On January 17 2003 the Swiss Federal Banking Commission (SFBC) issued its new Money Laundering Ordinance following a consultation procedure launched in July 2002. The ordinance will enter into force on July 1 2003.
The new ordinance applies to 'financial intermediaries' as defined in the Swiss Money Laundering Act, a term which includes banks and securities dealers.
The ordinance will replace the 1998 Money Laundering Guidelines issued by the SFBC. Key additions to the guidelines have not changed since the draft was first circulated in July 2002 (for further details please see "Federal Banking Commission Consults on New Initiatives"). However, certain details have been added and amended as a result of the consultation procedure.
The key changes to the 1998 guidelines provide for:
- the systematic recording of new and existing business relationships with higher reputational risks;
- comprehensive and more in-depth investigations into business relationships; and
- the electronic monitoring of transactions.
The new ordinance provides as follows:
- Financial intermediaries must ensure that their branch offices or subsidiaries outside Switzerland comply with the principles laid down in the ordinance. Where Swiss financial intermediaries report serious competitive disadvantages as a result, the SFBC can seek solutions on a case-by-case basis.
- Financial intermediaries are not permitted to accept assets that they know, or are expected to know, are the proceeds of criminal activities, even where such activities are committed outside Switzerland (this includes assets obtained through corruption, embezzlement of public funds and abuse of an official function). They are also prohibited from maintaining business relationships with individuals or undertakings which they know, or are expected to know, are involved in terrorist or criminal activities, or which support or finance terrorist or criminal organizations.
- The provisions of the ordinance also apply to correspondent banking relationships. Swiss banks are prohibited from maintaining relationships with shell banks, except where they are part of a financial group that is subject to effective consolidated supervision (ie, supervision by a member state of the Financial Action Task Force).
- Financial intermediaries must adopt a risk-based approach to the prevention of money laundering. This means that for higher-risk business relationships, additional investigations are required, such as investigations as to the origin of the funds. Risk criteria must be defined in order to identify, and label as such, higher-risk business relationships.
- Financial intermediaries with branch offices or subsidiaries outside Switzerland must monitor their legal and reputational risk in relation to money laundering on a worldwide basis. Access to information regarding specific business relationships held in subsidiaries outside Switzerland must be available to internal control bodies, as well as to external auditors at a group level.
- Transactions must be monitored on computerized systems. Exemptions are available for small institutions.
- Financial intermediaries must adopt internal directives on the prevention of money laundering, and set up an internal money-laundering body to advise and assist staff and management in implementing the ordinance's provisions.
- All cross-border wire-transfers must include the details of the remitting party.
- The senior executive body of a financial intermediary must decide whether to commence business relationships with politically exposed persons.
- Where a financial intermediary terminates negotiations regarding a prospective business relationship because it has reasonable grounds to suspect money laundering or links with a terrorist or criminal organization, or where an investigation into an unusual transaction reveals links to a terrorist organization, the financial intermediary must promptly report the matter to the Money Laundering Office.
- Where financial intermediaries have doubts about a specific business relationship, they must seriously consider reporting them to the Money Laundering Reporting Office.
The ordinance will enter into force on July 1 2003 and financial Intermediaries will have to satisfy most of the requirements by June 30 2004. Financial intermediaries must submit an action plan and timetable for the implementation of these provisions to their external auditors for review and report to the SFBC by September 30 2003.
For further information on this topic please contact Emmanuel Genequand or Guy-Philippe Rubeli at Pestalozzi Lachenal Patry by telephone (+41 22 80 94 500) or by fax (+41 22 80 94 501) or by email ([email protected] or [email protected]).