On February 27, 2024, Switzerland signed a new bilateral agreement of cooperation with Panama to fight financial crime and in particular money laundering, financing of terrorism, and bribery and corruption. According to Swissinfo.ch: "This is the first time a treaty of this type has authorized the electronic transmission of requests for mutual assistance." The aim of the agreement with Panama is to provide reciprocal support on criminal matters to tackle financial crime that implicates the two countries.
This latest development is one key part of a set of wider changes that have been brought to Switzerland's AML framework in recent years. It is supported by several other international treaties, and regulatory updates introduced to combat money laundering and its predicate offences.
Switzerland's Anti-Money Laundering (AML) laws are largely governed by the Anti-Money Laundering Act (AMLA) and the Anti-Money Laundering Ordinance (AMLO). The AMLA, enacted in 1997 and updated in 2016, is the main statutory framework that outlines the duties of financial intermediaries in preventing, identifying, and reporting suspected money laundering or terrorism financing activities.
AMLA was supplemented by the AMLO, which sets details for the Act's practical implementation, for example outlining details relating to due diligence requirements, reporting, and internal control mechanisms that financial intermediaries must have in place to be compliant.
This dual-structured legislation forms the basis of Switzerland's AML framework, combining high-level statutory requirements with practical guidelines.
Changes to AML regulations in Switzerland have been introduced in phases over recent years through different laws, international agreements, and agencies. These developments are partly a response to Switzerland's reputation as a high-risk country for money laundering, which may have evolved from its premise of "self-regulation" that the Swiss financial sector was built on.
Money laundering risk alerts sent to Moody’s subscribers, from January 1, 2018, to August 18, 2023, show 1,451 alerts sent in relation to Switzerland, higher than neighboring countries such as Germany with 1,261 alerts, France with 1,059 alerts, and Austria with 180.
Some of the more recent changes to Swiss money laundering regulations include:
The Swiss Bankers Association
The Swiss Bankers Association (SBA) published a revised Agreement on the Swiss banks' code of conduct regarding the exercise of due diligence (CDB 20), which came into force on January 1, 2020.
Swiss ParliamentThe Swiss Parliament passed amendments to the revised Money Laundering Act in March 2021. At its meeting on August 31, 2022, the Federal Council set January 1, 2023, as the date on which the revised Money Laundering Act (MLA) and Money Laundering Ordinance (MLO) would come into force.
The amendments mainly concerned:
- Verification of the beneficial owner;
- Updating customer data and reporting suspicions of money laundering through know your customer (KYC) processes;
- Transparency of associations presenting an increased risk of terrorist financing;
- Controls on precious metals.
Swiss Financial Market Supervisory Authority (FINMA)In October 2022, the Swiss Financial Market Supervisory Authority (FINMA) partially revised its Money Laundering Ordinance, which also came into effect on January 1, 2023.
In October 2023, Switzerland made progress in addressing the technical compliance deficiencies identified in the Mutual Evaluation Report (MER) with respect to Recommendation 10 and Recommendation 40. As a result of this progress, Switzerland has been re-rated on these recommendations:
- Recommendation 10 - on customer due diligence requirements, Switzerland was re-rated from Partially Compliant to Largely Compliant
- Recommendation 40 - on international cooperation, Switzerland was re-rated from Partially Compliant to Largely Compliant
This creates a FATF score of eight recommendations rated "compliant", 29 recommendations rated "largely compliant", and three rated as "partially compliant".
The three areas FATF rated as partially compliant are:
- Recommendation 22 and 23: Engaging designated non-financial businesses and professions, lawyers, notaries, other independent legal professionals, dealers in precious metals and dealers in precious stones, trusts, and company service providers, as well as accountants on their obligation for due diligence and record-keeping on customers as well as report suspicious transactions.
- Recommendation 35: Highlighting the importance of the country's requirement to have a range of effective, proportionate, and dissuasive sanctions, whether criminal, civil or administrative, available to deal with natural or legal persons who fail to comply with AML/CFT requirements. Sanctions should be applicable not only to financial institutions and designated non-financial business and professions (DNFBPs), but also to their directors and senior management.
Switzerland is moving to more regular monitoring with a commitment to inform the FATF of progress made in improving the implementation of its AML and Counter-Financing of Terrorism (CFT) measures as part of its 5th round of mutual evaluation.
