The myths are as well-known as the Swiss bank accounts they surround, but Urs P Roth blows away the cobwebs and clarifies what Swiss banking laws really entail
In the days following the 11 September terrorist attacks in the US, the international media was quick to carry comments alleging terrorists were sure to hide their funds in places like Switzerland where bank customers enjoy a high degree of confidentiality. Ministers in certain EU countries, with an eye on political point-scoring, have subsequently been claiming Swiss banking confidentiality hampers the fight against the financing of terrorism.
In the case of Switzerland, both claims are pure fantasy. Terrorist-linked money has been found and frozen all over the world, including in Switzerland. One significant difference in the case of Switzerland is that a succession of senior US officials ' including Under Secretary Jimmy GurulÃ© and Attorney-General John Ashcroft ' have visited Bern to thank the authorities in general and the Swiss banking industry in particular for their assistance in the fight against terrorism.
Part of the communications work of the Swiss Bankers Association is devoted to demolishing a number of deeply-entrenched myths and prejudices about the Swiss banking system. I would like to look at four of the more popular myths and set the record straight about the obligations of Swiss banks with regard to due diligence and 'know your customer' rules.
Myth Number One
The high level of confidentiality Swiss banks offer their customers makes the country a paradise for money launderers, terrorists and other criminals. This idea is based on a complete misunderstanding. This high level of confidentiality is not absolute, and the rights to privacy can be ordered suspended by a judge when proceedings are underway into virtually all serious crimes, such as money laundering, corruption, insider trading, tax fraud and of course terrorism. Switzerland extends international judicial assistance to foreign authorities in cases where the crime in question is punishable under Swiss law. Our aim is to protect the privacy of the honest bank customer while exposing criminals to the full force of the law.
Myth Number Two
Anybody can walk into a Swiss bank with a suitcase of cash and open an account without any questions. We call this the James Bond myth. Swiss banks are by law obliged not only to verify the identity of the customer, but also to establish the identity of the beneficial owner of the assets if they are different from the person opening the account. And banks in Switzerland have to dig much deeper than in virtually all other countries. For example, a domiciliary company or trust cannot be deemed a beneficial owner; the banks have to go further and identify the ultimate beneficial owner.
Myth Number Three
The anonymous account. Although loved by thriller writers, there is no such thing as an anonymous account in Switzerland. Banks are obliged by law to know the identity of their customers, so no account can be anonymous. There are numbered accounts where business at the bank is carried out not under the name, but under a number or code. This is an internal security measure to restrict knowledge of the customer's identity to a small group of employees. The crucial point is the client's identity is known to the bank. It should also be stressed that a numbered account offers no privileges in terms of protection should a criminal investigation get under way.
Myth Number Four
Switzerland is a dodgy offshore financial centre. Not one of the criteria the OECD uses to identify offshore centres can be applied to Switzerland. For example, shell banks are forbidden; there is no offshore banking regime; Switzerland does not discriminate against resident clients in favour of non-resident clients; and we have a high standard of financial regulation. Switzerland is a major international financial centre with a strong domestic economy doing substantial business with non-residents, just like New York, London or Tokyo.
Strict due diligence
In Switzerland we believe the key to fighting financial crime is to insist and ensure that banks implement the highest possible standards of due diligence and 'know your customer' rules, and banks in Switzerland must by law fulfil the following main due diligence requirements.
Officers or employees of financial intermediaries render themselves liable to prosecution for money laundering if they help to accept, deposit, invest or transfer assets which they know or assume stem from crime. Banks are forbidden to accept funds which they know or assume stem from corruption or the misuse of public funds. They have to be particularly careful in checking whether they are directly or indirectly entering into business relationships with persons who carry out important public functions for a foreign state and whether they wish to accept and deposit funds from such persons.
Since 1 May 1992, banks in Switzerland have been obliged to issue internal directives on money laundering. They must provide their staff with appropriate training and designate a specialist money-laundering unit to execute the internal directives and advise line managers on money laundering issues. With respect to persons who carry out important public functions for a foreign state, since 1987 the Swiss Federal Banking Commission has stipulated internal directives set out the business policy in connection with such persons. The directives must stipulate such business relationships may only be entered into with the consent of the executive board or members thereof, and the executive board must regularly review such customer relationships.
Banks in Switzerland must verify the identity of a contracting party on the basis of valid documentary proof when entering into a business relationship. The Swiss Bankers Association's Due Diligence Agreement, in force since 1977, sets out comprehensive rules governing how and when a bank is to verify the identity of a contracting party. Violations of the Due Diligence Agreement are investigated and punished by an independent supervisory commission which can impose fines of up to CHF10m.
If the contracting party is not the same person as the beneficial owner or if there is any doubt in this respect, the banks must obtain a written declaration from the contracting party as to who the beneficial owner is. Failure to observe this obligation is sanctioned by the Due Diligence Agreement and can also render liable to prosecution.
Banks in Switzerland are obliged to clarify the financial background and the purpose of a transaction or business relationship if it appears unusual and its legal validity is not clear, or if there are indications that funds stem from criminal activities or are subject to the power of disposal of a criminal organisation.
If, after investigation, a bank has ascertained or has a well-founded suspicion that assets are connected with money laundering, stem from criminal activities, or are subject to the power of disposal of a criminal organisation, it must report this immediately to the Money Laundering Reporting Office.
If a bank continues with a business relationship despite having doubts about it but without a well-founded suspicion and without informing the relevant authorities, it must monitor the business relationship. If a bank breaks off the relationship without informing the relevant authorities, it must ensure the assets are withdrawn in a form which allows the prosecution authorities to follow the paper trail if necessary. The bank must not pay out large sums of money in cash or physically issue securities or precious metals. These obligations also apply if the bank suspects corruption or misuse of public funds. The bank must not terminate a business relationship or allow the withdrawal of large sums if there are firm indications that measures by the authorities to seize the assets are imminent.
A bank which files a report to the prosecuting authorities or to the Money Laundering Reporting Office must at the same time immediately freeze the account and assets in question.
There are plenty of examples to prove Switzerland's approach to fighting money laundering and implementing due diligence is not just a lofty ideal, but is backed up in practice by investigating, taking action and punishing where necessary. US Attorney-General John Ashcroft himself helped demolish a few myths about the Swiss banking system.
'The Swiss banking system is well known as an example to the world,' he said in Bern on 12 June 2002. 'But one of the myths once held around the world was that the system was somehow incapable of acting to support law enforcement against terrorists and organised crime. That myth has now been dispelled by the constructive conduct of the Swiss government and the Swiss banking system. The world needs to take note of the way in which Switzerland operates to support law enforcement while protecting the interests of the individual.'
The key to fighting financial crime is to insist and ensure that banks implement the highest possible standards of due diligence and ˜know your customer' rules.
Banks are forbidden to accept funds which they know or assume stem from corruption or the misuse of public funds.
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