conditions. Implementing it could also be complex and costly.

  • Comparing Switzerland to the rest of the world

    According to the NGO OpenOwnership, 110 countries have committed to publishing information on beneficial ownership of companies and 44 have public registers (as of: August 2021).

    When compared to the countries that have already made specific commitments in this regard, Switzerland is very isolated in Europe…

110 countries are committed to beneficial ownership transparency (as of August 2021, please click for the actual map online). Source: openownership.org

Transparency in the European Union

On 30 May 2018, the European Union approved amendments in the 5th anti-money laundering directive. The directive requires that registers of beneficial owners of companies and legal persons are accessible to the public, and that information relating to beneficial owners of trusts is accessible to the relevant authorities, financial institutions and all persons able to prove a legitimate interest in viewing it.

The Corporate Transparency Act in the United States

On 1 January 2021, the US Congress adopted the Corporate Transparency Act (CTA). The CTA requires all US companies to provide information on their beneficial owners to the Financial Crimes Enforcement Network (FinCEN), the office at the Treasury Department that collects and assesses information on financial transactions in order to combat money laundering and the financing of terrorism. The CTA prohibits anonymous shell companies, because they are too often used to hide assets associated with corruption and other illicit funds.

The CTA requires US Companies to file a report to FinCEN indicating the name, date of birth, current address and unique ID number (of a passport of driver’s licence, for example) of the beneficial owner(s) of all their US companies. This information must be updated annually.

Transparent procedures and higher fines

The main reform needed in the area of criminal proceedings and sanctions relates to the field of corporate criminal liability, particularly in relation to the level of corporate fines. In addition, the negotiated settlement procedures in criminal proceedings need to be formalised – Switzerland must ensure that deals negotiated between the public prosecutor and the offending companies are reviewed by an independent court. Finally, more transparency is needed. Guilty companies must be registered in the Swiss Criminal Records and summary penalty orders and ruling abandoning proceedings must be accessible to the public.

Corporate criminal liability

  • The current maximum fine of CHF 5 million must be increased in order for it to act as a deterrent. We call for an increase to CHF 10 million and, if the maximum fine appears too low in light of the seriousness of the offence and amount of the offence, up to 10% of the average revenues earned over the three years prior to the conviction.
  • Alongside corporate fines, Switzerland must legislate for other possible sanctions. The legislators can take the 1991 draft bill as a basis: directives, supervision, activity bans and dissolution of the company.
  • In addition, clear rules on the distribution of forfeited unlawful profits and/or compensation claims between the civilian populations impacted in the affected countries and from the Swiss treasury.
  • Corporate criminal liability under Article 102 of the Swiss Criminal Code should not be restricted to the limited list of offences (active bribery, money laundering, financing criminal organisations and terrorism). Parallel, primary corporate criminal liability must apply to all crimes and offences.

Corporate criminal proceedings and settlements

  • Criminal proceedings against companies must only conclude in summary penalty orders in cases of petty crimes. This requires a new legislative basis that limits the application of summary penalty order proceedings in the area of the criminal prosecution of companies.
  • Settlements and deals between the prosecutor and the guilty company are only acceptable within the framework of accelerated proceedings. The legislator must clarify that accelerated proceedings cannot conclude with a summary penalty order. Rather the indictment must be submitted to the responsible court, as already provided for in the law.
  • The law enforcement authorities should publish joint guidelines on the conditions in which voluntary disclosure and fully fledged cooperation on the part of the guilty company can be considered as a mitigating factor.

Transparency

  • Criminal convictions of companies must be entered into a criminal record.
  • Summary penalty orders, ruling abandoning proceedings and no-proceedings order that do not relate to petty crime, must be included in publicly accessible databases of rulings.
  • Statistical recording is needed, covering the following: no-proceedings order or ruling abandoning proceedings with a reference to suspected offences; verdicts under Article 102 of the Swiss Criminal Code including a list of the offences; amounts of the forfeited funds and compensation claims as well as applicable reparations payments.
  • FINMA must publish its decision following enforcement processes in every case.
  • Statistics must be recorded on criminal proceedings to enforce the Anti-Money Laundering Act that are run by the Federal Department of Finance . In addition, the resulting judgments must be accessible to the public.