Switzerland Proposes Major AML Revamp In New Consultation

September 5, 2023
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Switzerland’s Federal Council has opened a new consultation on an anti-money laundering (AML) bill that could lead to a mandatory federal registration system for all business owners.

Switzerland’s Federal Council has opened a new consultation on an anti-money laundering (AML) bill that could lead to a mandatory federal registration system for all business owners.

Last week, the Federal Council invited financial service firms to provide feedback on a new bill that aims to increase transparency and improve identification of beneficial owners.

Known as the Act on Transparency of Legal Entities, the bill would introduce a new system of beneficial ownership registration in Switzerland for the first time.

The consultation will be open until 29 November. Then in 2024, the Federal Council will submit a response to the Federal Assembly, the lower chamber in Switzerland's bicamaral system.

In a Q&A document published alongside the consultation, Switzerland’s Federal Department of Finance (FDF) said the new legislation is needed to help regulators quickly access and share information about beneficial owners.

Under the proposals, all companies and legal entities, such as trusts and cooperatives, would be asked to submit mandatory information identifying their beneficial owners.

Identifying details would include the beneficial owner’s name, nationality, date of birth and an explanatory note on the nature of their ownership.

As per the bill, a “beneficial owner” will be defined as anyone who holds at least 25 percent of the capital or voting rights in a legal entity, whether directly or indirectly, alone or with a third party.

If no single person meets this criteria, the most senior manager would be deemed the beneficial owner.

The rules would apply to both Swiss firms and foreign firms with branches, land, real estate or “effective administration” within Switzerland.

After the legal entity has been entered into the register, it would have one month to report the identity of its beneficial owner(s) and the “type and magnitude” of control exercised by them.

Legal entities that are already entered in Switzerland’s commercial register would be given a transitional period during which to report to the new register.

Subsequent changes in ownership structure for all legal entities would be subject to a one-month reporting deadline.

The register could be accessed by regulators, financial intermediaries and advisors, but would not be open to the public.

Only financial service firms that are regulated under the Anti-Money Laundering Act (AMLA) would be able to access the register, to meet the compliance and due diligence obligations of clients.

The register, which would be managed by the Federal Department of Justice and Police and would be audited by the FDF, would likely contain more than 500,000 legal entities, according to the FDF.

Legal professionals in scope

The second key element of the bill is the extension of AML rules to certain legal professionals for the first time.

As noted by the FDF, legal professionals may have a high exposure to money laundering risks if they support their clients in the founding or structuring of companies or the sale of real estate.

Until now, these professionals have not been subject to due diligence obligations, unlike financial professionals.

The bill, therefore, provides for the introduction of similar obligations, specifically the duty to identify and verify clients and beneficial owners in a transaction, and to identify the purpose of the transaction.

In the Q&A document, the FDF adds that if a client or transaction has a particularly high-risk profile, it may be necessary to clarify the origin of the funds or to request additional details about the purpose of the transaction.

All such steps must be logged and recorded in case of information requests from regulators at a later date.

Further measures included

The bill includes several other measures that could introduce significant changes for certain firms.

One of these measures authorises regulators to request information from firms if a client is suspected of breaching or evading sanctions, to “induce” the reporting of potentially criminal activity.

Another involves significant reductions in the permitted use of cash in real estate and precious metals transactions.

As per the bill, the maximum threshold for cash payments in precious metals purchases will be reduced from CHF100,000 ($113,000) to CHF15,000 ($17,000). This threshold is now in line with the latest Recommendations of the Financial Action Task Force (FATF).

It will still be possible to make cash payments above this threshold, but if the bill is adopted, these purchases would be subject to enhanced due diligence rules.

As for real estate transactions, all cash payments would be subject to AML and due diligence rules, irrespective of the monetary amount involved.

Chasing FATF blessings

In supplementary information provided alongside the consultation, the Federal Council said it aims for the proposed regulations to bring Switzerland further into line with FATF Recommendations.

At present, Switzerland is rated “compliant” on eight Recommendations, “largely compliant” on 27 Recommendations and “partially compliant” on five Recommendations.

Although FATF began recommending that nations adopt beneficial ownership transparency laws in 2003, it took more than a decade for countries to implement such registers.

In 2016, the UK became the first country to create a publicly searchable register of beneficial owners of corporations, followed by the EU in 2018, although the latter has now had to row back.

Last month, as covered by Vixio, New York moved closer to adopting a bill that would create a publicly searchable beneficial ownership register.

Since a previous assessment of the country in 2016, FATF notes that Switzerland has taken a number of actions to strengthen its AML/CTF framework.

However, the Federal Council admits that Switzerland can go further, and must do so if it is to retain its status as a global financial centre.

“An effective system for combating financial crime is essential for the good reputation and lasting success of an internationally important, safe and future-oriented financial centre and business location,” it said.

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