The Financial Action Task Force released an annual national report on Switzerland in December 2016. The report rated the Swiss system for detecting money laundering and terrorism funding as generally excellent. But the FATF also found several flaws and advised to address them.
Federal Council (government) authorized the Swiss Federal Department of Finance to develop an initial consultation draft that incorporates the findings and suggestions of FATF’s country report and improves the Swiss financial center’s reputation. September 2018 marked the conclusion of this consultation session.
In June, 2019, the Swiss Federal Council released a report on the proposed amendments to the Anti-Money Laundering Act (AMLA). There has been a lot of talk about the AMLA change during the last two years. On the other hand, the Swiss Parliament finally agreed to enact a new AMLA on March 19, 2021. By the middle of 2022, the updated AMLA and the supporting secondary legislation should go into effect.
Swiss authorities are likely to encounter further pressure in the future to strengthen its anti-money laundering laws.”
An issue in the proposed law was the inclusion of so-called ‘advisers’ in the AMLA’s duty. According to the law, physical or legal individuals who are commercially engaged in connection with the formation, management, or administration of domiciliary corporations and trust and the formation of raising money in this context have been referred to as “advisors.”
In addition, the AMLA would have covered the acquisition and sale of domiciliary corporations and the provision of addresses or buildings as a domicile for a domiciliary firm or trust. This change would have impacted attorneys and notaries in particular. Switzerland’s parliament voted to reject the proposed change, primarily to maintain the attorney-client privilege.
Natural citizens and legal entities that sell things and take cash are subject to the AMLA, as stated in Article 2 of the AMLA, as are financial intermediaries (dealers).
In the course of a business transaction, dealers who take more than CHF 100,000 in cash are required to perform specific tasks under Article 2 of the AMLA. FATF had suggested a $15,000/€15,000 cutoff. On the other hand, the Swiss parliament rejected a plan to lower the cash payment threshold for precious metals and gemstones from CHF 100,000 to CHF 15,000.
The most significant modifications to the AMLA are outlined below in a quick summary.
Verification of the beneficial owner
Financial intermediaries must verify the identification of the beneficial owner according to the AMLA’s Article 4 paragraph 1 to comply with the applicable regulations. For this reason, a formal statement from the client is usually required by the financial intermediary, explaining who the beneficial owner is.
By law, financial intermediaries will now be required to authenticate the identification of the beneficial owner in addition to establishing that person’s identity under the new AMLA. According to Article 4, paragraph 1 of the amended AMLA, a financial intermediary shall do due diligence to identify the beneficial owner and authenticate his or her identity.
According to a government dispatch, depending on the contracting party, the financial intermediary may use a risk-based approach and apply various steps to check the plausibility of the beneficial owner’s information. The financial intermediary’s evaluation isn’t indicated in the message. Just asking for a copy of the beneficial owner’s identification document is not enough to satisfy the legal need to verify the beneficial owner.
Duty to update all business relationships
A financial intermediary is only required to verify or establish an individual’s identification once throughout an ongoing commercial relationship under the present AMLA. The absence of a broad and clear requirement to ensure that customer data is up to date was described as a severe shortcoming by the FATF in its most recent country report on Switzerland.
Now that the AMLA has been changed, it mandates that customer data be verified and updated regularly. No matter how risky, all commercial connections are bound by this commitment. Only when it comes to the frequency and breadth of the review does a risk-based strategy apply.
Customer data must be updated by Articles 3 and 4 of the AMLA and a more general evaluation of the client profile to comply with the obligations imposed by the AMLA. According to the current legal regulations, data and paperwork must be updated as needed. As a result, financial intermediaries with extensive and long-standing customer bases will have to invest a significant amount of time and effort.
Suspicious behavior must be reported.
Article 9 of the AMLA, which requires financial intermediaries to report suspicious activity to Switzerland’s Money Laundering Reporting Office, needs to be revised as well (MROS). Under current legislation, a SAR should be filed if a financial institution has “actual knowledge of or reasonable grounds to suspect” an illegal origin of acquisitions. However, according to case law, the statutory requirement to submit a SAR is triggered by mere suspicion, and thus, the obligation to register a SAR is relatively low in this case.
As mentioned in the parliamentary sessions, the low simple suspicion’ threshold caused legal confusion and led to many SARs and a backlog at MROS. Even more importantly, the Swiss Parliament said that a breach of the obligation of reporting might result in penalties of up to CHF 500,000 and/or professional suspension, necessitating more legal clarity.
