-
Swiss Federal Act on the Prevention
of Money Laundering in the Financial Sector of October 10, 1997 (Money
Laundering Act, MLA)
-
Ordinance of the Swiss Federal
Banking Commission on the Prevention of Money Laundering of December 18, 2002
(MLO-SFBC)
-
Agreement on the Swiss Banks’ Code
of Conduct with Regard to the Exercise of Due Diligence of the Swiss Bankers
Association (CDB 03)
-
Directive on Combating Money
Laundering of the Federal Office of Private Insurance, effective August 30,
1999
-
Ordinance of the Swiss Federal
Gaming Board to Combat Money Laundering of Feb-ruary 28, 2000 (MLO-SFGB)
-
Ordinance of the Money Laundering
Control Authority on the Due Diligence Obligations of Financial
Intermediaries Directly Subordinated to the MLCA (total revision in 2003,
entry into force on January 1, 2004)
-
Swiss Penal Code of December 21,
1937 (SPC)
-
Swiss Federal Law on Banks and
Savings Banks of November 8, 1934
-
Swiss Federal Act on the
Supervision of Private Insurance of June 23, 1978
-
Swiss Federal Act on Gaming and
Casinos of December 18, 1998 (Federal Gaming Act, FGA)
Introduction
Penal provisions related to money laundering were first written into the
Swiss Penal Code (SPC) in 1990, with the introduction of the specific offenses
of money laundering1 and the lack of due diligence in handling assets.2 A second package of Penal Code amendments in 1994 resulted in the strengthening of
measures related to the confiscation of assets of illicit origin3 as well as a
provision make it a crime to participate in a criminal organization4 and a
provision expressly permitting financial intermediaries to report cases of
suspected money laundering to the relevant authorities.5
Another important milestone in the combat against money laundering in
Switzerland occurred in 1998, when the Swiss Federal Act on the Prevention of
Money Laundering in the Financial Sector (Money Laundering Act, MLA) entered
into force. The MLA introduced two new aspects: it extended the due diligence
obligations relating to the combat against money laundering - already in
existence for the banking sector - to all “professional financial intermediaries”
and introduced a duty on the part of such intermediaries to report cases of
suspected money laundering to the Money Laundering Reporting Office Switzerland
(MROS) if based on reasonable grounds. This reporting duty arises whenever a
professional financial intermediary knows, or presumes, on the basis of a
founded suspicion, that assets involved in the business relationship constitute
the proceeds of money laundering6 or originate from another crime as defined in
the Swiss Penal Code7 or that a criminal organization exercises the power of
dispose of these assets.8
The fundamental principles set out in the MLA require strict KYC rules,
stringent obligations to establish and maintain documentation regarding
identification, a duty to report suspected cases of money laundering and the
introduction of complementary measures, such as the immediate freezing of assets
upon the filing of a report and an obligation to refrain from notifying third
parties of such report. Responsibility for the specific implementation and
monitoring of the obligations under the MLA rests with the following Swiss
federal supervisory authorities:
-
the Swiss Federal Banking
Commission (SFBC) (banking sector);
-
the Swiss Federal Office of Private
Insurance (FOPI) (life insurance sector);
-
the Swiss Federal Gaming Board (FGB)
(casino sector); and
-
the Money Laundering Control
Authority (MLCA) (non-banking sector).9
The Money Laundering Control Office for Switzerland (MROS), which is part of
the Federal Office of Police, is the authority responsible for receiving and
assessing the reports of suspected money laundering submitted by financial
intermediaries. It effectively performs a preliminary assessment to “weed out”
reports lacking in substance and forwards the remaining cases of suspected money
laundering on to the cantonal prosecuting authorities. It also operates, among
other things, the data processing system for combating money laundering and
compiles money laundering statistics.
10
At the international level, Switzerland plays an active role in the combat
against money laundering and terrorism and is involved in the development and
implementation of numerous international standards and agreements in this
regard.11 Switzerland has been a member of the Financial Action Task Force on
Money Laundering (FATF) since its inception in 1989. Draft legislation is
currently being introduced to enact the relatively minor changes in Swiss law
needed to fully implement the 2003 FATF Forty Recommendations.
Swiss banking sector
The SFBC is the authority responsible for implementing and enforcing the due
diligence, identification and reporting obligations under the MLA with respect
to the Swiss banking sector. These duties under the MLA are supplemented by
specific administrative regulations and guidelines relating to client
identification and due diligence in the banking sector.
