Anti-money laundering and financial crime prevention

Requirements

What are the main anti-money laundering and financial crime prevention requirements for private banking and wealth management in your jurisdiction?

The AML and financial crime requirements imposed upon financial intermediaries within private banking are essentially know-your-customer (KYC) rules and procedures, as well as certain organisational requirements (eg, internal controls, documentation and ongoing education).

In addition, a financial intermediary has a reporting duty to the regulatory body in the event that he or she is aware of, or has reasonable suspicion, as regards the criminal origin of the assets involved (eg, the assets are connected to a predicate offence of money laundering, a criminal organisation or terrorism financing activities). In case of reporting, the financial intermediary is to monitor the clients’ assets for a period of up to 20 days (during which the regulatory body is to review the reporting made). If the case is transferred to a criminal prosecution authority following the reporting, the financial intermediary is to implement a full freeze on the account for up to five days until a decision to maintain the freeze is made by the criminal authority. An immediate freezing of assets is, however, required for assets connected to persons whose details were transmitted to the financial intermediary by FINMA, the Federal Gaming Board or an SRO due to a suspicion of being involved with or supporting terroristic activities.

Politically exposed persons

What is the definition of a politically exposed person (PEP) in local law? Are there increased due diligence requirements for establishing a private banking relationship for a PEP?

According to the AMLA, foreign and national PEPs are defined as persons who are or have been entrusted with leading public functions in politics, administration, the military and justice on a national level abroad, respectively, in Switzerland, as well as members of the board of directors or of the management of state-owned enterprises with national importance. This definition also covers persons who are or have been entrusted with a leading function in intergovernmental organisations or international sport associations.

Business relationships with foreign PEPs and their family members or close associates (ie, individuals who are related to them or closely connected socially or professionally) are deemed to be de facto high-risk relationships and involve increased due diligence duties. By contrast, relationships with domestic PEPs or those exposed in international organisations, as well as their family members or close associates, are deemed to present high risks only when combined with one or more further risk criteria (eg, the residence or nationality of the contracting party or the beneficial owner, the complexity of the structure, the amount of the assets etc).

The increased due diligence duties in this context presuppose that the financial intermediary performs, in a proportionate manner, further clarifications on the contracting party, the beneficial owner and the assets involved. He or she is further to implement an effective monitoring system of these relationships and to ensure the detection of high risks in this respect.

Documentation requirements

What is the minimum identification documentation required for account opening? Describe the customary level of due diligence and information required to establish a private banking relationship in your jurisdiction.

Under the AMLA, financial intermediaries such as banks and asset managers are subject to various KYC duties, which are in line with international standards.

In particular, they are required to verify, prior to entering into any business relationship, the identity of their contractual counterparties with a copy of a passport, identity card, driving licence or other similar documents. They further must record the first and last names, date of birth, nationality and address of their clients in their files. Further specific requirements apply to relationships established by correspondence or the internet. In this respect, it worth noting that, since 1 January 2016, the Swiss legal framework provides for the possibility for financial intermediaries to on-board clients exclusively online. In this context, FINMA published a circular on video and online identification (FINMA Circular 2016/7) that entered into force on 18 March 2016 and has been revised on 1 August 2018. One of the main purposes of this circular is to clarify and facilitate video and online client identification for financial intermediaries, subject to KYC duties. The revised circular takes into account the technological developments since its first publication. Financial intermediaries will have to comply with the revised circular by 1 January 2020.

Financial intermediaries are also to identify the beneficial owner of the assets involved (ie, the person who has a financial interest in such assets), as well as the persons controlling legal entities conducting business activities. Under certain circumstances (eg, the contracting party is different from the beneficial owner of the assets), financial intermediaries are to obtain a written declaration signed by the contracting party in this respect. They usually document the identity of the beneficial owner (including his or her nationality, address and date of birth) with a specific form (eg, the Form A developed by the SBA).

