New Registration and Transparency Requirements for Swiss-Based Associations

I. General background

Following the 2016 mutual evaluation report (MER) of Switzerland from FATF, Switzerland decided to strengthen its toolkit to combat money laundering and terrorist financing, and to implement the most important recommendations from FATF.

On 26 June 2019, the Federal Council of Switzerland adopted a revised version of the AMLA (see for further details: RO 2021 656 and the Message of Swiss Federal Council on the AMLA, FF 2019 5237).

To comply with the FATF Recommendations, Switzerland decided to include at that time new specific rules for Swiss-based associations.

According to FATF Recommendation 8 (revised in June 2016), “countries should review the adequacy of laws and regulations that relate to non-profit organisations which the country has identified as being vulnerable to terrorist financing abuse. Countries should apply focused and proportionate measures, in line with the risk-based approach, to such non-profit organisations to protect them from terrorist financing abuse, including: (a) by terrorist organisations posing as legitimate entities; (b) by exploiting legitimate entities as conduits for terrorist financing, including for the purpose of escaping asset-freezing measures; and (c) by concealing or obscuring the clandestine diversion of funds intended for legitimate purposes to terrorist organisations.”

This Recommendation 8 and its Interpretative Note revised in June 2016 were modified to clarify which non-profit organisations should be subject to supervision and monitoring, also clarifying that not all non-profit organisations are entities considered to be at high risk of money-laundering and terrorist financing. According to FATF, ”protecting non-profit organisations from terrorist financing abuse is both a critical component of the global fight against terrorism and a necessary step to preserve the integrity of non-profit organisations and the donor community. Measures to protect non-profit organisations from potential terrorist financing abuse should be targeted and in line with the risk-based approach. It is also important for such measures to be implemented in a manner which respects countries’ obligations under the Charter of the United Nations and international human rights law” (Interpretative Note to Recommendation 8).

Since then, Switzerland has undertaken measures to address the gaps identified in its report, and to comply with the new requirements of FATF Recommendation 8. On 28 June 2017, the Swiss Interdepartmental Coordinating Group on combatting money laundering and the financing of terrorism (GCBF) published a report on “Money laundering and terrorist financing via non-profit organisations”. The report identifies the population of non-profit organisations as possibly presenting an increased risk of terrorist financing and, notably, recommends extending to associations presenting high risks in terrorism financing the obligation to register with the Trade Register.

On 31 August 2022, the Swiss Federal Council approved the amended Anti-Money Laundering Ordinance (AMLO) and the changes to the Swiss Civil Code (SCC) and to the Ordinance on the Trade Register (ORC) with an entry into force on 1 January 2023 (RO 2022 552). There is a transition period of 18 months (i.e. until 30 June 2024) for existing associations to comply with the new requirements (Art. 6b^bis Final Title of SCC; Art. 181b ORC).

II. Registration with the Trade Register

In the past, only associations which conducted trading activities in furtherance of their purpose and associations subject to audit requirements were obliged to register with the Trade Register.

Since 1 January 2023, associations which primarily collect or distribute assets abroad, directly or indirectly, that are intended for charitable, religious, cultural, educational or social purposes are also subject to a compulsory registration (Art. 61 para. 2 ch. 3 of the Swiss Civil Code, SCC; Art. 90 para. 1 ORC).^[1] This qualification of collecting and distributing funds is considered de facto and not only according to the purpose clause of the association.

Such associations are exempt of the obligation to register with the Trade Register if:

• The funds collected or the funds distributed do not exceed annually CHF 100,000 in the last two business years;
• The funds are distributed by a financial intermediary within the meaning of the AMLA; and
• The association has at least one representative domiciled in Switzerland (Art. 61 para. 2^ter SCC cum Art. 90 para.2 ORC).

This means that an association which raises CHF 80,000 from donors and distributes CHF 60,000 to charitable projects which fall into the exemption. On the contrary, an association which does not fundraise but supports charitable projects abroad through its own funds for an amount higher than CHF 100,000 will be subject to compulsory registration with the Trade Register. The amounts of the funds collected or the funds distributed are based on the financial statements of the association. To avoid that isolated fundraising or distributions change the subjection to the registration, the ORC provides that the registration requirement starts only when the funds collected or distributed exceed CHF 100,000 over two consecutive business years; in consequence, newly established associations concerned by Art. 61 para. 2 ch. 3 SCC benefit from the exemption during their first two years of existence.

The requirement to have the funds distributed by a financial intermediary only applies to the distribution of the funds and not to their collection.

