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SWISS AML REFORMS 2023: BETWEEN SCRUTINY AND SECRECY


Swizerland

In August 2023, Switzerland announced proposed reforms to its Anti-Money Laundering laws. The changes focus on establishing a central beneficial ownership register, extending AML due diligence duties to advisory roles, and tightening rules for cash transactions in precious metals and real estate. These initiatives have been prompted by international pressure, criticisms over Switzerland's alleged sanctions loopholes, and the recent collapse of the country’s second-largest bank Crédit Suisse. The proposals aim to increase transparency while respecting privacy. Their future remains uncertain as they enter the consultation and legislative process.


At the end of August 2023, Switzerland’s Federal Council announced reforms to the country’s Anti-Money Laundering legislation. The proposed reforms contain three main elements, the first two of which will be discussed in this article.

  1. The establishment of a central register of beneficial ownership for all entities registered in Switzerland. This aims to prevent individuals from hiding behind chains of anonymous companies or trusts and using such structures for money laundering and similar purposes. The register will be accessible to regulators, the police, and government authorities, as well as accredited banks and lawyers for due diligence purposes.[1]

  2. Anti-money laundering due diligence duties should in the future also apply to certain advisory activities, such as those of lawyers and notaries. Up until now, due diligence duties under the AML Act have been limited to financial intermediaries.

  3. Stricter due diligence rules will apply to cash transactions in the precious metals trade and for real estate purchases.[2]

Preceding these most recent reform suggestions in this important financial center is a recent letter from the G7 ambassadors addressed to the Swiss government. The letter raised concerns about loopholes in Swiss law that allegedly allow sanctions evasion for Russian oligarchs.[3] Since the outbreak of the war in Ukraine and subsequent international efforts to sanction Russian oligarchs with links to Putin, Switzerland has been under scrutiny. The country has been criticized for not being strict enough and for not closing all loopholes. Banks and the right-wing populist party SVP, on the other hand, have expressed concerns about the potential negative economic consequences of Switzerland aligning its sanctions with other Western countries.[4] These reform proposals also follow the collapse of the country’s second-largest bank, Crédit Suisse, in March 2023 - a bank that had been at the center of various financial crime-related scandals.[5]

The proposed reforms are significant. Switzerland is currently the only European country without a national register of beneficial ownership.[6] In this federalist country, which places great value on confidentiality and privacy, there have so far been no concrete attempts to establish a central register. In October 2022, the Federal Council decided to draft a bill regarding the transparency of beneficial owners of legal entities, leading to the current proposal for a central register. The decision to not make the proposed register publicly accessible means that it maintains a level of confidentiality. Some argue that beneficial ownership registers should be public to subject the information to scrutiny, for example, by the media and civil society.[7] Others have raised concerns about safeguarding the privacy of vulnerable individuals who could be at risk if their information is misused. Addressing this contentious issue, the European Court of Justice made a ruling in November 2022. The Court acknowledged that allowing public access to beneficial ownership registers enhances transparency and aids in combating money laundering. However, the Court determined that granting unrestricted public access would be disproportionate, given the need to uphold privacy and data protection standards and safeguard individuals against abuse of their data.[8] Simultaneously, the Court emphasized that journalists and civil society organizations possess a legitimate interest in accessing such information.[9] Since then, some European countries have restricted access to their registers.


Interestingly, the United Kingdom (UK), which is one of the first countries to establish a public beneficial ownership register, decided to keep its register public.[10] The UK has positioned itself as a leader in transparency efforts, now maintaining three registers: a publicly accessible register of the beneficial owners of UK entities, a publicly accessible register of the beneficial owners of overseas entities owning real estate in the UK, and a closed Trust Registration Service. Some are concerned that making the information publicly available is no panacea against financial crime. The UK register has been criticized for the bad data quality and lack of data verification, something that the government is aware of and working on.[11] Given Switzerland’s commitment to confidentiality and the country’s hesitation to establish a central register in the first place, it is unlikely that the Swiss register will become publicly accessible soon. This also means that for example journalists or others with a so-called legitimate interest in the information have no means of accessing it. The Swiss government could provide for such limited access on a case-by-case basis, but it remains to be seen if it will undertake such reforms in the near future. As Donato Vozza (2022) argued, “it is difficult to effectively balance the need to protect fundamental rights with the need to combat tax abuse and money laundering.”[12] Even in the UK, a country that committed early on to public beneficial ownership information, there were debates around the protection of vulnerable individuals and the risks associated with their information being made public. The UK therefore has a process where beneficial owners can ask for their information to be protected, but they need to provide evidence that they “are at serious risk of violence or intimidation.”[13] This shows that there are other ways of respecting privacy rights and data protection, besides keeping the register closed. David Banisar (2023) highlighted this tricky balance between transparency and data protection, which remains unresolved.[14]