Further, financial intermediaries are to clarify the economic background and purpose of a transaction or business relationship if:

  • it appears unusual, unless its legality is clear; or
  • there are indications that suggest the assets may be the proceeds of a crime or a qualified tax offence (see question 16) or are related to a criminal organisation.

Enhanced due diligence obligations apply with regard to higher-risk business relationships or transactions.

In practice, in the presence of an independent asset manager, banks usually delegate their KYC duties to the said manager and rely on his or her indications for AML purposes.

It is worth noting that on 1 June 2018, the Federal Council opened up a consultation procedure on the revision of the AMLA. The purpose of this revision is to reflect the outcome of the latest Financial Action Task Force (FATF) review of the Swiss AML framework. Among other things, the draft provides for the extension of due diligence obligations to advisory services related to the setting up, management and administration of offshore companies and trusts, regardless of the absence of any pure financial intermediation activity (ie, services involving financial transactions or an activity of a corporate body of an offshore company). The draft further provides for the removal of the 20-day period during which the regulatory body is to review the reporting made by the financial intermediary and revert, as the case may be. According to the Federal Council, this would allow the regulatory body to prioritise the filings and treat them in a more efficient manner. The entry into force of the revised AMLA is not expected before 2020.

Tax offence

Are tax offences predicate offences for money laundering? What is the definition and scope of the main predicate offences?

Under Swiss law, qualified tax offences in relation to direct taxes constitute predicate offences for money laundering within the meaning of article 305-bis of the Swiss Criminal Code (SCC).

Qualified tax offences are defined as tax fraud, provided that the evaded tax amount in a particular tax period exceeds 300,000 Swiss francs. The qualified tax fraud presupposes in this context the use of false, falsified or untrue official documents (such as financial statements or salary certificates).

Qualified tax offences committed abroad may also be considered as predicate offences for the purposes of article 305-bis SCC, provided that:

  • these are also treated as an offence in that foreign country; and
  • the evaded tax amount reaches the equivalent above threshold in Swiss francs.
Compliance verification

What is the minimum compliance verification required from financial intermediaries in connection to tax compliance of their clients?

For a number of years, the Swiss Federal Council has been keen to implement its ‘clean money strategy’ through, inter alia, the introduction of enhanced due diligence requirements applicable to financial intermediaries in connection with the tax compliance of their clients. Such initiative has been subject to intense discussions and debates for years. For the time being, no specific prescriptive requirements as regards the review of the tax compliance of the clients’ assets have been implemented in the Swiss legal framework.

That being said, with the revision of the AMLA, a risk-based approach is now generally applied by financial intermediaries to assess the tax compliance of clients’ assets. In addition, the participation of Switzerland in the automatic exchange of information within the Organisation for Economic Co-operation and Development (OECD) since 2018 alleviated to a certain degree the risks related to tax compliance. As of today, tax information about clients with residence in countries having entered into an agreement with Switzerland for this purpose are automatically transmitted to the foreign tax authority through the Swiss tax authorities. According to the Automatic Exchange of Information Act, which entered into force on 1 January 2017, financial institutions are subject to a duty to obtain from their clients opening accounts after this date a specific self-certification indicating their name, address, tax residence, tax identification number and date of birth.

Liability

What is the liability for failing to comply with money laundering or financial crime rules?

Financial intermediaries may face criminal liability for failing to comply with their duty of diligence. According to article 305-ter (1) SCC, they may be sentenced to imprisonment of up to a year and to a fine (capped at 540,000 Swiss francs). In addition, in the event that they do not comply with their reporting duty to the regulatory body, they may be subject to a fine of up to 500,000 Swiss francs under the AMLA. Finally, financial intermediaries may be subject to further fines and disciplinary measures imposed by their SROs or, for banks, the Supervisory Commission of the SBA, in case of violation of their AML self-regulatory rules.

Clients, as well as the employees of banks and wealth managers, committing money laundering offences may be subject to criminal sanctions, including imprisonment for up to five years and a fine of up to 1.5 million Swiss francs.