Anti-money laundering – Switzerland only acts under pressure
Following the Chiasso scandal involving numerous cases of funds from Italy hidden in Switzerland (for tax avoidance purposes) towards the end of the 1970s, Swiss banks attempted to self-regulate. The Swiss National Bank and Swiss Banking Association jointly published the first edition of the Swiss Banks’ Code of Conduct with Regard to the Exercise of Due Diligence. Banks nominally committed to undertake substantive customer identity checks and to clarify the beneficial owners and individuals behind domiciliary companies.
This clearly did not prevent institutions of Switzerland’s financial sector from continuing to enter into business relationships with questionable clientele. It took three further scandals for the government to recognise the need for anti-money laundering legislation. In 1986 the Federal Council had to resort to emergency law to avoid significant reputational damage when the fallen dictator of the Philippines, Marcos, withdrew his fortune of millions from the Swiss Credit Institution (SKA, now called Credit Suisse). Seventeen years later, Switzerland was able to return USD 684 million to the Philippines.
At the same time, from 1985 to 1988, the affairs known as the Pizza Connection and later the Lebanon Connection came to light. The scandals related to the laundering of the revenues from international drug gangs. The consequences are a well-known part of Switzerland’s political history – the then justice minister and first female Federal Councillor Elisabeth Kopp was forced to resign. In addition, various foreign financial supervisory authorities (including the US and Australia) exposed Switzerland as an “unregulated offshore centre”.
The Federal Council felt bound to bring forward the processing of criminal legislation on money laundering as a matter of priority and adopted the corresponding official message in June 1989. Parliament addressed the topic immediately and adopted the bill on 23 March 1990. The offense of money laundering under the Swiss Criminal Code entered into force on 1 August 1990.
Failure to be proactive
At the same time, the international debate advanced rapidly. At France’s initiative, supported by the US, the Financial Action Task Force on Money Laundering (FATF) was set up at the “Sommet de l’Arche” in 1989 in Paris. Switzerland was part of the original twelve member states that adopted its 40 recommendations. Every country brought its own expertise to the table: the US for instance relied on routine checks of cash imports over USD 10,000; Switzerland introduced customer identification and the UK contributed a reporting system for suspicious transactions. Today, the FATF is the leading expert organisation and standard-setter in the field of the fight against money laundering.
However, it took nearly a decade for Switzerland to convert the corresponding recommendations into legislation and the Anti-Money Laundering Act (AMLA) only entered into force in 1998. Today, the Swiss government continues to take a passive approach towards fighting money laundering.
It was only following pressure from the OECD that Switzerland agreed to introduce automatic information sharing, thereby giving up banking secrecy vis-à-vis international partners.
The country had been warned that it would otherwise be placed on the list of non-cooperative countries (tax havens).
It also took international pressure for Switzerland to implement the revised FATF recommendations in relation to tax crimes, adopted in 2012, which among other issues required the expansion of the list of predicate offenses to money laundering to include tax crimes. This led Switzerland to create a ‘qualified tax offence’ that was adopted by parliament on 12 December 2014.
Today Switzerland lags in relation to applying the Anti-Money Laundering Act (AMLA) to ‘advisors’ and the services they provide in relation to the establishment, management or administration of companies or trusts. Thanks to pressure from their lobbyists in parliament, AMLA is not applicable to these cases. It remains to be seen whether international pressure will once again overcome Switzerland’s resistance.
Daniel Thelesklaf, who headed the Money Laundering Reporting Office (MROS) twice stated in a September 2020 interview that:
“In relation to money laundering, Switzerland consistently implements only the bare minimum, i.e. what it is forced to do by pressure from abroad.”