The Start Of Switzerland’s Decline As A Money Laundering Haven
Introduction
Switzerland’s finance minister, Karin Keller-Sutter, recently spoke about new measures to restrict financial regulations, in an effort to reduce the country’s image as a facilitator of money laundering. The new rules involve the creation of a central registry that tracks the beneficial owners of legal entities. They will also increase the due diligence obligations for many professional service industries, including lawyers and accountants.
Money Laundering history in Switzerland
Money laundering enables assets that have been obtained illegally to come into circulation in the financial system. On the whole, the practice has been shown to interfere with a country’s economic stability, as this ‘black money’ can distort an economy’s money demand measures. Switzerland’s lax regulatory environment has allowed such activities to thrive in its financial system, it remains the only European country not to have a national register of ownership for businesses prior to the current proposals. However, it is often not Switzerland itself, but third-party countries who feel the impact.
For decades, the country has faced international pressure to tighten regulations after various instances. In 1986, a fallen director of the Philippines was able to withdraw his illegally obtained fund of millions of tax-payers money from Credit Suisse (a leading Swiss financial services company). The Pizza and Lebanon Connections (1988) exposed Switzerland’s part in laundering the revenues of drug cartels. In more recent years, Switzerland still “consistently implements only the bare minimum,” as stated by Daniel Thelesklaf, head of the Money Laundering Reporting Office (MROS, 2020).
The Proposed Measures
Once again, the proposed measures may be a direct result of international pressure. Earlier this year, the Swiss court found four senior bankers guilty of helping to launder tens of millions, said to be directly linked to the Russian president, Vladimir Putin. They were specifically guilty of financial negligence in failing to perform due diligence on suspicious transactions. This led to Switzerland being privately rebuked by the G7, in a letter to the Federal Council, for the “loopholes” in their system which were being exploited by Russians to hide billions in offshore assets. The letter stated more work was urgently needed to ensure compliance with the sanctions regime against Russia. The new measures, which include a new national register of the beneficial owners of businesses, and increased due diligence obligations for professional service industries, have already faced a number of criticisms. For example, the proposals suggest that corporate service providers can ‘self-regulate’ compliance with the new rules. The new register will also not be available to the general public, but only to those conducting the due diligence processes. This means that it will not be possible for journalists and civil society organizations to use the register to investigate potential money laundering cases.
The newly drafted rules will be presented to parliament next year in 2024, where there may be an anticipated ‘watering down.’
By
Dhiya Deepu