The suggestion to expand AML due diligence duties to advisory activities is not new in Switzerland. Already in 2005, following a report by the Financial Action Task Force (FATF), a global anti-money laundering standard-setter, there was a suggestion to include lawyers, notaries, real estate agents, and those involved in the formation and management of companies under AML legislation. The suggestion was met with strong resistance within Switzerland, with reference to legal professional privilege or lawyer-client confidentiality. Those criticizing the suggestion to subject lawyers to AML regulation uphold this confidentiality as “absolute in a free and democratic society.”[15] FATF has repeatedly criticized Switzerland for perceived weaknesses in its AML Act.[16] In 2019, the government published a proposal to extend AML due diligence duties to advisers providing services to domiciliary companies and trusts. This would include a duty to report suspicious cases, hence going beyond due diligence to a “gatekeeper role, where lawyers are required to actively cooperate with the state.”[17] Previously, this requirement only applied to advisers directly managing client funds, hence acting as financial intermediaries. After debates in both parliamentary chambers in 2020 and 2021, the AML Act was reformed in a reduced form, eliminating the adviser due diligence duties. Some legal professionals strongly opposed the so-called advisor clause, mainly due to concerns about what it would mean for attorney-client privilege. They argue that they are already subject to the AML Act when acting as financial intermediaries and that those duties should not extend to pure advisory activities. The Federal Council and various stakeholders, including from the banking sector, supported the clause as essential for maintaining the good reputation and competitiveness of the Swiss financial center. This highlights interesting divergences in the interests and positions of different sub-sectors within the larger financial industry. Also, other countries have grappled with this tension between lawyer-client privilege and AML duties. A well-known case is the Federation of Law Societies case in Canada which lasted 15 years and came to a conclusion in 2015. The Federation argued that the FATF rules adopted by Canada which required active cooperation by lawyers with the state were unconstitutional. They won the case, with the country’s Supreme Court agreeing “that lawyers’ obligation to actively cooperate with the state undermines solicitor-client privilege and hence violates the constitutional principle of the independence of the bar.”[18] It was just a matter of time before the issue of the anti-money laundering obligations of lawyers and other advisers got back on the agenda in Switzerland. It will be interesting to observe which side gains more influence this time. On one hand, there is international pressure to strengthen Switzerland's anti-money laundering (AML) rules. Failure to do so could harm the country's reputation and economy. On the other hand, legal professionals in Switzerland are concerned that stricter AML provisions could compromise their professional confidentiality. This group holds significant political sway in the country. Both reforms - the establishment of a beneficial ownership register and the expansion of AML due diligence requirements to advisers - have already been the subject of much debate in Switzerland. The current reform proposals are far from guaranteed. In the coming weeks, the proposals will go through the usual consultation process where views will be collected from interested groups, cantons, and political parties. They will then proceed to parliament. This time, the pressure on Switzerland is probably greater because of the heightened attention of the global community as well as the need to comply with the sanction regime targeting Russian individuals. The commitment to transparency and strong due diligence systems is of paramount importance, not only to facilitate public scrutiny but also to enable effective legal investigations and law enforcement efforts against those involved in financial crime.


References


[1] Jones, Sam (2023): “Switzerland unveils money laundering clampdown.” Financial Times, 30/08/2023. https://www.ft.com/content/df844f3a-a2f3-44f3-a16a-c525ad86d170

[2] Bundesrat eröffnet Vernehmlassung zur Stärkung der Geldwäscherei-Bekämpfung. 30/08/2023. https://www.admin.ch/gov/de/start/dokumentation/medienmitteilungen.msg-id-97561.html

[3] Jones, Sam (2023): “Switzerland unveils money laundering clampdown.” Financial Times, 30/08/2023. https://www.ft.com/content/df844f3a-a2f3-44f3-a16a-c525ad86d170

[4] Jones, Sam (2023): “G7 rebukes Switzerland over Russian sanctions loopholes.” Financial Times. https://www.ft.com/content/6fa258e8-f928-4738-808b-df03cb55b16e