The Swiss Banks’ Code of Conduct on the Exercise of Due Diligence (“CDB”) of
the Swiss Bankers Association, for example, sets out detailed rules on
verification of the identity of the contracting party’s identity, establishment
of the beneficial owner’s identity, procedures for purposes of identification,
document verification, clarification of the background of unusual transactions
and the establishment and maintenance of records of transactions. The SFBC views
the detailed know-your-customer (KYC) rules and obligations under the CDB, which
have been in existence since 1977, as a minimum standard when assessing the
applicability of penal measures as well as whether a bank meets the condition of
“irreproachable activities” for purposes of granting or renewing a banking
license. The CDB, based on the concept of self-regulation, has been updated many
times, most recently in 2003, and sets out the standard of identification for
bank customer relationships in general, whether they involve the opening of an
account, the renting of a safe deposit box, the execution of stock exchange
transactions, or cash transactions involving sums over CHF 25,000. Breaches of
the CDB are monitored by a Supervisory Board independent of the Swiss Bankers
Association and are subject to contractual penalties of up to 10 million Swiss
francs. Breaches are reported to the SFBC, which then determines whether
additional measures against the employees concerned or the institution are
necessary.
Whereas the CDB governs basic identification requirements applicable to
business relationships in general, the SFBC’s Money Laundering Ordinance (“MLO-SFBC”)12,
contains more stringent due diligence requirements with respect to business
relationships and transactions that are deemed to entail higher legal or
reputational risks. Among other things, the MLO-SFBC requires SFBC-regulated
intermediaries to take a risk-based approach to the prevention of money
laundering, i.e., apply different levels of due diligence depending on the level
of risk involved. The MLO-SFBC includes the following key points:
-
SFBC-regulated intermediaries must define risk categories for their
particular business activity and use these categories to identify and flag all
existing and new higher-risk business relationships; for these relationships,
additional investigations, including as to the origin of the funds, must be
carried out.
-
The decision to commence business relationships with politically exposed
persons (PEPs) resident abroad must be taken at top management level.
-
The acceptance of any assets derived from criminal activity, including
corruption and misuse of public funds, either in Switzerland or abroad, is
clearly prohibited.
-
No business relationships may be maintained with persons suspected of having
links to a terrorist organization; if such a business relationship is discovered,
it must be reported immediately to the MROS.
-
With the exception of smaller institutions, SFBC-regulated intermediaries must
use computerized systems to monitor and identify unusual transactions, which
must then be investigated and assessed within a reasonable period of time.
-
All cross-border wire transfers must contain details of the party remitting
the funds.
-
SFBC-regulated intermediaries with establishments outside Switzerland must
ensure that these establishments comply with the fundamental principles laid
down in the MLO-SFBC and must monitor their legal and reputational risks on a
global basis, including with information reported by their foreign
establishments.
-
Correspondent banking relationships with shell banks are prohibited.13
The SFBC sanctions serious breaches of the due diligence obligations contained
in the MLA and the MLO-SFBC either by initiating proceedings itself (under the
MLO-SFBC) or by notifying the criminal justice or due diligence authorities
responsible for prosecuting such cases. Parallel proceedings are also possible.
As an extreme sanction, a SFBC-regulated intermediary risks withdrawal of its
SFBC license. If members of the board or top executive management of a
SFBC-regulated intermediary are responsible for serious breaches of due
diligence obligations or organizational inadequacies in combating money
laundering, they risk being restricted in or prohibited from performing their
current and/or future functions on behalf of that intermediary by order of the
SFBC.
Private life insurance sector The obligations imposed by the MLA – the due diligence and identification duties
and reporting obligation in cases of suspected money laundering – also apply to
all private insurance institutions14 that engage in activities in the area of
direct life insurance or that offer or sell shares in investment funds.
Although supervision of compliance by Swiss insurance institutions with these
obligations rests as an initial matter with the Federal Office of Private
Insurance (FOPI), the vast majority of Swiss life insurance companies are
members of the Swiss self-regulatory organization created in 1998 by the Swiss
Insurance Association (SRO-SIA) and are therefore under the direct supervision
of the SRO-SIA instead of the FOPI. In turn, the SRO-SIA is under the direct
supervision of the FOPI, which recognizes and approves the regulations issued by
it. The SRO-SIA is required to maintain a register of member companies and
inform the FOPI annually about its activities. In extreme cases, the FOPI may
withdraw its recognition of the SRO. The FOPI’s Directive on Combating Money Laundering, which came into force on
August 30, 1999, specifies how the duties imposed on insurance institutions
under the MLO are to be fulfilled. Based on this Directive, the SRO-SIA has
issued detailed regulations binding on its members that contain the provisions
to be applied in combating money laundering. The regulations are based on the
duty of due diligence, i.e., identifying the contracting party, establishing the
financial beneficiaries, establishing the payees, clarifying the background and
documenting these transactions. Member companies are also required to set up an
internal body or office for combating money laundering. The SRO-SIA supervises
its members to ensure they are complying with their obligations and requires
them to file reports with it once a year.
