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Switzerland Adopts Revised FATF Recommendations

by Ulrika Lomas, Lowtax.net, Brussels
19 December, 2013

The Swiss Federal Council has sent the new Federal Act for Implementing the Revised Financial Action Task Force (FATF) Recommendations, for the attention of parliament.

The bill aims to enhance the effectiveness of the fight against money laundering and takes into account developments in international financial crime. In addition, the Federal Council decided to appoint an interdepartmental working group.

Based on the results of the consultation procedure, the Federal Council is proposing in its revised bill changes in the three following areas: transparency in the case of bearer shares; introduction of predicate offences in the area of tax; and the suspicious activity reporting system.

A series of technical changes proposed by the cantons and interested parties have also been taken into consideration. The law introduces changes in seven areas as follows:

  • Improved transparency in the case of legal entities and bearer shares, whereby the requirements of the Global Forum on Transparency and Exchange of Information for Tax Purposes are also met;
  • More stringent obligations for financial intermediaries when identifying the beneficial owners of legal entities;
  • Extension of the term "politically exposed person" (PEP) to include domestic PEPs and international organization PEPs, as well as introduction of corresponding risk-based due diligence obligations;
  • Introduction of a predicate offence for serious cases in the area of direct taxation and extension of the existing criminal offence of smuggling in the customs area to indirect taxation;
  • Mandatory involvement of a financial intermediary for cash payments of more than CHF100,000 (USD111,683) for purchases of movable or immovable property;
  • Increased effectiveness of the system for reporting suspicious activity;
  • Improved implementation of the FATF standard regarding financial sanctions related to terrorism and terrorist financing.

    Commenting, the Swiss Federal Department of Finance (FDF) stressed that: "Switzerland attaches great importance to maintaining a morally sound financial center, which guarantees its appeal for international investors. It regularly adapts its legislation for combating money laundering and terrorist financing in order to take account of new risks and the development of international standards."

    It added: "Switzerland has a robust and comprehensive system for combating money laundering. However, certain adjustments are needed in order to effectively implement the revised recommendations of 2012 in Switzerland and remedy some of the deficiencies identified during the FATF country evaluation of 2005."

    The FDF explained: "The FATF will again conduct a mutual evaluation in Switzerland in 2015 in order to examine the technical compliance of Switzerland's system with the 40 revised recommendations. Moreover, the new round of evaluations, which will be carried out in all FATF member states, will focus particularly on the effectiveness of the systems for combating money laundering and will examine how well they take account of the risks in the area of money laundering and terrorist financing."

    Furthermore, to strengthen the coordination of the fight against money laundering and terrorist financing within the Confederation, the Federal Council has appointed a permanent interdepartmental working group under the leadership of the FDF, comprising representatives of the affected authorities. The working group will commence its work in 2014. One of its key tasks will be to assess the relevant risks at national level.

    By means of this measure, the Federal Council will implement the corresponding FATF recommendation regarding national risk assessment. This new instrument will also enable Switzerland to optimize its system by strengthening the areas with high risk potential in a targeted manner and relieving those where the risk potential is lower. Finally, the analyses carried out by the working group will serve to support financial intermediaries in their risk assessment efforts.

    Hot on the heels of the FDF's announcement, the Swiss Bankers' Association (SBA) issued its own statement regarding tax offences as a predicate offence for money laundering.

    While underscoring its general support for the adoption and implementation of international standards, such as the recommendations of the FATF, the SBA made clear that, in its current form, the draft, which qualifies tax offences as a predicate offence for money laundering, is only partially implementable for banks.

    Since the FATF's guidelines make an assumption that only a serious criminal offence is to be considered a predicate offence for money laundering, the SBA warned that the underlying criteria must be ascertainable for financial intermediaries.

    The SBA pointed out that it is impossible for a bank to know future tax obligations and untaxed amounts. The SBA is therefore calling for a threshold minimum of CHF600,000 of deposited assets to apply, instead of the threshold of CHF200,000 of evaded taxes, proposed by the Federal Council. In addition, a further qualifying criterion, multiple offences, should be introduced, the SBA said.

    The SBA welcomed the fact that a general intent to deceive will no longer be used as a qualifying criterion, and noted that the banks are generally in favor of the elimination of bearer shares, as these unnecessarily expose Switzerland to international criticism.

    Finally, the SBA categorically rejected the proposed additional duty to investigate and due diligence duties which arise for the financial intermediaries through the processing of cash transactions of over CHF100,000. The responsibility for cash transactions correctly lies with the involved parties, but not with the bank that processes the cash transaction, the association ended.

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