As a reminder, here are the main effects of a registration to the Trade Register for an association:

• It becomes subject to debt enforcement by way of bankruptcy instead of seizure (Art. 39 para. 1 ch. 11 of the Federal Act on Debt Enforcement and Bankruptcy, DEBA)
• It becomes subject to the accounting requirements as per the Swiss Code of obligations (SCO). In this respect, if the association meets two out of 3 of the following criteria in 2 successive years, it shall be subject to an ordinary audit: balance sheet total of CHF 10 million; revenues of CHF 20 million and 50 full-time employees (Art. 69b para. 1 SCC).
• The Statutes and the list of Board members and signatories of the association, with their names, nationality and place of domicile, are publicly available on the Trade Register, including on its website.

The new association law has established a specific more relaxed rule for the associations which primarily collect or distribute assets abroad, directly or indirectly, that are intended for charitable, religious, cultural, educational or social purposes (Art. 61 para. 2 ch. 3 SCC) and for those which are voluntarily registered with the Trade Register: for such associations, it is not necessary that all Board members and signatories be registered but only “at least one Board member as well as a Swiss-domiciled representative of the association with signing rights” (Art. 92 lit. k ORC) .

III. Swiss-domiciled representative

All associations that are required to be registered with the Trade Register shall have a Swiss-domiciled representative. This obligation of the representation in Switzerland is fulfilled if (i) a person with individual signing rights is domiciled in Switzerland or (ii) if two persons with joint signing rights by two are domiciled in Switzerland.

This new requirement aligns the rule for associations with the ones existing already for companies limited by share (Art. 718 para. 4 SCO), limited liability companies (Art. 814 para. 3 SCO) and cooperatives (Art. 898 para. 2 SCO).

The requirement to have a Swiss-domiciled representative with access to the list of members of the association ensures to the authorities that in case of proceedings against the association, a person can be heard and can give the necessary information, without needing to use international mutual legal assistance. Furthermore, this complies with the FATF recommendations on transparency for legal entities, according to which the basic information on shareholders or members shall be accessible within the country to be available quickly upon request (see FF 2019 5237, 5281).

If the representatives of the association are all domiciled abroad, the association must file a declaration to confirm that while registered with the Trade Register, it is not subject to compulsory registration according to Art. 61 para 2 SCC.

As long as the association is registered in the Trade Register and has a representative domiciled in Switzerland, the question of whether it is subject to compulsory registration can be left open (see Explanatory Notes of the Federal Council of 31 August 2022 on the revised AMLA, p. 10).

IV. List of members

There is also a new requirement for associations subject to compulsory registration with the Trade Register to keep a list of their members, including their first name and last names for individuals or business names for legal entities and addresses (Art. 61a para. 1 SCC). There is no specific prescription on the form of the list of members.

Such requirement of a list of members is similar to the requirement of a share register for company limited by share (Art. 686 SCO), the register of contributions for limited liability company (Art. 790 SCO) and the register of members of cooperatives (Art. 837 SCO).

Such list shall be accessible at any time in Switzerland (Art. 61a para. 2 SCC), in particular by the Swiss-domiciled representative (Art. 69 para. 2 SCC).

The details of each member and any supporting documents shall be retained for five years after the member has been removed from the list (Art. 61a para. 2 and 3 SCC).

V. Sanctions for organisational defects and criminal liability

The lack of a Swiss-domiciled representative or the absence of a list of members are considered as organisational defects within the meaning of Art. 69c SCC.

In such case, a member or a creditor of the association may apply to the court for an order that the necessary measures be taken. The court may set the association a time limit in which to restore the situation required by law and may, if necessary, appoint an administrator (Art. 69c para. 1 and 2 SCC; Art. 939 SCO).

Any person who wilfully fails to comply with any of the obligations of Art. 61a SCC (Obligation to keep a list of members) and 69 para. 2 SCC (obligation to have a Swiss-domiciled representative) is subject to criminal liability; such person shall be liable to a fine (Art. 327b Swiss Criminal Code, SCC). In addition any person who causes an authority responsible for the Trade Register to make a false entry in the Trade Register or withholds from such an authority information which is required to be entered in the Trade Register shall be liable to a custodial sentence not exceeding three years or to a monetary penalty (Art. 153 of the Swiss Criminal Code).

Conclusion

All the new registration and transparency requirements for Swiss-based associations apply as of 1 January 2023 for new associations and the existing associations have until 30 June 2024 to adapt to such rules.

It is important therefore to take all the necessary steps to comply with these rules in due time. In particular, associations of public benefit interest shall review whether they are subject to the registration with the Trade Register and all registered associations shall appoint a Swiss-domiciled representative and keep a list of their members.

Comments of 31 August 2022 on the revised AMLA.

^[1] Note that under Swiss law the fundraising from the public is not subject to specific rules or to authorisation, contrary to other countries.