FAFT AML Deficient
Higher Risk Areas
Offshore Finance Centre
Not on EU White list equivalent jurisdictions
Medium Risk Areas
US Dept of State Money Laundering assessment
Compliance of OECD Global Forum’s information exchange standard
Switzerland is not on the FATF List of Countries that have been identified as having strategic AML deficiencies
Compliance with FATF Recommendations
The last Mutual Evaluation Report relating to the implementation of anti-money laundering and counter-terrorist financing standards in Switzerland was undertaken by the Financial Action Task Force (FATF) in 2016. According to that Evaluation, Switzerland was deemed Compliant for 6 and Largely Compliant for 25 of the FATF 40 Recommendations.
Swiss authorities generally have a good understanding of the risks of ML/TF, which was furthered by the first National Risk Assessment (NRA) published in June 2015. In 2013, Switzerland set up an AML/CFT co-ordination and cooperation body to bring AML/CFT strategy and policies in line with changes in identified risks.
The Swiss financial system is exposed to a high risk of ML associated with the laundering of assets derived from offences that are mostly committed abroad. Banking, in particular private banking, is the sector most exposed to these risks. A number of important aspects specific to Switzerland, such as the use of cash or legal persons in general, including domiciliary companies, have not yet been analysed in detail with regard to the ML/TF risks to be included in the NRA. The risk of TF is more limited, but outreach is required to raise the awareness of non-profit organisations (NPOs).
The Swiss AML/CFT framework has been developed using a risk-based approach and reflects the high risk level associated with the banking sector. In general, Swiss authorities take identified risk into account in their objectives and activities.
In general, financial institutions and designated non-financial businesses and professions (DNFBPs) understand the ML/FT risks they face and their associated obligations. Overall, they apply measures commensurate with their risks, although classification of customers into inappropriate risk categories can undermine this approach. The implementation of due diligence measures with existing customers is not always satisfactory, particularly for longstanding customers of banks and asset managers classified as low risk at the beginning of the relationship, and where the source of funds was not always identified in line with current requirements.
The number of suspicious transaction reports (STR) has been steadily increasing for several years following awareness-raising campaigns for reporting entities led by the Swiss authorities. However, the number remains insufficient, and most of them are produced in response to external information sources, usually when there is a grounded suspicion of ML/TF. FINMA needs to increase supervision and sanctions regarding compliance with the reporting requirement.
The approach to AML/CFT supervision in Switzerland generally encourages a continuous monitoring of financial institutions and DNFBPs. The authority of the Swiss Financial Market Supervisory Authority (FINMA) is recognised by self-regulatory bodies (OARs) and the institutions/professionals it supervises directly. While this means that the remedial measures imposed by FINMA are generally complied with, its sanction policy for serious violations of AML/CFT obligations remains inadequate, as does that of the OARs. Furthermore, OARs are inconsistent in the way in which they take risk into account in their supervision activities. Work should continue in order to align the supervision practices of FINMA and OARs, particularly for the highest risk sectors such as fiduciaries. The general quality of AML/CFT audits still needs to be improved, and should include more detailed controls by FINMA.
The Swiss authorities demonstrate a clear commitment to prosecute ML. Large-scale complex investigations are carried out, particularly using the high-quality intelligence provided by MROS on both a federal and cantonal level. Convictions have been obtained for all types of ML, especially in cases involving predicate offences committed abroad, which reflects the international exposure of Switzerland as a major financial centre. Assets have also been confiscated in cases where no conviction could be obtained. Investigations, prosecutions and confiscations are generally consistent with the risks identified. However, progress still needs to be made in imposing sanctions that are proportionate and sufficiently dissuasive.
The mutual legal assistance provided by Switzerland is generally satisfactory and has involved the freezing and restitution of large sums linked with international corruption, but shortcomings associated with maintaining the confidentiality of requests have been observed. MROS and FINMA work jointly with their foreign counterparts at a level that corresponds to the international nature of the Swiss financial centre. However, there are some limits to this co- operation, which affect information sharing by MROS.
