The Financial Action Task Force on Money Laundering (FATF) is the most important body in international cooperation in combating money laundering and terrorist financing. Its 49 Recommendations constitute an internationally recognised standard which a country must adhere to in order to effectively combat money laundering and terrorist financing. Switzerland has been actively involved in the work of the FATF right from the start and due to its pioneering role in the area of customer identification and the other due diligence obligations has contributed to defining its standards. In June 2003, the FATF completely revised its Recommendations for the first time since they were initially issued and updated them to take into account new forms of criminality in the areas of money laundering and terrorist financing. Today, Swiss legislation already broadly conforms with the majority of the new FATF standards. In certain sectors, however, current Swiss legislation on combating money laundering does diverge from the FATF Recommendations.

In January 2005 the Federal Council therefore submitted a proposal on the revised FATF Recommendations for consultation, which was to implement the reforms. However, the response arising from the consultation procedure was critical. In the autumn of 2005 the Federal Council thus instructed the FDF to revise the proposal. Then in October 2005, following the consultation procedure, the conformity of the existing Swiss strategy with the revised FATF Recommendations was evaluated within the scope of an FATF country evaluation. The evaluation report concluded that in principle Switzerland has an effective and efficient system for combating money laundering and terrorist financing[1]. In essential areas, it is fully or to a large degree compliant with international standards. At the same time, however, the report identified loopholes in the Swiss defensive strategy measures. The Federal Council report on the implementation of the FATF Recommendations in other countries and the economic impact of the Recommendations, which the Federal Council adopted today, comes to a similar conclusion (cf. "FDF Basic Information - Rohstoff"). Against this backdrop, the Federal Council today took a decision concerning the key points for a revised proposal and instructed the FDF to submit a dispatch by mid-2007.

Basic features of the revised proposal
Great importance was attached to maintaining the effective and credible strategy measures for combating money laundering and maintaining Switzerland's good reputation as a financial centre within the scope of the consultation procedure. At the same time, the measures proposed by the Federal Council in certain areas were considered to be too far reaching given the high standards already achieved. It is for this reason that the Federal Council wishes to restrict the proposal to the most important issues.

The following will be retained from the consultation proposal:

• Creation of new predicate offences for money laundering for smuggling committed by criminal organisations, counterfeiting of goods and product piracy, together with insider trading and price manipulation 
  
• Extending the Money Laundering Act to terrorist financing
  
• Introduction of the obligation to report, in the event that there is a suspicion of money laundering, that prevents the establishment of a business relationship
  
• Releasing the financial intermediaries from complying with the obligation of due diligence in the case of small amounts (minor cases clause)
  
• Relaxing the ban on the exchange of information between financial intermediaries in certain cases, e.g. if, within the scope of a report to the Money Laundering Reporting Office, a financial intermediary is not able to freeze the assets concerned
  
• Clarification in the Money Laundering Act that reports in accordance with the right to report (Art. 305 ter, para. 2 of the Swiss Criminal Code) will not entail assets being frozen; in addition, consideration should be given as to whether or not to extend the exemption from liability and punishment to the self-regulating organisations (SROs)
  
• Better legal protection against reprisals for the reporting financial intermediary in the case of reports where money laundering is suspected
  

Individual measures will then be added to the revised proposal on the basis of the results of the FATF country evaluation:

• Assistance on the part of the customs authorities in combating money laundering and terrorist financing by introducing an information system on cross-border transportation of currency over a threshold of CHF 25,000
  
• Introduction of the obligation to verify identification for financial intermediaries of representatives or agents of legal entities
  
• Introduction of the obligation for the financial intermediary to establish the purpose and nature of the business relationship desired by the customer
  
• Unlimited extension of the ban on the financial intermediary providing information to the customer relating to reports made to the Money Laundering Reporting Office, as long as the report has not been forwarded to the prosecuting authorities.
  
• Reports in accordance with the right to report should now be made to the Money Laundering Reporting Office (up to now they were made directly to the prosecuting authorities)
  

Due to the fact that these measures were not part of the consultation proposal, the FDF will also seek views on these points.

In addition to the measures at the legislative level to improve the conformity of Switzerland’s legislation with the revised FATF Recommendations, modifications will also be necessary in the money laundering ordinances of the responsible supervisory authorities[2]. The necessary work is already under way and swift progress should be made. 

The Federal Council has chosen to leave out a number of suggestions arising from the draft consultation paper in this proposal. In particular this concerns the subordination of cash payments for certain commercial activities to the Money Laundering Act. The further course of action relating to bearer shares will be determined within the scope of the planned reform of the Stock Corporation Act. The Federal Council has, however, recommended the abolition of bearer shares within the scope of this proposal.

Revision of the insider criminal law provisions: progressive approach
A partial revision of the criminal law provisions has also been recommended within the scope of the FATF proposal. Firstly, with the deletion of fig. 3 of Art. 161 of the Swiss Criminal Code (SCC), practically all facts influencing market prices, even so-called profit warnings, should now be covered by the insider criminal law provisions. The rapid implementation of this measure is undisputed which is why the Federal Council took the decision to remove this section from the FATF proposal and to deal with it more rapidly as a separate proposal. The Federal Council has instructed the FDF to submit a corresponding dispatch by the end of the year. Secondly, the measures in the FATF proposal allowing certain insider offences and market rigging to qualify as crimes and not misdemeanours will be (predicate offence for money laundering) retained and implemented within the scope of this proposal.

In connection with the undisputed partial revision of the elements of insider offences (deletion of Art. 161 fig. 3 SCC), there are currently also calls for a fundamental examination of current regulations in the area of stock market crime and market abuse. These issues not only concern criminal law but also stock market legislation. A fundamental examination of this nature and the drafting of further measures is, however, complex and takes a great deal of time. This is why the Federal Council has today thirdly instructed the FDF, in collaboration with the Federal Department of Justice and Police, to clarify the need for a fundamental examination of current regulations in the area of stock market crime and market abuse including competencies for prosecution.

[1] The full, evaluation report approved by the FATF member states can be consulted at: http://www.fatf-gafi.org/dataoecd/29/11/35670903.pdf
[2] Swiss Federal Banking Commission, Federal Office of Private Insurance, Money Laundering Control Authority, Federal Gaming Board

Address for enquiries:

Ambassador Alexander Karrer, Head, Monetary Affairs and International Finance Division, Federal Finance Administration, tel. 031 324 95 84
Riccardo Sansonetti, Head, Section on Combating International Financial Crime, Federal Finance Administration, tel. 031 322 62 07

Publisher:

Federal Department of Finance

Internet: http://www.efd.admin.ch