During its meeting on 26 June, the Federal Council - Switzerland's seven-man presidency - promulgated its proposals for amendments to the Anti-Money Laundering Act. These take account of the main recommendations of the mutual evaluation report of the Financial Action Task Force on Switzerland.

The Swiss Parliament is expected to begin discussing these policies in the second half of 2019. They are not expected to come into force until the start of 2021 at the earliest.

In its fourth mutual evaluation report on Switzerland, published in early December 2016, the FATF acknowledged the generally good quality of the Swiss system for combating money laundering and terrorist financing. At the same time, it spotted weaknesses in certain areas and made recommendations. The Federal Council subsequently instructed the Federal Department of Finance to prepare a consultative draft. This includes measures for persons providing services in connection with companies or trusts (advisors), for trading in precious metals, precious stones and old precious metal, and for financial intermediaries. All three areas are linked closely to wealth management and are the concern of many private bankers who operate on behalf of their HNW clients. The council also wants to make the AML regime more burdensome for associations.

The consultative process ran between 1 June and 21 September last year. Having read the results, the Federal Council adjusted two of its proposals and added a new one.

Advisors already have to comply with various 'due diligence' rules and are obliged to verify the identities of people and bodies corporate. Under the Anti-Money Laundering Act, the council proposes, they should have to report yet more information to the authorities, although it only wants the new measure to cover services for domiciliary companies or trusts.

The duty to report and the right to report

Article 9 Anti-Money-Laundering Act states that a financial intermediary must immediately send a report to the Money Laundering Reporting Office (MROS) if it knows or has reasonable grounds to suspect that assets involved in the business relationship are connected to an offence, are the proceeds of a felony or an aggravated tax misdemeanour, are subject to the power of disposal of a criminal organisation, or serve the financing of terrorism. If it breaks off negotiations to establish a business relationship because it is reasonably worried about these things, it should also send a report.

This is known as the "duty to report." Alongside it, Article 305ter paragraph 2 of the Swiss Criminal Code (SCC) came into force in 1994, four years before the AMLA. This grants financial intermediaries the right to tell the prosecutor when they suspect a client of criminal activity without themselves becoming the subject of legal proceedings for breach of professional secrecy. The text of Article 305ter paragraph 2 SCC refers to “any observations that indicate that assets originate from a felony.” This is known as the "right to report" and absolves bankers from breaking article 47 Swiss Banking Act 1934. The Federal Council proposes to maintain the right to report, contrary to the proposal in the consultative draft. The difference between the reporting duty and the right to report will be clarified later by the use of the term "justified suspicion," as used in the reporting obligation, in an amendment to the existing Money Laundering Ordinance.

Art 10a of the draft decree states on the subject of reporting: "The financial intermediary may not inform either affected persons or third parties that he has filed a report in accordance with Article 9 or Article 305ter. It may inform another financial intermediary under this Act that it has filed a report pursuant to Article 9/Article 305ter, to the extent necessary to comply with the obligations under this Act. [It] may also inform its parent abroad that it has filed a report pursuant to Article 9/Article 305ter, as long as it undertakes to respect the prohibition of information. The supervisory authority of the parent company is not considered a third party. The merchant, advisor or distributor may not inform either parties or third parties that he or she has made a report pursuant to Article 9."

Art 11 para 2 adds that this exclusion of liability should also apply to: financial intermediaries who report under Article 305ter; auditors who report under Article 15(5) or (6); supervisory bodies; and self-regulatory organisations.

In addition, the council wants to allow each financial intermediary to end a business relationship if it does not receive any feedback within 40 days of a report being submitted to the MROS. Its draft adds: "The 20-day deadline for analysing money laundering claims to the Money Laundering Reporting Office (MROS) should be raised. For this purpose, the financial intermediary may cancel the business relationship under certain conditions. This right should be anchored in the AMLA."

Charitable associations

The draft seeks to change the Civil Code to say that each association is required to register if it collects or distributes (directly or indirectly) foreign assets intended for charitable, religious, cultural, educational or social purposes abroad. The Federal Council will issue some implementing regulations to govern the association's obligation to have an entry in the commercial register. It may exclude clubs from that obligation if they are exposed to a low risk of misappropriation for money laundering or terrorist financing due to the amount, origin, destination or purpose of the assets they are collecting or distributing.

The Federal Council wants to force associations in the commercial register to maintain their own registers of members, listing their names and surnames or the company and the address and keeping these details and any supporting documents for ten years after the removal of this-or-that member from the register. It also wants such associations to be represented by people domiciled in Switzerland who have access to their member-directories. It wants directories "that can be used at any time in Switzerland."