Risks and General Situation
Switzerland is a major international financial centre. In 2014, total assets managed stood at CHF 6 656 billion [USD 6 742 billion / EUR 6 079 billion], half of which belonged to foreign customers. This corresponds to around 4.1% of global assets under management. The banking sector has a strong international dimension, due to both where institutions offering their services out of Switzerland come from, and the high proportion of customers domiciled abroad. Switzerland is also the global leader for cross-border private banking, with around a quarter of all global assets under cross-border management (CHF 2 377 billion).
Switzerland has committed to make protecting the integrity of the financial sector a key development aspect of its financial centre. Over the last few years, it has undertaken major initiatives to limit banking secrecy and proactively combat tax evasion. The long-term effects of these measures will encourage greater AML/CTF effectiveness.
Switzerland carried out a national ML/TF risk assessment published in June 2015 (NRA). It found that Switzerland is affected by financial crime and is attractive for laundering assets derived from offences that are mostly committed abroad. According to the report, the quality of AML/CTF measures implemented reduces vulnerability. The main threats in terms of predicate offences are fraud and breach of trust, corruption and participation in a criminal organisation. The highest risk identified was for private banking and universal banks operating internationally, independent asset managers, lawyers and notaries, fiduciaries and foreign exchange brokers. With regards to TF, the risk assessment concluded that there was a limited risk in Switzerland, and identified banks, money and value transfer services and credit services as the most exposed sectors.
US Department of State Money Laundering assessment (INCSR)
Switzerland was deemed a Jurisdiction of Primary Concern by the US Department of State 2016 International Narcotics Control Strategy Report (INCSR).
Key Findings from the report are as follows: -
Switzerland is a major international financial center. The country’s central geographic location; political neutrality; relative social and monetary stability; sophisticated financial services sector; increasing presence in precious metals refinement; and long tradition of banking secrecy all contribute to Switzerland’s success, while also making Switzerland a prime target for money laundering abuse.
Reports indicate criminals attempt to launder illegal proceeds in Switzerland from a wide range of criminal activities conducted worldwide, including financial crimes, narcotics trafficking, arms trafficking, organized crime, and terrorism financing. Switzerland has been a favored venue for kleptocrats to stash ill-gotten funds. Foreign narcotics trafficking organizations, often based in Russia, the Balkans, Eastern Europe, South America, and West Africa, dominate narcotics-related money laundering operations in Switzerland. According to a 2015 national assessment of the money laundering and terrorist financing risks in Switzerland drawn up by an interdepartmental working group, the main threats for the Swiss financial sector are “fraud, embezzlement, corruption, and participation in a criminal organization.”
There are currently 21 casinos in Switzerland. Every casino must obtain a concession from the Federal Council (the highest authority of the executive branch) that needs to be renewed every 20 years. While casinos are generally well regulated, there are concerns they are being used to launder money. Corrupt casino employees also are known to have facilitated drug money laundering activities.
There are no international sanctions currently in force against this country.
Rating (100-Good / 0-Bad)
Transparency International Corruption Index
World Governance Indicator – Control of Corruption
INVESTMENT CLIMATE - Executive Summary (US State Department)
Switzerland welcomes foreign investment and accords it national treatment. Foreign investment is not hampered by significant barriers. The Swiss Federal Government adopts a relaxed attitude of benevolent non-interference towards foreign investment, allowing the 26 cantons to set major policy, and confining itself to creating and maintaining general conditions favorable to both Swiss and foreign investors. Such factors include economic and political stability, a transparent legal system, reliable and extensive infrastructure, efficient capital markets and excellent quality of life in general. Many US firms base their European or regional headquarters in Switzerland, drawn to the country's low corporate tax rates, exceptional infrastructure, and productive and multilingual work force.