To put it another way, if money laundering is suspected, a financial intermediary must examine any tangible or multiple indicators that the assets may have originated from a predicate offense to money laundering, as mandated by Article 6 of the AMLA. Reports are required when suspicions cannot be dispelled, and it is determined that they are well-founded.
Under the new rebuttal procedure, the real compliance obligations of financial intermediaries are not yet evident. According to AMLA article 6, no new explanations have been made, and no way has been specified for their implementation. AMLO-FINMA Article 16 paragraph 1 provides possible investigative methods to provide some advice. This ordinance was published by the Financial Markets Supervisory Authority (FMSA).
The investigation process can include obtaining written or verbal information on the contracting party, the controlling person or beneficial owner of assets, as well as visits to their place of business, consultation of public sources and databases, and, if necessary, information from trustworthy individuals. Consequently, depending on the circumstances, investigations may include, for example:
As required by AMLO-FINMA Article 16 paragraph 2, financial intermediaries must verify the integrity of these investigations and keep records of their findings. In accordance with Article 7 of the AMLA, the documentation must be adequate such that a competent third party may make a trustworthy decision.
Money Laundering Reporting Office Switzerland (MROS)
As a result, the current deadline for MROS processing a report is eliminated by Article 9b of the revised AMLA. In exchange for this elimination, Article 9b grants a financial intermediary the right to terminate their reported business relationship with the SCC if MROS does not notify them within 40 working days after a report is filed under Article 9 paragraph 1 lit.
An intermediary financial wishing may withdraw only substantial assets that law enforcement agencies can track to end the commercial connection (Article 9b paragraph 2 of the revised AMLA). MROS must be notified right once a commercial connection has ended and the date of the termination (Article 9b paragraph 3 of the revised AMLA).
Transparency enhancements for organizations that may be sponsoring terrorists.
For the time being, associations may choose to be included in the commercial register but are not required to do so. If the association has a commercial purpose or is audited because of its economic relevance, it is responsible (Article 61 paragraphs 2 and 69b of the Civil Code).
Suppose associations under Article 60 et seq. of the Civil Code have an increased risk of abuse, such as collecting or distributing assets abroad primarily to benefit charitable, religious, cultural, educational, or social causes. In that case, they will be required to register in the cantonal commercial register in the future to prevent their abusive implementation.
Incorporating these organizations into the business register allows the public access to crucial information, such as the purpose, board members, authorized signatories, auditors, or the organization’s location. A company’s registration in the commercial register is also accompanied by the need to keep accurate financial records in compliance with the Code of Obligations.
In the future, all organizations that are obliged to be registered in the commercial register will be required to retain a list of members with their first and last names or firm name and address, like corporations regulated by the Code of Obligations. There must be a mechanism to access the registry at any time in Switzerland.
The membership registry may only be accessed by a representative who is a Swiss citizen or permanent resident. As long as the association has a Swiss resident on hand, any legal action against it will be investigated without the need for overseas legal aid.
The Federal Council might exempt such organizations from registration if the quantity, origin, purpose, or planned use of the assets gathered or dispersed represent a minimal risk of abuse for money laundering or terrorist funding, according to a new Article 61 paragraph 2ter of the Civil Code.
This clause ensures that organizations that pose a minimal risk of money laundering or terrorist funding are exempt from the need to register under this law. Even though the Federal Council did not include an exclusion to the scope of applicability in its draft of the new Commercial Register Ordinance, the danger of money laundering or terrorist funding was clearly not enhanced.
After the modifications of March 19, 2021, organizations that are already registered must comply with the new criteria for member lists and Swiss representation within 18 months of the amendments taking effect. A representative in Switzerland must be designated within 18 months for existing organizations made mandatory to register.
A new Article 327b in the SCC will be adopted, which punishes willful violations of the obligation concerning the register of members and representation in Switzerland with a fine to effectively enforce the new transparency standards for organizations. Article 153 of the SCC (false statements to commercial registration authorities) already makes it illegal to violate the requirement to register in the business register intentionally, and it is punished by up to three years in jail or a fine.
Outlook
To begin with, the Federal Council, on October 1, 2021, started the consultation process for changes to the Anti-Money Laundering Ordinance and other laws. The proposed modifications to the updated Anti-Money Laundering Act give greater information on the measures.