Precious metals

The threshold above which precious metals and gemstone dealers must be 'duly diligent' in accordance with the AMLA in the event of cash payment is to be reduced from SFr100,000 (US$100,802) to SFr15,000 (US$15,102). Exempted from this is the trade in precious metals and gemstones, which are typically intended for sale to end users or end customers. The first two measures are there to improve Swiss conformity with Recommendation 22 of the FATF. An explicit legal basis for the obligation to verify the identity of the beneficial owner is to be established.

In addition, a general and explicit duty to periodically review the timeliness of customers' profiles ought to be included in the AMLA. If the data is no longer up-to-date, it ought to be updated. These two measures are intended to improve Swiss conformity with FATF Recommendation 10. The Federal Council initially wanted to include them in the Money Laundering Ordinance-FINMA of 3 June 2015 and in the regulations of the Self-Regulatory Organisations. After some hearings in 2017, however, it decided that it wanted to anchor both measures directly in the AMLA "for reasons of legal certainty."

The council wants the Central Office for Precious Metals Control to take over anti-money-laundering supervision for certain financial intermediaries in the area of trading in banking precious metals (trade assayers).

Organisational changes

In addition, there are a few minor amendments to the AMLA that aim, on the one hand, to strengthen national co-operation and, on the other hand, to improve compliance with the FATF recommendations in respect of international co-operation. As regards national co-operation, the MROS and this-or-that recognised SRO should in future be able to exchange all information they need to enforce the AMLA. The second point concerns the dissemination of information to a foreign financial intelligence unit or FIU to other authorities and third parties by the MROS and the use of this information. Another amendment seeks to resolve a conflict between the right of access to data collected in connection with notifications under Article 34 AMLA and a prohibition that applies to information in Article 10a of the German Income Tax Act. An additional amendment to the AMLA takes into account a request from the consultation, proposing to make an exception to the prohibition of Article 10a AMLA regarding flows of information between a subsidiary in Switzerland and its parent abroad. Due to the entry into force of the Money Gaming Act 2017 on 1 January this year, the Federal Council wants to make up for a lack of co-ordination in Parliament during the passage of that Act. Article 22a AMLA (on the forwarding of data about terrorist activities) is to include a reference to the inter-cantonal supervisory and enforcement authority of the organisers of major games.

With regard to the introduction of a new data processing system at the MROS (the goAML information system), formal adjustments to the AMLA are required as of 1 January 2020.

Fallout from the Panama Papers

On 3 April 2016, an international association of investigative journalists published the confidential documents of a Panamanian law firm which revealed legal strategies for tax avoidance as well as tax and money laundering offences. Among the 14,000 banks, law firms and other service providers that the papers mentioned, a total of 1,200 Swiss companies were involved in setting up offshore companies, mainly in Panama. According to the report, more companies from Hong Kong and the UK were involved in the incidents. The revelations have led to a number of parliamentary initiatives in Switzerland that call for greater regulation.

Trusts are one such area that politicians have earmarked for reform. Services in connection with the formation, management or administration of companies or trusts are already subject to the AMLA whenever someone Swiss accepts or retains foreign assets or if they help someone to invest them or transfer them. Also subject to the AMLA is the act of holding a position in a domiciliary company (Article 6(1)(d)). The activities mentioned are the activities of a financial intermediary. Services provided in connection with companies or trusts in which no financial flows are involved are not subject to the AMLA, but the Federal Council wants to change this.

It now proposes to introduce duties under the AMLA for specific services in connection with non-operating companies or trusts as well as for the functions of nominal shareholders. It wants to create a new category of persons known as advisors who will be subject to the AMLA in addition to financial intermediaries and traders. It only uses the term 'consultant' to bring the new activities together under a generic umbrella.

As for traders, it proposes a regime (which requires auditing and reporting but no supervision) that is simpler than that which applies to financial intermediaries. In this context, the services provided by a lawyer or notary are to be exempt from the obligation to notify whenever they either do not include a financial transaction or when the information to be reported is subject to professional secrecy. This exception is to apply only to the obligation to report and not to the duty of care.

Obligations for advisors

The AMLA is to be supplemented by a new section which regulates 'due diligence' for advisors and their organisation. In addition, the already existing reporting requirements for financial intermediaries and traders and the already existing obligation to inspect traders are to be extended to advisors. They include an obligation to identify the customer, the obligation to identify the beneficial owner, a duty to produce documents and an obligation to determine the background and purpose of the service being provided.