OPINION: Why Switzerland is failing in its fight against money laundering
As one of the world’s largest offshore financial centres, Switzerland is a magnet for money laundering.
Money is channelled in and out of the country at multiples of what would be the normal rate for the size of the economy.
In the ongoing Brazilian Petrobras/Odebrecht corruption scandal alone, Swiss prosecutors froze 1,000 accounts in 40 Swiss banks worth $1.1 billion. Seizing and returning illegal assets is something the Swiss do rather well, when asked.
But are the Swiss authorities doing everything in their power to deter economic criminals? It really doesn’t look that way. There are weaknesses all along the justice pipeline from parliament to prison, which add up to little meaningful punishment for wrongdoing.
'Swissleaks': The Credit Suisse scandal explained
The verdict? Could do better.
Here are the five main failings in the Swiss fight against economic crime:
Weak laws
When Swiss parliament had the chance to close money laundering loopholes, it didn’t take it. A revision of the Anti-Money Laundering Act was approved by Swiss parliament in March of last year. The revision was a lengthy process and the government’s goal was to bring Swiss law into line with international practice.
However, parliamentarians watered down the government’s proposed changes to the act, crucially excluding lawyers and financial advisors from the due diligence requirements. The Financial Action Task Force (FAFT), an international watchdog, had been calling for this step since 2005.
Could the implacable resistance in Bern have anything to do with the fact that one in four members of parliament are qualified lawyers? Some Swiss media have raised the question.
ANALYSIS: Is Switzerland actually a tax haven?
Too slow
Complex international financial investigations take time. That's understandable. The Petrobras affair has been under investigation by Swiss prosecutors since 2014, with one conviction so far in Switzerland.
For the few financial fraud cases that finally come before the courts, there is often a ping pong game of appeals back and forth. The result can be that justice delayed is justice denied.
François Pilet of Gotham City, a Swiss platform reporting on economic crime, tracks large and small cases on their tortuous journey through the Swiss courts. His conclusion: “By exploiting the multiple possibilities for appeal at cantonal and federal level, it is possible to delay a case by around 10 years before an eventual conviction comes into effect.”
Too soft
One of the main players responding to fraud in the Swiss financial sector is the Swiss Financial Market Supervisory Authority Finma. As an enforcer, the authority is limited in how much pain it can inflict. It does not have the power to impose fines.
Finma oversees 29,000 institutions and products, including 17,700 financial intermediaries and 500 banks. Where Finma finds wrongdoing, its usual response is to name and shame, and restrict some activities. In some egregious cases, Finma has ordered assets to be forfeited and imposed an external auditor. But mostly, the offending bank does not face life-changing measures.
EXPLAINED: Which banks are best for foreigners in Switzerland?
In November 2021, for example, Finma announced the conclusion of its investigation into banks connected to alleged cases of corruption linked to the Venezuelan oil company PDVSA.
After reviewing the activities of more than 30 banks, Finma found breaches of Swiss supervisory obligations in five cases. It ultimately opened enforcement proceedings against those five banks, including Julius Baer and Credit Suisse.
These proceedings amounted to recommendations, some restrictions of activities, obligations to report on progress, and some individual staff were banned from acting in a senior role. Just one institution, CBH Bank, was forced to terminate all remaining business relationships with Venezuelan clients. Julius Baer faced a one-year acquisition ban.
No jail time
In the rare cases where a court manages to convict an intermediary, the punishment is usually relatively meaningless – a suspended sentence. This is partly because the Swiss legal system does not have the same punishment ethos that is the norm in other countries.
Since 2007, all prison sentences under two years are automatically suspended. Because most sentences for fraud are under two years, it means people convicted of economic crimes, which may also ruin or cost lives, will never spend a day in prison.
At the most, they will have to pay back the money they have stolen, if they still have it. This soft approach is at odds with other European countries which have become increasingly tough on white-collar crime.
READ MORE: Why are Americans being turned away from Swiss banks?
Honour system
In the fight against money laundering, the Swiss system relies on the banks to follow due diligence rules to determine whether a given client’s assets are legal. Banks and financial intermediaries are meant to assess their own customers and report any suspicious activity to the Money Laundering Reporting Office (MROS).
But an oversight system based on self-regulation has obvious limitations. According to Public Eye, “the friction between a bank’s legal duties and its drive to make profit is one of the main stumbling blocks in the Swiss supervisory system”.
More often than not, banks end up responding to reports of suspicious assets that come from outside, rather than in house – chiefly uncovered by the media or prosecutors. By the time they act, the fraud has been long-running.
The final unseen and unspoken failing lies in the cultural legacy of banking secrecy. Part of Switzerland’s success story is the strength of its financial sector. Swiss politicians, banks, and to some extent, the public, share a sense that keeping financial matters confidential is not such a bad idea.
