The Swiss Federal Council has launched the consultation procedure on a new draft law to strengthen the Swiss AML framework and to continue to ensure the integrity and competitiveness of the Swiss financial center in the light of international developments.
Introduction
Although the latest revision of the Swiss Anti-Money Laundering Act (AMLA) – which entered into force on 1 January 2023 – has not even been in effect for a full year, Switzerland has already initiated new developments in the fight against money laundering and terrorist financing (AML).
The aims of the new developments are to further strengthen the Swiss AML framework and to increase the transparency as well as the integrity and competitiveness of the Swiss financial center. To this end, at its meeting on 30°August 2023, the Swiss Federal Council launched the consultation procedure on a new draft law.
Background
The Financial Action Task Force (FATF) published in March 2022 a revised Recommendation 24 (R. 24) regarding the transparency and beneficial ownership of legal persons and legal arrangements. It is expected that the FATF will assess the implementation of the revised R. 24 as part of its next country review of Switzerland planned for 2027.
To keep pace with evolving international transparency standards and to further close AML gaps in the Swiss financial as well as non-financial sector, the consultation procedure on a new draft law on the transparency of legal entities and other legal constructs has been initiated.
Overview of the most important aspects of the new draft law
What changes are proposed?
The key elements of the proposed new draft law consist of (i) the introduction of a federal transparency register for legal entities and their beneficial owners (BO), (ii) the introduction of AML obligations for certain activities of non-financial professions and (iii) various additional measures to strengthen the overall AML framework.
Federal transparency register:
Introduction of a federal transparency register, in which legal entities (under Swiss law and certain categories under foreign law) together with information on their BO will have to be entered. For certain legal forms a simplified registration will be available. It is foreseen that the respective legal entities identify and verify their BO and keep the relevant information up to date. In case of failure to meet the obligations, penalties up to CHF 500,000 may be imposed.
To qualify as a BO, a natural person would need to control a legal entity by holding at least 25% or more of its capital shares or voting rights, or by exercising control over it in some other way. If no natural person meets the above criteria, the highest managing member would deemed to be the BO.
The register would not be open to the public but would be reserved for certain authorities within the scope of their legal duties and for financial intermediaries in fulfilling their due diligence obligations.
The introduction of a BO register is nothing new. The current register, however, was not centralized and had various gaps and the definition of BO was not aligned with other laws (e.g., with the AMLA). On an international level, this development is also not novel (e.g., in the EU).
Non-financial consultancy activities:
As early as 2019, the Swiss Parliament deliberated a proposal to extend AML due diligence rules should also apply to certain non-financial consultancy activities (especially legal advice) when they engage in certain high-risk activities such as the establishment, structuring or operation of legal entities or trusts and real estate transactions.
Additional measures:
In addition, the Federal Council also proposes a series of additional measures to strengthen the AML framework. Amongst the most noticeable ones are:
- Sanctions imposed by the Self-Regulatory Organizations (SRO) would fall under public law instead of private/contractual law. These measures are intended to anticipate a likely change in the jurisprudence of the Swiss Federal Supreme Court.
- Lowering the threshold for which certain AML due diligence rules would apply from CHF 100,000 to CHF 15,000 for cash payments in precious metals trading.
- Introducing AML due diligence rules for all cash payments in the real estate business, irrespective of the monetary amount involved.
What would be the main benefits and / or challenges?
A look abroad shows which benefits and challenges Swiss financial intermediaries could encounter with the introduction of such a transparency register.
Our neighboring country Germany, for example, has shown that the introduction of a transparency register puts an additional burden on companies. This is due to the various inconsistencies that German financial intermediaries had between (i) their client data and (ii) the data available in the transparency register as well as the additional effort they had to put in to resolve these inconsistencies (e.g., by contacting clients, issuing so-called “discrepancy reports” in case inconsistencies could not be resolved or by updating internal policies and processes). However, once the discrepancies had mostly been resolved, the transparency register was perceived rather positively by German financial intermediaries. This is because it provides a more reliable, official and faster way to validate BOs and to obtain additional information and therefore, to fulfil their due diligence duties.
It remains to be seen how big the actual effort or benefit of the Swiss transparency register will be. Another important question here is, however, whether and how the register will actually bring more transparency from an AML perspective. It remains uncertain whether the current draft law is setting the right AML priorities as key questions remain unsolved, such as:
- Will the Swiss transparency register only provide "apparent transparency” as it is not offering solutions for “non-transparent" offshore structures (e.g., foreign trusts, legal arrangements, etc.), which rather tend to be misused for money laundering purposes?
- How helpful will the register be to financial intermediaries in addressing the AML-essential concerns regarding transparency on BOs of shell companies, complex structures or domiciliary companies? The transparency register is currently requiring a 25% capital shares or voting rights holding-threshold for disclosure of BOs – while, for instance, CDB20 requires a disclosure of all BOs independently of their shareholding in the case of domiciliary companies. It is expected that financial intermediaries would still have to consult further sources (in addition to the transparency register) to fulfill their due diligence obligations;
- What measures will financial intermediaries need to take to fulfill their due diligence duties if, after a “discrepancy report”, the mismatch cannot be rectified by the corresponding body of the transparency register?
- How will the respective MROS and transparency register reporting deadlines and information interplay? Currently, in case a mandatory reporting obligation to MROS exists, then no reporting obligation to the register is foreseen in the draft law;
- Will future international cooperation be sought for the exchange of data in the transparency register, in particular for information on companies, legal arrangement, etc. abroad?
To summarize the above bullets, it appears that the introduction of a transparency register is a first step towards more transparency in Switzerland, but – due to the current limitations of the register – it clearly does not yet address the areas with which the Swiss financial intermediaries are currently struggling the most (efforts in connection with domiciliary companies, off-shore structures, etc.). In such cases, no added value or additional burden is expected for Swiss financial intermediaries.
