Switzerland Aims to Strengthen Money Laundering Regulations Amid Criticism

In response to mounting criticism of its lax anti-financial crime (AFC) regulations, Switzerland has announced plans to introduce new rules to bolster its money laundering defenses.

These measures are aimed at addressing concerns raised by entities such as AML Intelligence, highlighting the country's vulnerability to money laundering activities. The proposed laws encompass two main aspects: the establishment of a beneficial ownership registry to oversee legal entities like trusts and increased accountability for lawyers and consultants in reporting risks.

However, these potential changes, formulated by the Swiss government, are not expected to be presented to the parliament until 2024. The intervening period will involve consultations that could potentially lead to a dilution of the package. If the new regulations gain approval, lawyers, accountants, and other consultants involved in setting up trusts, holding companies, and real estate transactions will be subject to due diligence rules and reporting obligations.

A central registry, intended to track the actual owners of legal entities and curb money laundering through shell companies, is also on the agenda. This registry would be maintained by the Federal Department of Justice and Police, with a finance ministry body responsible for verifying the information and imposing sanctions when necessary.

Unlike its European counterparts, Switzerland lacks such a registry, despite its significant role in assisting the creation and management of trusts and offshore structures abroad. Pressure to tighten financial controls on Switzerland has increased in the wake of Russia's invasion of Ukraine. While the country has aligned with EU sanctions against Russia, critics argue that compliance has been inconsistent.

The proposed regulations seek to enhance due diligence requirements for banks, firms, and service providers, particularly in identifying and managing risks related to sanctions violations. This is a focal point for both the EU and the US, especially following Russia's actions in Ukraine.

The potential changes also entail subjecting all future real estate transactions to due diligence scrutiny. Additionally, cash payments exceeding 15,000 Swiss francs ($17,055.14) for precious metals and gemstones, like gold and diamonds, would be subject to anti-money laundering checks, a significant reduction from the current threshold of 100,000 francs.

Karin Keller-Sutter, the Swiss finance minister, emphasized the importance of a robust system to combat financial crime, as it is vital for maintaining the reputation and long-term success of Switzerland's prominent and secure financial center. She acknowledged existing gaps in the system, despite Switzerland's international reputation for upholding financial standards.

Switzerland, known for its vast offshore wealth managed by its banks, has been striving to shed its reputation as a haven for illicit funds. Authorities stress that they routinely share bank account information with over 100 countries. Nonetheless, the country faces ongoing international pressure to increase transparency surrounding corporate ownership, as many entities like trusts obscure the identities of true beneficiaries.

Critics have labeled Switzerland a "haven" for money launderers, alleging that they have received legal protection. Notably, earlier this year, a Zurich court found senior bankers guilty of facilitating the laundering of millions of dollars linked to Russian President Vladimir Putin.

Even Switzerland's financial watchdog, FINMA, recently highlighted glaring anti-money laundering failures in the country's banks. Despite its small population of 8.7 million, Switzerland stands as the world's primary hub for offshore wealth, hosting an estimated $2.4 trillion of foreign assets.

In a collective rebuke, G7 ambassadors criticized the Swiss government for ignoring numerous "loopholes" in Swiss law, often exploited by Swiss lawyers to enable sanctions evasion.

While the upcoming beneficial ownership register won't be accessible to the public, it will be available to regulators, government bodies, law enforcement, accredited banks, and lawyers involved in customer due diligence (CDD).

The proposed measures also extend to Swiss lawyers, accountants, and other professionals, mandating them to conduct CDD, maintain records of their checks, and report suspicious transactions. However, there remains a possibility that the final regulations could undergo dilution. Furthermore, these proposals primarily focus on self-regulation by corporate service providers.

By fLEXI tEAM