In December 2016, the Financial Action Task Force (FATF) published its fourth country report on Switzerland after reviewing and evaluating Switzerland’s anti-money laundering and anti-terrorist financing system. In its report, the FATF concluded that Switzerland’s defense mechanism can be classified as good overall, even though the Swiss financial sector is exposed to a high risk, particularly with regard to money laundering. However, the FATF also identified specific weaknesses and made corresponding recommendations. The Federal Council subsequently instructed the Federal Department of Finance to prepare a consultation draft that takes into account the results of the FATF country report and enhances the integrity of the Swiss financial center. The consultation process ended on 21 September 2018. On 26 June 2019, the Federal Council published its report on the amendment of the Anti-Money Laundering Act for the attention of Parliament, taking into account the responses received during the consultation phase. In the following, the main features of the draft law will be summarized and explained.
Introduction of „Advisors“ as a new category of persons subject to AMLA
Currently, the provision of pure advisory services is not subject to the Anti-Money Laundering Act (AMLA). AMLA applies if a person or entity is entitled to dispose of funds or other assets and thus acts as a so-called financial intermediary. In the light of the FATF recommendations on due diligence for non-financial activities, the legislator sees the need to introduce, in addition to „dealers“ and „financial intermediaries“, a new category of persons subject to AMLA, namely „advisors“. In this context, „advisors“ are defined as natural or legal persons, irrespective of their profession, who are commercially active in connection with the incorporation, administration or management of domiciliary companies or trusts as well as with the organization of fundraising in this context. Further, the purchase and sale of domiciliary companies, the provision of premises or an address as the domicile of a domiciliary company or a trust and the exercise of the function of a nominee shareholder will fall under the scope of AMLA. In this regard, the term „domiciliary company“ can be understood as „non-operating company“ according to the existing practice. While the preliminary draft law extended the scope of AMLA to services related to operating companies, the Federal Council decided to follow a more risk-based approach by focusing on services related to domiciliary companies and trusts.
Like dealers, advisors will be subject to verification and reporting duties but not be subject to supervision. A breach of these duties by advisors will be covered by the AMLA penal norms. The due diligence obligations of advisors include the identification of contracting parties and beneficial owners, the documentation and clarification of the background and purpose of the services provided. The draft law further obliges advisors to provide for sufficient training of their staff and to carry out internal controls in this context. Each advisor will have to engage a qualified auditing company which will have to check whether the advisor has fulfilled its AMLA duties.
Duty to periodically review and update customer data
Art. 5 para. 1 AMLA obliges financial intermediaries to repeat the verification or establishment of identity in the event doubts arise with regards to the identity of a customer or beneficial owner during the course of a business relationship. In case the draft law is implemented, Art. 7 para. 1bis AMLA will also contain a duty to periodically check the up-to-dateness of customer data collected within the scope of the documentation obligation and to update such data if necessary. This duty will apply to every business relationship regardless of the identified risks. However, a risk-based approach may be applied with regard to the periodicity and scope of the review and update of customer data.
Adjustments relating to trade in precious metals and precious stones
The draft law contains various adjustments with regard to the trade in precious metals and precious stones. In particular, the threshold for compliance with due diligence for cash payments in connection with trading in precious metals (gold, silver, platinum and palladium) and precious stones (rubies, sapphires, emeralds and diamonds) will be lowered from CHF 100’000 to CHF 15’000, whereby the sale of fully processed products will not be affected. In addition, professional purchasers of discarded precious metals would be subject to certain due diligence and documentation duties.
Adaptation of the reporting system for reports to MROS
Switzerland has a dual reporting system concerning suspicions of money laundering or terrorist financing. In addition to the reporting duty laid down in Art. 9 AMLA which requires subjects to the reporting duty to report in case of reasonable suspicion, there is a reporting right in case of „simple suspicions“ pursuant to Art. 305ter para. 2 of the Swiss Criminal Code. In recent years, case law has confirmed that the concept of „reasonable suspicion“ must be interpreted broadly in the context of the reporting duty. A suspicion is already deemed to be reasonable if inquiries pursuant to Art. 6 para. 2 AMLA cannot eliminate the reasons for the suspicion. This means that a „simple suspicion“ can also trigger a reporting obligation if the suspicion remains in place despite the necessary inquiries.
While the FATF in its report recognized that the reporting duty under Art. 9 AMLA is largely in line with its recommendations in this area, particularly when considering the case law on the concept of „reasonable suspicion“, it also pointed out that the coexistence of the reporting duty and reporting right leads to legal uncertainty for many financial intermediaries. In order to solve this problem, the Federal Council proposed during the consultation process to abolish the reporting right. However, since a majority of the respondents rejected this proposal, the current draft law provides that the reporting right should be retained and that the concept of „reasonable suspicion“ should be clarified to remedy the situation. The draft law stipulates that in accordance with existing case law, it is to be established at ordinance level that a suspicion is deemed to be „reasonable“ if it could not be dispelled despite inquiries pursuant to Art. 6 para. 2 AMLA.
A further adjustment within the scope of AMLA revision concerns the deadline within which the Money Laundering Reporting Office (MROS) must process money laundering reports filed pursuant to Art. 9 AMLA. The deadline currently amounts to 20 working days pursuant to Art. 23 para. 5 AMLA. As this deadline does not sufficiently take account of the fact that the MROS often has to conduct time-consuming investigations and deal with protracted international cooperation procedures, the Federal Council recommended to abolish the deadline altogether. This plan was criticized by many respondents during the consultation process, in particular because financial intermediaries who wish to terminate a reported business relationship for risk and cost reasons can currently not do as long as the processing time of MROS with regard to a report is ongoing. With the revised draft law, the Federal Council wanted to give MROS the necessary flexibility to process money laundering reports and, at the same time, take into account the interests of financial intermediaries who wish to terminate suspicious business relationships after they have been reported. This will be ensured on the one hand by abolishing the deadline for processing reports. On the other hand, financial intermediaries will be granted the right to terminate a business relationship if MROS does not provide any feedback within 40 days after the report was filed.
Introduction of transparency duties for associations with an increased risk of terrorist financing
To combat the financing of terrorism, the draft law stipulates that associations with an increased risk of abuse, specifically those that collect or distribute assets abroad mainly for charitable, religious, cultural, educational or social purposes, must be registered in the Commercial Register. In addition, all associations to be registered in the Commercial Register will be obliged to appoint a representative resident in Switzerland and to keep a register of the association members that can be accessed at any time in Switzerland. Violations of these obligations will be sanctioned with a fine.
The draft law is expected to be addressed in parliament during this year. However, the revised AMLA is not expected to enter into force until beginning of 2021 at the earliest. At the same time, various other measures from the FATF country report on Switzerland are to be implemented as part of further legislative projects.