In the wake of the "Credit Suisse Papers" revelations, Europe's largest political bloc, the EPP, today raised the prospect of Switzerland being added to the FATF's "Grey List."
The European People's Party (EPP) in Brussels demanded that the European Commission review its relationship with Switzerland and consider adding the financial center to a blacklist of countries with a high risk of financial crime this afternoon (Monday). The Commission would then press the FATF to take 'Grey List' action.
For any country on the "Grey List," the stakes are high. According to a recent IMF report, the economic cost is a 7-8 percent reduction in capital inflows.
In the meantime, Finma, Switzerland's financial regulator, said it was "in contact" with Credit Suisse regarding the investigation.
Political pressure was also mounting in Switzerland to repeal the country's long-standing strict secrecy laws – the so-called Section 47 Regulations – which provide a high level of protection for bank account holders' privacy.
The EPP group, which represents the majority of Europe's centre-right parties, has come out strongly in favor of action against Switzerland.
"When Swiss banks fail to apply international anti-money-laundering standards properly, Switzerland itself becomes a high-risk jurisdiction," said Markus Ferber MEP, Spokesman for the EPP Group in the Economic and Monetary Affairs Committee. This is a reference to the "Grey List" of the Financial Action Task Force, to which Malta was added last year.
The investigation into the "Credit Suisse Papers" today revealed clients of the Swiss bank who were involved in torture, drug trafficking, money laundering, corruption, and other serious crimes.
"When the list of high-risk third countries in the area of money laundering is up for revision the next time, the European Commission needs to consider adding Switzerland to that list," Ferber said.
In this context, European countries may be able to persuade the Financial Action Task Force to add the Alpine financial center to its 'Grey List,' with the help of allies. It's difficult to say how much appetite there is for such action. It is well known that a country under evaluation can be forced onto the "Grey List" by as few as four countries.
Malta is the only EU country on the FATF's "Grey List," and Turkey was added to it last year, joining rogue nations such as Iran, Myanmar, Syria, and North Korea, which all face increased due diligence.
"Bank privacy laws must not become a pretext to facilitate money laundering and tax evasion," Ferber said. "The “Swiss Secrets” findings point to massive shortcomings of Swiss Banks when it comes to the prevention of money laundering. Apparently, Credit Suisse has a policy of looking the other way instead of asking difficult questions "
"European and Swiss banks have close ties, anti-money laundering deficiencies in the Swiss banking sector therefore also pose a problem for the European financial sector. When Swiss Banks fail to apply international anti-money laundering standards properly, Switzerland itself becomes a high-risk jurisdiction."
"When the list of high-risk third countries in the area of money laundering is up for the revision the next time, the European Commission needs to consider adding Switzerland to that list," he said.
Credit Suisse had "already lost a lot of its reputation," according to Daniel Thelesklaf, former head of Switzerland's anti-money laundering agency.
He warned, "This can become another crack in the wall. Unless Credit Suisse undergoes a massive change of culture, it will lose the trust of its remaining clients soon. "
Following revelations in the media, led by Munich-based Süddeutsche Zeitung, about widespread Credit Suisse due diligence failures, the EPP floated the idea of grey listing today.
“Bank privacy laws must not become a pretext to facilitate money laundering and tax evasion", a ccording to Ferber, "The Suisse secrets findings point to massive shortcomings of Swiss banks when it comes to the prevention of money laundering. Apparently, Credit Suisse has a policy of looking the other way instead of asking difficult questions. "
Anti-money laundering flaws in Switzerland's banking industry "also pose a problem for the European financial sector" according to ties between EU and Swiss banks.
In the meantime, the Swiss government has declined to comment on the EPP statement, claiming that the country complies with international standards.
The revelations have also sparked a backlash in Geneva and Zurich.
"Maybe the rules are not set perfectly" said Swiss politician Andrea Caroni, who advocated for expanding article 47, the secrecy regulations.
The Swiss Social Democratic Party's Samira Marti stated that they would propose amending article 47's "censorship." The Green Liberals stated that they would support Marti's decision.
The Green Party of Switzerland has introduced a bill to reform Article 47 immediately. In a statement, the party said, "The Suisse secrets show once again that Swiss banks continue to do business with dictators, autocrats and criminals." "With a proposal submitted today, the Greens are now campaigning for an immediate revision of the Banking Act."
The timing of the leak, according to one Swiss commentator, is "catastrophic" for Credit Suisse, which was hit by a series of rolling scandals last year that dragged down its stock price.
The bank's latest controversy, according to Samuel Gerber, deputy editor of the Swiss financial publication Finews, could jeopardize an international review of Switzerland's anti-money-laundering measures scheduled for later this year.
By fLEXI tEAM