Next steps with regards to recommendations 22 and 23 may bring AML regulation in Switzerland to further define guidance on due diligence, possibly broadening the scope of obliged entities, in a similar way to the EU's 6th anti-money laundering directive.
And in February 2024, the Swiss government tabled a proposal to ban Hamas and related organizations. The federal council’s hope being that a ban would have a “preventive and repressive effect” on terrorism and ensure Switzerland wasn’t viewed or used as a haven for terrorist financing. This move was echoed in March 2024 by the Wolfsberg group, in Basel, seeking “the provision of official lists of suspected terrorists and terrorist organizations on a globally coordinated basis by the relevant competent authorities.” This could lead to a requirement on financial institutions for enhanced CFT controls on clients and third parties.
Another key focus is likely to be an increase in enforcement actions. In 2023, 7.7 billion Swiss francs of assets were frozen, when Swiss banks were estimated to be holding circa. 150 billion francs of Russian money. Sanctions circumvention and evasion is likely to be a continued focus for the regulator in 2024.
The $123 million fine issued by the US Department of Justice in December 2023 to Pictet, on the grounds of conspiring to facilitate tax evasion on 1,637 accounts, including limitations in due diligence, exemplifies another potential focus of regulatory investigation and enforcement in 2024. Tax evasion is a predicate offense to money laundering and increasingly a focus of international regulators.
The Swiss Confederation has also proposed a Federal Act on the Transparency of Legal Entities, which would introduce a transparency register on the beneficial owners of legal entities (TLEA) - on which a vote is anticipated in 2024. The TLEA brings a material change to Switzerland's regulatory framework, and it is expected to impact 500,000 legal entities across the country, including: limited companies; limited liability companies; investment companies with variable capital; investment companies with fixed capital; associations; and foundations.
Key changes to be implemented through TLEA include:
- Legal entities are obliged to determine and record the details of their beneficial owners, including full name, birth date, nationality, residence, and any relevant data pertaining to the extent and nature of their control. They are also required to periodically review and update this information, substantiating it with documents that must be retrievable from Switzerland.
- The onus will be on shareholders to divulge data regarding beneficial ownership, which the legal entity is responsible for gathering, as well as any ensuing changes to this data. This disclosure should be made within a month of gaining the relevant stake or control. If asked, shareholders are obligated to provide information and proof that confirms the beneficial owner's identity and/or role.
- Beneficial owners are required to declare their ownership and any subsequent changes to the data provided within a month, either to the legal entity's direct shareholders (if they hold a direct* stake in them) or straight to the legal entity (if the control structure is more complex or control is exerted indirectly). In addition, they, along with any third parties in the control chain, must supply the necessary information and evidence to the authority.
- Direct or indirect, alone or with a third party, holding at least 25% of the capital or voting rights in the legal entity; or exercising control by other means.The regulation targets, in part, shell companies, and their nefarious uses. The 2024 Moody’s study “Looking inside the shell” identifies several red flags among companies registered in Switzerland, identifying relevant patterns regarding atypical directorship, unequal jurisdiction risks, and presence of financial anomalies (274K entities out of 1.2 M entities analyzed).
Changes already in flight in response to FATF and other EU regulation, combined with the introduction of TLEA will bring a key focus on financial institutions' abilities to address compliance and regulatory changes at pace to meet each AML/CTF requirement.
Moody's is recognized as a leading provider of beneficial ownership data, also offering automated solutions for due diligence, and enhanced due diligence. We can support risk management, AML and CFT compliance programs specific to the national regulations applicable to Switzerland, or any other international regulatory framework.
- Comprehensive data: Moody's offers access to extensive ownership and control data, which can enable a thorough investigation of beneficial ownership structures.
- Advanced analytical tools: Moody's provides innovative software, advisory services, and research expertise, including proprietary analytics and models, such as Shell Company Indicator. These tools can help identify and assess potential risks associated with ultimate beneficial owners, such as hidden liabilities or connections to illicit activities.
- Global reach: Moody's operates globally, which is crucial to understanding beneficial ownership structures and international regulatory responsibilities for due diligence in today's global economy. This allows businesses to access and analyze data from different jurisdictions, considering local, national, and global regulations and business practices.
- Expertise and reputation: Moody's has a long, strong reputation in the banking and financial industry. Our experience can provide valuable insights and lend expertise to your due diligence process. This can be particularly important in complex cases, where specialist knowledge is required.
Please get in touch if you would like to discuss how Moody’s can support your AML/CFT program for risk management and compliance. We would love to hear from you.