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Money is channelled in and out of the country at multiples of what would be the normal rate for the size of the economy.
In the ongoing Brazilian Petrobras/Odebrecht corruption scandal alone, Swiss prosecutors froze 1,000 accounts in 40 Swiss banks worth $1.1 billion. Seizing and returning illegal assets is something the Swiss do rather well, when asked.
But are the Swiss authorities doing everything in their power to deter economic criminals? It really doesn’t look that way. There are weaknesses all along the justice pipeline from parliament to prison, which add up to little meaningful punishment for wrongdoing.
'Swissleaks': The Credit Suisse scandal explained
The verdict? Could do better.
Here are the five main failings in the Swiss fight against economic crime:
Weak laws
When Swiss parliament had the chance to close money laundering loopholes, it didn’t take it. A revision of the Anti-Money Laundering Act was approved by Swiss parliament in March of last year. The revision was a lengthy process and the government’s goal was to bring Swiss law into line with international practice.
However, parliamentarians watered down the government’s proposed changes to the act, crucially excluding lawyers and financial advisors from the due diligence requirements. The Financial Action Task Force (FAFT), an international watchdog, had been calling for this step since 2005.
Could the implacable resistance in Bern have anything to do with the fact that one in four members of parliament are qualified lawyers? Some Swiss media have raised the question.
ANALYSIS: Is Switzerland actually a tax haven?
Too slow
Complex international financial investigations take time. That's understandable. The Petrobras affair has been under investigation by Swiss prosecutors since 2014, with one conviction so far in Switzerland.
For the few financial fraud cases that finally come before the courts, there is often a ping pong game of appeals back and forth. The result can be that justice delayed is justice denied.
François Pilet of Gotham City, a Swiss platform reporting on economic crime, tracks large and small cases on their tortuous journey through the Swiss courts. His conclusion: “By exploiting the multiple possibilities for appeal at cantonal and federal level, it is possible to delay a case by around 10 years before an eventual conviction comes into effect.”
Too soft
One of the main players responding to fraud in the Swiss financial sector is the Swiss Financial Market Supervisory Authority Finma. As an enforcer, the authority is limited in how much pain it can inflict. It does not have the power to impose fines.
Finma oversees 29,000 institutions and products, including 17,700 financial intermediaries and 500 banks. Where Finma finds wrongdoing, its usual response is to name and shame, and restrict some activities. In some egregious cases, Finma has ordered assets to be forfeited and imposed an external auditor. But mostly, the offending bank does not face life-changing measures.
EXPLAINED: Which banks are best for foreigners in Switzerland?
In November 2021, for example, Finma announced the conclusion of its investigation into banks connected to alleged cases of corruption linked to the Venezuelan oil company PDVSA.
After reviewing the activities of more than 30 banks, Finma found breaches of Swiss supervisory obligations in five cases. It ultimately opened enforcement proceedings against those five banks, including Julius Baer and Credit Suisse.
These proceedings amounted to recommendations, some restrictions of activities, obligations to report on progress, and some individual staff were banned from acting in a senior role. Just one institution, CBH Bank, was forced to terminate all remaining business relationships with Venezuelan clients. Julius Baer faced a one-year acquisition ban.
No jail time
In the rare cases where a court manages to convict an intermediary, the punishment is usually relatively meaningless – a suspended sentence. This is partly because the Swiss legal system does not have the same punishment ethos that is the norm in other countries.
Since 2007, all prison sentences under two years are automatically suspended. Because most sentences for fraud are under two years, it means people convicted of economic crimes, which may also ruin or cost lives, will never spend a day in prison.
At the most, they will have to pay back the money they have stolen, if they still have it. This soft approach is at odds with other European countries which have become increasingly tough on white-collar crime.
READ MORE: Why are Americans being turned away from Swiss banks?
Honour system
In the fight against money laundering, the Swiss system relies on the banks to follow due diligence rules to determine whether a given client’s assets are legal. Banks and financial intermediaries are meant to assess their own customers and report any suspicious activity to the Money Laundering Reporting Office (MROS).
But an oversight system based on self-regulation has obvious limitations. According to Public Eye, “the friction between a bank’s legal duties and its drive to make profit is one of the main stumbling blocks in the Swiss supervisory system”.
More often than not, banks end up responding to reports of suspicious assets that come from outside, rather than in house – chiefly uncovered by the media or prosecutors. By the time they act, the fraud has been long-running.
The final unseen and unspoken failing lies in the cultural legacy of banking secrecy. Part of Switzerland’s success story is the strength of its financial sector. Swiss politicians, banks, and to some extent, the public, share a sense that keeping financial matters confidential is not such a bad idea.
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