What Are Switzerland's New Anti-Money Laundering Requirements?

On May 22, 2024, the Swiss Federal Council submitted to Parliament a proposal for the adoption of significant legislative measures aimed at strengthening the country's anti-money laundering (AML) framework.This move underscores Switzerland's commitment to maintaining the integrity and reputation of its financial and legal systems. This article delves into the key aspects and implications of these new measures, focusing on the most important elements introduced.

Why Are Enhanced Anti-Money Laundering Measures Needed?

The proposed measures build upon the further development of the international standards of the Financial Action Task Force. An effective AML system is crucial for the success of Switzerland as a secure, internationally recognized financial hub.

What Are the Most Important Elements of the New The Anti-Money Laundering Act Provisions?

The new AMLA provisions primarily aim to enhance transparency. Key elements include:

1. Introduction of Obligations for Higher-Risk Legal Entities
   Legal entities posing higher AML risks will face new obligations to determine more quickly and reliably the actual individuals behind legal structures.
2. Federal Register of Beneficial Owners
   The new Federal Act on the Transparency of Legal Entities (TJPG) mandates a register where beneficial owners of legal entities must be recorded. Managed electronically by the Federal Department of Justice and Police (FDJP), this register will cover all legal entities under Swiss law and certain foreign entities closely connected to Switzerland.
3. Due Diligence Obligations for Advisors and Lawyers
   The draft law extends AML due diligence obligations to certain advisory activities at high risk of money laundering.
4. Enhanced Sanction Risk Management
   Financial intermediaries and advisors are explicitly required to implement organizational measures to effectively record, limit, and monitor sanction risks in accordance with the Embargo Act.
5. Lowered Thresholds for Cash Payments
   The threshold for cash payments in precious metals and gemstone trading is reduced from CHF 100,000 to CHF 15,000. New due diligence obligations apply to all cash payments in real estate transactions, regardless of the amount.
6. Comprehensive Information Exchange
   A legal basis is created within the AMLA and the Financial Institutions Act (FinIA) to ensure comprehensive information exchange between self-regulatory organizations (SROs), supervisory organizations (SOs), and the Swiss Financial Market Supervisory Authority (FINMA).
7. Uniform Data Standard for Money Laundering Reporting Office Switzerland Reports
   The law legally establishes a uniform data standard for the transmission of reports to the MROS.

What Is the Register of Beneficial Owners?

The new Federal Act on the Transparency of Legal Entities (TJPG) mandates the establishment of a register to record the beneficial owners of legal entities. This register is to be maintained electronically by the Federal Department of Justice and Police (FDJP).

The scope of the TJPG encompasses all legal entities under Swiss law, as well as certain foreign legal entities that maintain a substantial connection with Switzerland. The definition of a beneficial owner aligns with the Anti-Money Laundering Act (AMLA), identifying the natural person who ultimately exercises control over a legal entity.

Under this legislation, Swiss companies are required to ascertain and verify the identity of their beneficial owners. They must report this identity, along with the nature and extent of the control exercised, to the register. Any changes to the recorded information must be reported within one month of their occurrence.

For data protection purposes, the register is not public. Access is limited to specified authorities as detailed in the legislation. Financial intermediaries are also granted access to the register to the extent necessary to fulfill their due diligence obligations under AMLA. While financial intermediaries must continue to determine and verify beneficial owners independently, the register provides an additional source of information to be consulted during client onboarding or internal reviews.

Financial intermediaries have an obligation to report any discrepancies they identify in the register to the competent authority. This "discrepancy reporting" is required only when there is doubt about the accuracy, completeness, or timeliness of the beneficial ownership information. Prior to reporting, financial intermediaries must discuss the discrepancies with the relevant company and allow a reasonable period for clarification.

Furthermore, the TJPG introduces a reporting obligation for board members, managing directors, shareholders, and partners acting in a fiduciary capacity. These individuals must notify the legal entity of the identity of the person or company on whose behalf they are acting. Companies registered in the commercial register are required to report this information to the commercial register office and, under certain conditions, to the register of beneficial owners.

What Are the New Due Diligence Obligations for Advisors and Lawyers?

The new draft law stipulates that the due diligence obligations under anti-money laundering legislation shall extend to certain advisory activities that present an elevated risk of money laundering. Advisors and lawyers engaging in the following activities on behalf of their clients will be subject to these obligations:

• Sale or purchase of real estate
• Formation or establishment of companies, foundations, or trusts
• Management or administration of companies, foundations, or trusts
• Organization of company contributions
• Sale or purchase of companies
• Provision of addresses or premises as registered offices for companies, foundations, or trusts
• Acting as a shareholder on behalf of another person

The content and scope of the obligations are based on a risk-based approach and include the certain responsibilities:

• Verify the identity of clients.
• Establish and confirm the identity of beneficial owners.
• Understand and document the nature, purpose, and background of the transaction or service.
• Maintain comprehensive records of due diligence activities.
• Implement internal controls and procedures to mitigate money laundering risks.
• Report suspicious activities while maintaining professional secrecy. Lawyers must report only if conducting financial transactions for clients.

Additionally, advisors must join a self-regulatory organization (SRO), which will oversee their compliance with AML obligations. For lawyers, the supervision will be carried out by cantonal authorities, which will monitor adherence to the Code of Conduct under the Federal Lawyers Act (FMLA/BGFA).

The Swiss financial center continues to face international regulatory pressure, particularly concerning the implementation of discrepancy reporting, which poses significant challenges for banks and asset managers.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.