Casino sector Casinos in Switzerland – which did not exist until the first casino license was
granted in 2002 under the Federal Gaming Act - are subject to the MLA and bound
to the same duties of due diligence, identification and money laundering
reporting as banks, insurance institutions and other financial intermediaries.
In granting a casino license, the supervisory authority, the Swiss Federal
Gaming Board (SFGB), is required to clarify, among other things, the legitimate
origin of the funds available for the casino operations. The Ordinance of the
SFGB to Combat Money Laundering (MLO-SFBG) requires the identification of
players and the beneficial owners of assets in the case of cashier transactions
of CHF 15,000 (or CHF 5,000 if conducted in a foreign currency) as well as in
connection with the establishment of any long-term business re-lationship
involving the setting up of a player’s deposit, regardless of amount. A revised
MLO-SFBG has been proposed15 that – in line with the FATF’s 40
Recommendations of
June 2003 – would lower the identification threshold in connection with cashier
transactions to CHF 4,000. The revised MLO-SFBG would also introduce the concept
of transactions and business relationships with increased risk – with the exact
criteria for determining the existence of increased risk to be defined by the
casinos, although PEP relationships would qualify as business relationships
with increased risk in all cases – and require in such cases a duty to clarify
the economic background, origin of funds and business activities of the guest
and beneficial owners of the funds. It would also require that a money
laundering report be filed with the MROS even if a guest refuses to cooperate in
connection with the required clarifica-tions. Further, it would permit the SFBG
to require casinos to introduce IT-based monitoring systems.
Directly subordinated financial intermediaries / non-banking sector Last but not least, for the financial intermediaries directly subordinated to
the MLCA, the obligations on due diligence stipulated under the MLA are defined
in the Ordinance of the MLCA on the Due Diligence Obligations of Directly
Subordinated Financial Intermediaries. This Ordinance was fully revised in
2003, effective January 1, 2004. The most important change made was an adoption
of a risk-oriented approach comparable to that applicable under the MLO-SFBC to
the banking sector. The directly-subordinated financial intermediary is now
required to separate its clients and their transactions into at least two money
laundering risk categories, those with normal risk and those with higher-risk,
and develop criteria for the classification appropriate to the nature of the
intermediary’s particular business. PEP relationships and transactions involving
more than CHF 100,000 in cash, bearer shares or precious metals are
automatically assigned to the higher-risk category. Further, the
directlysubordinated intermediaries are required to introduce a monitoring
system for their business relations and transactions.16 Ever since the enactment of the MLCA, there have been a number of open questions
concerning the definition of activities in the non-banking sector subject to the
MLA versus those which are not, and further clarification is still in progress.
Over the past months and years, the MLCA, as the supervisory authority of the
financial intermediaries in the non-banking sector, has clarified that the MLA
applies to persons engaged on a professional basis in: the transport of
valuables, the custody and/or management of assets, the credit business,
services related to payments, trading in raw materials, banknotes, coins, money
market instruments, currency, precious metals, commodities, securities and/or
derivative instruments, distribution or representation activities on behalf of a
non-Swiss investment fund.17
What is a “financial intermediary”?
The definition of “financial intermediary” is broad and includes banks, fund
managers, certain insurance institutions, securities dealers and casinos.
Financial intermediaries also include persons who accept or safeguard
third-party funds or help to invest or transfer such funds. Article 2 paragraph
3 of the MLA contains a list of financial intermediaries covered by the MLA;
this list, however, is not all-encompassing, thereby ensuring that further
MLA-relevant activities may be covered.
How is the supervision in the area of the preventative combat against money
laundering in the financial sector organized in Switzerland?
Supervision of financial intermediaries under the MLA is divided up among the
following Swiss supervisory authorities:
-
the Swiss Federal Banking Commission (SFBC)
-
the Federal Office of Private Insurance (FOPI)
-
the Swiss Federal Gaming Board (FGB)
-
the Money Laundering Control Authority (MLCA)
The SFBC is responsible for banks, fund management and securities dealers.
Insurance companies that sell direct life insurance policies or offer or
distribute shares of an investment fund are supervised by the FOPI. The FGB
supervises compliance with the anti-money laundering provisions by the casinos.
These special supervisory authorities, which exercise general oversight with
respect to the institutions who are subject to their supervision, must ensure
that these institutions fulfill the duties imposed on them by the MLA. The MLCA supervises the other financial intermediaries who are not subject to
special supervisory oversight, i.e., the so-called “non-banking sector” (e.g.,
asset managers, fiduciaries, money changers) on an indirect basis (via the
self-regulatory organization, SRO) and on a direct basis (if they are not
members of a SRO).
