The regulatory framework
The Anti-Money Laundering Act
The Federal Act on Combating Money Laundering and Terrorist Financing (Anti-Money Laundering Act, AMLA) requires that financial intermediaries adhere to due diligence requirements vis-à-vis their customers (identification, clarification) and that they report suspicions of money laundering. The ordinance on the implementation of the Act was issued by the Swiss Financial Market Supervisory Authority (FINMA).
The Act applies to financial intermediaries. FINMA monitors the extent to which banks, insurance companies and other financial service providers comply with the provisions on combatting money laundering.
FINMA can delegate this oversight to independent agencies. Therefore, independent asset managers and trustees can be monitored by supervisory organisations (SOs). People and companies of the para-banking sector (e.g. credit card companies, fiduciaries, payment service providers like Twint, etc.) must associate themselves with a self-regulatory organisation (SROs), which overseas their compliance with the Anti-Money Laundering Act.
The organisations supervised by FINMA are responsible for monitoring the due diligence obligations of financial intermediaries and their reporting obligations under AMLA. However, there is a significant difference between the two types of organisation: self-regulatory organisations are authorised to impose sanctions in cases of irregularities (e.g. reprimand, fines of up to CHF 100,000 or suspension); supervisory organisations can only inform FINMA of severe violations, as FINMA is responsible for initiating the necessary measures.
Duties of financial intermediaries
Financial intermediaries must implement and comply with specific due diligence requirements. In particular, they are required to:
- Verify the identity of their customers and confirm the beneficial owner of assets (Articles 3 and 4, AMLA);
- Clarify the economic background and purpose of a transaction or a business relationship in cases where these appear suspicious or pose a high risk.
Transactions and business relationships with Politically Exposed Persons (PEPs) and persons in countries on the Financial Action Task Force’s Non-Cooperative Countries and Territories (NCCT) list are classed as high risk.
Financial intermediaries must report cases of founded suspicions of money laundering within the framework of a business relationship to the Money Laundering Reporting Office (MROS) (Article 9, AMLA).
Banks are also subject to industry supervision on a self-regulatory basis, via the “Swiss banks' code of conduct with regard to the exercise of due diligence” of 13 June 2018. The agreement, issued by the Swiss Bankers Association and approved by FINMA, requires that in cases of a business relationship the contracting parties and the beneficial owner be identified.
However, numerous activities are not subject to AMLA and remain untransparent. This includes for example the trade in real estate or art.
In the following areas there are significant gaps in relation to combatting money laundering:
- Setting up companies and trusts as well as asset management by fiduciaries and advisors.
- AMLA only applies to the activities of lawyers if they have direct access to the funds that they manage. In addition, they are not required to report suspicious activities on the basis that they are bound by professional secrecy in their capacity as legal representative and advisor.
FINMA monitors whether financial intermediaries are complying with the provisions of the Anti-Money Laundering Act. Oversight is largely undertaken by private audit firms commissioned by FINMA. It can also carry out on-site supervisory reviews itself. If it encounters indications of violations of AMLA or other irregularities, it has the power to intervene “in serious cases”. It can carry out special audits, initiate enforcement procedures or seize financial intermediaries’ profits.
In cases of reasonable suspicions, financial intermediaries must report these to the Money Laundering Reporting Office (MROS) of the Swiss Federal Department of Justice and Police. The number of reports to MROS is increasing steadily. From January to November 2019 the total sum of assets reported was CHF 12.9 billion. The number of reported suspicions in connection with corruption is also increasing: in nearly a quarter of cases corruption was a predicate offence to money laundering.
After evaluation of the case, MROS can forward the file to the Public Prosecution Service. In 2019, MROS forwarded over 2,000 reports to the law enforcement authorities (of a total of 7,705 reports, some of which had not yet been processed).
The Financial Action Task Force
The Financial Action Task Force (FATF) is an international body that was set up at the 1989 G7 Summit in Paris. It aims to use legislative and regulatory standards and measures to combat money laundering, terrorism financing and other threats to the international financial system. It has developed a series of recommendations recognised as international standards, which were published in 1990 and revised in 1996, 2001, 2003 and 2012.
The FATF continually assesses the extent to which its recommendations have been implemented by its member states. The assessments take place within the framework of peer reviews in which the member states evaluate each other. In the last comprehensive assessment in 2016, in the case of Switzerland the FATF observed numerous shortcomings in relation to anti-money laundering provisions. Particular criticism was levied at the fact that certain activities of lawyers, notaries, fiduciaries and real estate agents are not covered by AMLA. In addition, it was noted that banks and other financial service providers should improve their due diligence and that the powers of MROS should be expanded. After the third follow-up report of January 2020, the enhanced follow-up process was extended, because Switzerland had still not implemented the required measures.
In the Swiss Criminal Code (SCC), money laundering is anchored in Article 305bis. Money laundering is committed by anyone who intentionally conceals or disguises the illegal or criminal origin of assets and thus makes it impossible to identify the origin, tracing or forfeiture of assets. Since 1 January 2016, the definition of money laundering has been expanded: as predicate offence to money laundering, it is not only the assets derived from the crime that are the decisive factor, but also any assets from a tax offence (tax fraud exceeding CHF 300,000 per tax period). The Swiss Criminal Code also sanctions the lack of due diligence in financial transactions (Article 305ter SCC).
Bribery of officials
Who counts as an official?
Any member of a judicial or other authority, a public official, an officially-appointed expert, translator or interpreter, an arbitrator, or a member of the armed forces (Article 322ter SCC) count as an official. The same goes for private individuals who fulfil official duties (Article 322decies, paragraph 2, SCC). People who fall under the categories named above, or who work for a foreign state or an international organisation count as a foreign official (Article 322septies SCC).
The concept of advantage
According to the Swiss Criminal Code (SCC), ‘undue advantage’ is connected to carrying out or failing to carry out a specific act while in office. It takes place in exchange for payment and reward. The promise of or acceptance of undue advantages to officials (e.g. gifts) includes those which are not connected to any specific act, but granted or accepted on a general basis in relation to the exercise of official activities (‘relationship building’). The promise of or acceptance of advantages are only punishable in Switzerland if the case involves a Swiss official.
In all cases (bribery and granting or acceptance of advantages) there remains a degree of discretion for the prosecuting authorities. The competent authority can refrain from prosecuting the offender, bringing him to court or punishing him if the level of culpability and consequences of the offence are negligible (Article 52, SCC). In addition, negligible advantages that are common social practice are not counted as “undue advantages” (Article 322decies paragraph 1 SCC). This includes reimbursement of expenses in accordance with regulations, traditional Christmas gifts or modest hospitality for meetings with officials.
In cases of bribery, it is primarily natural persons who are liable and subject to criminal prosecution. In cases of bribery of foreign officials – whether in Switzerland or abroad – natural persons is liable to a custodial sentence not exceeding five years or to a monetary penalty (Article 322ter and 322septies SCC).
Corporate Criminal Liability (Article 102)
Companies (e.g. financial intermediaries or trading companies) can be held criminally liable for inadequate organisation if, within the context of their activities for the company, employees commit a crime or offence, including money laundering or corruption.