[5] Gronwald, Victoria (2023): “Monopolization and Structural Power: Political Implications of UBS’ Takeover of Crédit Suisse.” Corporate Crime Observatory, 09/06/2023. https://www.corporatecrime.co.uk/post/ubs-credit-suisse

[6] Jones, Sam (2023): “Switzerland unveils money laundering clampdown.” Financial Times, 30/08/2023. https://www.ft.com/content/df844f3a-a2f3-44f3-a16a-c525ad86d170

[7] Knobel, Andres (2023): "Roadmap to Effective Beneficial Ownership Transparency.” Tax Justice Network, 07/02/2023. https://taxjustice.net/2023/02/07/roadmap-to-effective-beneficial-ownership-transparency-rebot/; Kiepe, Tymon (2021): “Making central beneficial ownership registers public.” Open Ownership, 25/05/2021. https://www.openownership.org/en/publications/making-central-beneficial-ownership-registers-public/

[8] Vozza, Donato (2022): “EU Court Of Justice: Steps Backward In Preventing Tax Abuse And Money Laundering?” Corporate Crime Observatory. www.corporatecrime.co.uk/post/ecj-limits-aml-tax-abuses

[9] Krause, Solvej (2023): “Who should have access to beneficial ownership registries? ECJ revokes public access in the EU but confirms access for journalists and civil society.” The World Bank/UNODC Stolen Asset Recovery Initiative. https://star.worldbank.org/blog/who-should-have-access-beneficial-ownership-registries-ecj-revokes-public-access-eu-confirms

[10] Cartin, Alison & Erskine, Alexander (2023): “Is public access to UK beneficial ownership registers here to stay?” Taylor Wessing. https://www.taylorwessing.com/en/insights-and-events/insights/2023/07/transparency-is-public-access-to-uk-beneficial-ownership-registers-here-to-stay

[11] Ekene Ezeigbo, Chinwe, Tymon Kiepe, Louise Russell-Prywata (2021): “Early impacts of public beneficial ownership registers: United Kingdom.” Open Ownership, 01/04/2021. https://www.openownership.org/en/publications/early-impacts-of-public-beneficial-ownership-registers-uk/uk-leading-approach/

[12] Vozza, Donato (2022): “EU Court Of Justice: Steps Backward in Preventing Tax Abuse and Money Laundering?” Corporate Crime Observatory, 15/12/2022. https://www.corporatecrime.co.uk/post/ecj-limits-aml-tax-abuses

[13] Companies House (2020): “Apply to protect your details on the Companies House register.” https://www.gov.uk/guidance/applying-to-protect-your-personal-information-on-the-companies-house-register

[14] Banisar, David: “Information Technology and Transparency: The User Push for Data.” International Conference: Economic Crime in the Age of Technology (ECAT) Corporate Crime Observatory, 05/07/2023. www.corporatecrime.co.uk/economic-crime-and-technology

[15] Ali, Nathanael Tilahun (2019): “States’ varied compliance with international anti-money laundering standards for legal professionals.” Nordic Journal of International Law, 88(2), pp. 280–307, p. 282.

[16] Blunschi, Peter (2021): ““Pandora Papers”: So bremst die Schweiz im Kampf gegen Geldwäscherei.” Watson, 04/10/2021. https://www.watson.ch/schweiz/wirtschaft/835330059-pandora-papers-die-schweiz-bremst-im-kampf-gegen-geldwaescherei

[17] Ali, Nathanael Tilahun (2019): “States’ varied compliance with international anti-money laundering standards for legal professionals.” Nordic Journal of International Law, 88(2), pp. 280–307, p. 283.

[18] Ali, Nathanael Tilahun (2019): “States’ varied compliance with international anti-money laundering standards for legal professionals.” Nordic Journal of International Law, 88(2), pp. 280–307, p. 286.


Suggested citation


Bluebook: Victoria Gronwald, Swiss AML Reforms 2023: Between Scrutiny and Secrecy, CORPORATE CRIME OBSERVATORY, (September 23, 2023), www.corporatecrime.co.uk/post/swiss-aml-2023


Harvard: Gronwald, V. (2023) ‘Swiss AML Reforms 2023: Between Scrutiny and Secrecy.’ Corporate Crime Observatory. Available at: www.corporatecrime.co.uk/post/swiss-aml-2023


OSCOLA: Victoria Gronwald, ‘Swiss AML Reforms 2023: Between Scrutiny and Secrecy, ’ (Corporate Crime Observatory, 23 September 2023), www.corporatecrime.co.uk/post/swiss-aml-2023


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