Switzerland was ranked as the world's most competitive economy according to the World Economic Forum's Global Competitiveness Report in 2013. The high ranking reflects the country’s sound institutional environment, excellent infrastructure, efficient markets and high levels of technological innovation. Switzerland has a developed infrastructure for scientific research; companies spend generously on R&D; intellectual property protection is generally strong; and the country’s public institutions are transparent and stable.
Many of Switzerland's cantons make significant use of fiscal incentives to attract investment to their jurisdictions. Some of the more aggressive cantons have occasionally waived taxes for new firms for up to ten years but this practice has been criticized by the European Union, which has requested the abolition of these practices. Individual income tax rates vary widely across the 26 cantons. Corporate taxes vary depending upon the many different tax incentives. Zurich, which is sometimes used as a reference point for corporate location tax calculations, has a rate of around 25%, which includes municipal, cantonal, and federal tax. The World Bank , in its “Doing Business” survey ranks Switzerland as the 29th most attractive destination for doing business in the world and 2nd on the IMD World Competitiveness Scoreboard. However, the approval on February 9, 2014 of an initiative to restrict the principle of free movement of citizens from the European Union may strain relations with the EU going forward. This could have negative economic consequences for Switzerland; the Swiss government is currently in discussions with the EU on this matter.
Some former public monopolies retain their historical market dominance despite partial or full privatization. Foreign investors can find it difficult to enter these markets due to high entry costs and the relatively small size of the Swiss market.
OTHER REPORTS / NEWS
Extracted from IMF Report: Switzerland: Detailed Assessment of Compliance-Basel Core Principles for Effective Banking Supervision (September 2014)
Description and findings re CDD policies and processes:
In general, under Art. 24 MLO-FINMA (Swiss Financial Market Supervisory Authority), banks must issue internal directives for CDD, which, among others, should include:
· the criteria to be applied in identifying business relationships with increased risks and in detecting transactions with increased risks;
· the basic principles for the monitoring of transactions;
· the cases in which the internal compliance office must be involved and the senior executive body notified;
· the company policy on politically exposed persons (PEPs); and
· the method in which the bank records, limits and monitors increased risks as well as the threshold amounts pursuant to business relationships and transactions with increased risks must be set out.
Some specific requirements regarding the content of the CDD policy is also given in laws and regulations:
· Banks need to undertake to verify the identity of the contracting partner when establishing business relationships. (AMLA Art. 4)
· Banks are required to identify the nature and purpose of the business relationship with customers. (AMLA Art.6)
· Banks must clarify the economic background and the purpose of a transaction or a business relationship if it appears unusual or if there are indications that assets are the proceeds of a felony, are subject to the power of disposal of a criminal organization, or serve the financing of terrorism (AMLA Art. 6).
· The extent of the information that must be obtained is determined by the risk represented by the customer; business relationships and transactions that involve increased risks must be subject to enhanced due diligence (MLO-FINMA Art. 12 and 13).
· Banks are not allowed to accept assets that they know, or are expected to know, are proceeds of criminal activities, even if committed outside Switzerland. (The negligent acceptance of assets derived from criminal activity may call into question the required guarantee for proper business conduct.)
· Banks are not permitted to maintain business relations with fictive banks or with any individuals or undertakings of which they know or must assume constitute a terrorist or criminal organization, or which are affiliated to, support, or finance such an organization (MLO-FINMA Arts. 7 and 8).
· If the contracting partner is not the same as the beneficial owner, or if this is in doubt, banks must require the contracting partner to provide a written declaration of the identity of the beneficial owner (CDB 08 Art. 6).
· If serious doubts persist concerning the accuracy of the contracting partner’s declaration and these cannot be dispelled by further clarification, the bank must refuse to establish the business relationship or to execute the transaction (CDB 08 Art. 29).
· Banks are required to terminate their relationship with the contracting partner if they establish that the bank has been deceived when identifying the beneficial owner, that false information regarding beneficial ownership has deliberately been provided to them, or if doubts about the information provided by the contracting partner persist (CDB 08 Art. 6).