What is the difference between the Money Laundering Reporting Office (MROS) and
the Money Laundering Control Authority (MLCA)?
The MROS, on the one hand, is part of the Federal Office for Police Matters
within the Swiss Federal Justice and Police Department. It functions as a relay
and filter between the financial intermediary and the prosecuting authorities,
analyzing concrete reports of suspicions it has received from financial
intermediaries pursuant to
Art. 9 MLA and distinguishing cases of money
laundering suspicion from those lacking in substance. In connection therewith,
the MROS undertakes independent clarifications, operating and consulting its
own data processing system for combating money laundering. In the event that the
financial intermediary’s grounds for suspicion that the assets involved in the
business relationship are connected with money laundering (Art. 305bis SPC),
stem from a crime or are subject to the control of a criminal organization (Art.
260ter clause 1 SPC) are corroborated, the MROS immediately forwards the report
to the competent criminal prosecution authorities.
The MLCA, on the other hand, is a department of the Swiss Federal Finance
Administration. The mission of the MLCA is preventive in nature, i.e., to
combat money laundering by ensuring compliance with due diligence duties in the
non-banking sector. The MLCA takes appropriate measures if the statutory duties
are not complied with. As in the case of financial intermediaries, the MLCA, too,
is under a duty to file a report with the MROS in connection with suspected
money laundering.
What does KYC mean?
Banks as well as other financial intermediaries must comply with the know your
customer (KYC) principles. They must, in particular:
-
identify their contractual partners, e.g. by copying the passport (natural
persons) or the excerpt of the commercial register (legal entities);
-
verify the beneficial owner, in case of doubt whether the contractual partner
is himself the beneficial owner, by filling in a specific form (Form A);
-
clarifying and documenting the economic background, origin of funds and
business activities of the contractual partners and beneficial owners.
1 Article 305bis SPC, penalizing the hindrance of the “establishment
of origin, the discovery, or the confiscation of assets” when the perpetrator
knows, or must assume, that such assets stem from a crime as defined under the
SPC, even if the crime was committed outside Switzerland.
▲
2 Article 305ter para. 1 SPC, requiring financial intermediaries to
verify “the identity of the beneficial owner with the diligence that can be
reasonably expected under the circumstances” in the case of financial operations
carried out in the exercise of their profession.
▲
3 Arts. 58-60 of the SPC. This includes a reversal of the burden of
proof in cases of organized crime.
▲
4 Art. 260ter para. 1 SPC
▲
5 Art. 305ter para. 2 SPC
▲
6 Art. 305bis SPC
▲
7 Art. 9 SPC
▲
8 Art. 9 para. 1 MLA in conjunction with Art. 260ter para. 1 SPC.
Article 11 MLA protects the reporting intermediary against prosecution for
violation of secrecy of office, of professional secrecy and commercial secrecy
and for breach of contract, provided the intermediary has acted with the due
diligence required under the circumstances.
▲
9 E.g., certain non-bank lenders, payment transaction service
providers, non-bank bureau de change, investment fund distributors not subject
to the SFBC, asset managers and securities custodians not already regulated by
the SFBC. These intermediaries may either become one of the SROs recognized by
the MLCA or place themselves under the authorization/direct supervision of the
MLCA.
▲
10
Source: “Money Laundering”, p. 1, available on the website of the Federal Office
of Police at:
http://www.fedpol.admin.ch
▲
11 For
further information, see “Combating Money Laundering in Switzerland, Status:
October 2003”, chapter on “International Developments in the Fight Against
Switzerland and the Role of Switzerland”, available on the website of the Swiss
Federal Office of Police, Federal Department of Justice and Police (www.fedpol.ch)
▲
12 Ordinance of the SFBC on the Prevention of Money Laundering of
December 18, 2002, effective since July 1, 2003, with a one-year transitional
period for certain provisions. This Ordinance replaced the 1998 Money Laundering
Guidelines of the SFBC (Circular 98/1).
▲
13 For further information, see
SFBC Media Release
January 17, 2003.
▲
14 Within the meaning of the Federal Act on the Supervision of
Private Insurance of June 23, 1978.
▲
15 Available (in German) on the website of the Swiss Federal Gaming
Board under: www.esbk.ch
▲
16 “Combating Money Laundering in Switzerland, Status: October 2003”,
p. 37, available on the website of the Swiss Federal Office of Police, Federal
Department of Justice and Police (www.fedpol.ch)
▲
17 Ibid.
▲
April 2006 |
