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Switzerland’s Tightened Money Laundering Regulations Garner Mixed Reaction

Switzerland has taken significant steps to clamp down on money laundering activities by initiating a consultation on a bill aimed at strengthening its anti-money laundering framework.

The objective is to enhance both the integrity and competitiveness of Switzerland as a financial and business hub. The proposed measures align with international standards and also include the establishment of a federal register of beneficial owners, imposing due diligence requirements for high-risk activities within legal professions, and introducing other provisions.

Acknowledging the vital role of an effective system in combating financial crime for maintaining the country’s reputation as a secure financial centre, the Swiss Federal Council aims to address the threats posed by money laundering and terrorist financing.

Criminals often exploit legal entities to hide assets for purposes like money laundering and tax evasion. By reinforcing transparency through a federal register, authorities seek to expedite the identification of actual beneficial owners behind legal structures.

‘Firm stance’
Chrisol Correia, chief strategy officer at payments screening technology firm Facctum
Chrisol Correia, chief strategy officer, Facctum

Chrisol Correia, chief strategy officer at payments screening technology firm Facctum, views this initiative as a much-needed step forward. However, he also outlined how the effectiveness of these measures hinges on consistent enforcement and the severity of penalties as credible deterrents.

“While these new measures are a step forward, their success will rely on whether regulations are, enforced consistently, and if penalties are sufficiently severe to be deterrents to breaking the law. The nation’s approach to AML has been criticised in the past as being too lax and the country has recently come under increased pressure to enforce tighter controls in the context of international measures to implement financial sanctions on Russia’s economic interest.

“If these measures are to be effective, Switzerland’s regulators will need to put into action a firm stance on financial crime and make sure that financial institutions are acting with urgency to implement a new culture that supports a new approach to financial crime countermeasures. This includes, for example, introducing tougher requirements on customer due diligence and more transparency in the declaration of beneficial ownership.”

Enhancing anti-money laundering efforts
Dr. Henry Balani
Dr. Henry Balani, Encompass Corporation

Dr. Henry Balani, global head of industry and regulatory affairs for automated KYC specialist Encompass Corporation, also highlights the broader global trend of regulators intensifying their focus on money laundering regulation.

“The continuing global attention on financial crime and sanctions has forced regulators to up their game with regards to money laundering regulation, with Switzerland the latest example to level up its economic crime agenda.

“We’ve seen in the UK, for example, the introduction of the Economic Crime Bill as a direct result of public pressure against Russian Oligarchs, sparking a closer inquiry into ownership structures and it’s important that this approach spreads through to European countries to bolster the response to economic crime, with regulation a key component.

“As part of the fight against financial crime, organisations themselves should embrace technology for robust know your customer (KYC) processes, which ensure compliance and detect financial criminals faster. Utilising dynamic KYC process automation, for example, is crucial to navigating complex ownership structures to identify beneficial owners, enabling businesses and regulators to take collaborative action to truly tackle financial crime.”

Key features of the legislative amendment
  1. Federal register: The proposal mandates companies and legal entities in Switzerland to register their beneficial owners in a federal register. Simplified registration procedures will apply to specific legal forms, and the non-public register will be managed by the Federal Department of Justice and Police (FDJP). An audit unit within the Federal Department of Finance (FDF) will also oversee the quality of the register.
  2. Expanded due diligence: Anti-money laundering due diligence rules will extend to certain consultancy activities, especially in legal advice, carrying a higher risk of money laundering. Activities like company structuring and transactions involving real estate will be subject to enhanced scrutiny.
  3. Additional measures: The bill encompasses various complementary measures, including preventing sanctions breaches, reducing the threshold for cash payments in precious metals trading, and imposing anti-money laundering due diligence for all cash payments in real estate transactions.

The consultation on the bill will conclude on 29 November 2023, with the Federal Council set to present it to Parliament in 2024.

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