· Banks must provide for an effective monitoring of the business relationships and transactions, and ensure that increased risks are identified (MLO-FINMA Art. 19 para 1).
· Banks must have an information system to monitor transactions and detect high-risk transactions (MLO-FINMA Art. 12). Art. 23 sets out a requirement for banks to have an information system to provide information to relevant authorities.
· Banks have to carry out additional investigations for business relationships or transactions with increased risks (MLO-FINMA Art. 14). This may also lead to the termination of the business relationship or to a report to the FIU. Banks must repeatedly conduct these procedures if during the business relationship doubts arise regarding he identity of the contracting partner and the beneficial owner (CDB 08 Art. 6).
Regarding enhanced due diligence, MLO-FINMA requires banks to formulate criteria to identify business relationships and detect transactions which involve increased risks (Arts. 12 and 13). Business relationships with PEPs and with foreign banks for which a Swiss financial intermediary carries out correspondent bank transactions as well as transactions in which assets exceeding more than CHF 100,000 are physically deposited in a single or series of deposits at the onset of the business relationship are, in all cases, deemed to be business relationships or transactions with increased risks. Banks must identify and label any business relationships involving higher risk. Further, MLO-FINMA requires banks to include in their internal directives policies and processes to be applied for business relationships with increased risks:
· the criteria to be applied in detecting transactions with increased risks, the basic principles for the monitoring of transactions;
· the cases in which the internal compliance office must be involved and the senior executive body notified;
· the company policy on politically exposed persons (PEPs);
· the method in which the bank records, limits and monitors the increased risks; and
· the threshold amounts pursuant to business relationships and transactions with increased risks.
The directives must be adopted by BoD or the upper management. Banks have to carry out additional investigations for business relationships or transactions with increased risks (MLO-FINMA Art. 14).
The acceptance of business relationships involving increased risk requires the approval of a senior person or body or the management (MLO-FINMA Art. 17). The senior executive body, or at least one of its members, must decide on the planning of regular reviews of all relationships involving higher risk, and monitor and evaluate such relationships (MLOFINMA Art. 18). Business relationships with PEPs are, in all cases, deemed to be business relationships with increased risks (MLO-FINMA Art. 12 para 3). Thus, the senior executive body, or at least one of its members, must decide on the acceptance of business relationships with PEPs, and, on an annual basis, the continuation of such relationships.
Banks must keep records of transactions carried out and of CDD clarifications required in such a manner that other specially qualified persons are able to make a reliable assessment of the transactions and business relationships and of compliance with the AMLA provisions (Art. 7). In particular, banks must establish, organize and retain their documentation such that FINMA, audit companies, or FINMA appointed investigating agents can form, within a reasonable period, a reliable opinion on the compliance with the duties regarding the prevention of money laundering and the financing of terrorism (MLO-FINMA Art. 20).
Furthermore, the documentation must be established, organized and retained such that banks are able, within a reasonable period, to comply with any request for information and sequestration from the prosecuting authority or another licensed authority (AMLA Art. 7 para 2, MLO-FINMA Art. 20 para 2). Banks are also obliged to organize their documentation at least such that they are capable of providing information within a reasonable period of time on the identity of the initiator of an outgoing payment order and whether a company or a person: is the contracting party or beneficial owner; has placed a cash transaction that requires the identification of the related person; and possesses an ongoing power-of-attorney over an account or safekeeping account provided that the company or person is not already listed in a public registry (MLO-FINMA Art. 36). Under AMLA Art. 7 para 3, banks are required retain records for a minimum of ten years after the termination of the business relationship or after completion of the transaction.
As described in EC1, banks’ compliance to these requirements is primarily assessed by external auditors through annual regulatory audits. Discussions with FINMA staff and auditors as well as review of reports show efforts are made in assessing these issues during regulatory audits. FINMA may also conduct its own assessment. For example, it conducted inspection of 20 banks in 2011 regarding compliance with supervisory rules concerning business relationships with PEPs from several foreign countries, which resulted in some enforcement proceedings.