Swiss legislation to combat the use of the financial system for money laundering has been progressively tightened over the last few years. Since the 1980s, a series of laws and regulations have been implemented in the form of penal and administrative provisions, and specific banking regulations relating to banks and non-bank financial institutions.

In Switzerland, provisions related to money laundering were written into the Penal Code in two stages. First, money laundering and failure to exercise due diligence became criminal offences on 1 August 1990, with the coming into force of articles 305bis and 305ter. These first provisions were followed by a "second package" of amendments of the penal code which took effect in 1994.

Article 305bis penalises obstacles to the "establishment of provenance, the discovery or the confiscation of assets" proceeding from crime. The predicate offence can be any crime under the penal code (no restriction to drug related offences). Money laundering is also punishable if the underlying offence was committed outside Switzerland. Anti-money laundering legislation can also apply to transactions in all tradable assets including, foreign currency, certificated and uncertificated securities, precious stones and metals, as well as claims and objects having intrinsic economic value. Convictions may be obtained with respect not only to persons having knowledge of the criminal origin of funds, but also of those who should have presumed such criminal origin. Article 305ter of the Penal Code supplemented article 305bis by introducing a general requirement for financial intermediaries to ascertain the identity of customers through verification of "the identity of the beneficial owner with the diligence that can reasonably be expected under the circumstances" in the case of financial operations carried out in the exercise of their profession. This due diligence requirement with respect to financial transactions applies to all intermediaries who receive, manage or assist in investing funds on a professional basis, including business lawyers. A second package of amendments to the Penal Code resulted in provisions related namely to confiscation (articles 58 ff. of the Penal Code, see below) and organised crime (article 260ter of the Penal Code, see point 3).

An obligation to identify the client was first imposed on the banks in 1977 by the Agreement on the Swiss banks' code of conduct with regard to the exercises of due diligence. The Agreement has been updated several times since. The current Agreement on the Banks’ Obligation of due Diligence (CDB 1998) entered into force on 1 July 1998. The Swiss Federal Banking Commission considers the CDB a minimal standard to which it refers as a supervisory authority when interpreting the notion of irreproachable activity which is a condition for granting and renewing a banking licence. The core substance of the CDB consists of rules on the identification of customers and beneficial owners. Articles 2 to 5 of the CDB are principally concerned with verification of the identity of the contracting party and the identification of the beneficial owner. They inspired the formulation of corresponding articles in the Penal Code concerning lack of diligence in handling assets (article 305ter of the Swiss Penal Code, cf. above) and Recommendations 10 and 11 of the Financial Action Task Force (FATF).

In March 1998, the Swiss Federal Banking Commission (SFBC) adopted modified Guidelines concerning the prevention and combating of money laundering which came into force on 1 July 1998 (Circ. 98/1) to bring them into line with the new Money Laundering Act (see point 2.3.) The prime objectives of these Guidelines is to specify the intermediaries submitted to the surveillance of the SFBC and to extend the duties of diligence contained in the MLA of 1997. The SFBC Guidelines profile for example the kind of transactions that should prompt banks to pay special attention and perform supplementary checks: a non-exhaustive list of 30 pointers which may arouse suspicion that money laundering may be involved is provided. This list may be used to raise the awareness of bank employees, as described in FATF Recommendation 28.

The penal law and specific banking regulations have made a major contribution to increasing vigilance in the financial sector. They focus on the banking sector, notwithstanding the fact that the provisions of the Penal Code were designed to cover all areas of the financial sector. The Money Laundering Act was introduced to extend to all professional financial intermediaries the obligations which already apply to the banking sector, and to introduce the duty to notify the competent authorities of any suspicions they may have regarding money laundering. These two dimensions amount to the complete incorporation of the FATF recommendations into Swiss law.

The Money Laundering Act applies to all financial intermediaries, whether already subject to federal supervision before the entering into force of the MLA or not. The category of intermediaries which are already regulated by special federal laws and subject to federal supervision includes the banks, the securities dealers, investment fund manager, and the life insurance sector (article 2, paragraph 1).

All other financial intermediaries which are not subject to any special supervision under federal law also fall under the scope of the MLA (article 2 paragraph 2). The law contains a broad definition of the financial activities considered to be particularly vulnerable to money laundering. Article 2 paragraph 3 enumerates these activities in line with the FATF Recommendations¹.

The law applies namely to payment services which are executed without the involvement of a bank. Bureaux de change and similar organisations are subject to the law, precious-metal dealers, and all asset managers which are not already authorised and supervised by the Banking Commission.

Chapter 2 of the law defines the obligations placed upon legal or natural persons - namely the obligation to check the identity of the counter party to a contract (article 3) and of financial beneficiaries (article 4), to make repeated checks on their identity (article 5), the duty to clarify specific situations (article 6), the duty to obtain documentation and to record all transactions, the obligation to declare suspicious transactions (article 8) and also organisational measures (article 9). Suspicious transactions must be reported without delay to the Money Laundering Reporting Office (MROS). Chapter 6 of the MLA stipulates the penalties for failure to comply with the obligations provided for in Articles 3 to 9.

The Swiss Federal Banking Commission (FBC) is in charge of monitoring compliance with the MLA by all intermediaries under its supervision. The same applies to the Federal Office of Private Insurance (FOP) in the framework of its supervision of insurance companies. The MLA does not limit the supervisory powers given to the SFBC on the basis of the Banking Law. An infringement of the MLA provisions can thus also lead to punitive measures in accordance with specific surveillance legislation. In addition, the supervisory authorities are required to inform the penal authorities if they are aware of violations of penal provisions contained in the specific surveillance legislation or in the Penal Code (including articles 305bis and 305ter).

The Money Laundering Act requires all financial intermediaries to be authorised. It enables authorised Self-regulatory organisations (SROs) to implement the measures to combat money laundering in their sector of activity. Such SROs must be authorised and are supervised by the Money laundering control authority which is integrated into the Federal Finance Administration. It is in addition responsible for directly monitoring compliance with the obligations laid down in chapter 2 of the MLA for legal and natural persons who are not subject to any other federal supervision.

Organised crime is unfortunately a widespread phenomenon in contemporary society. It is both highly complex in structure and multinational in character. One of the main problems is that criminal organisations have succeeded over the years in infiltrating political, economic and financial systems and in integrating their illegal operations into legal activities. Due to these particular factors, organised crime is especially difficult to identify, define and suppress. Traditional enforcement techniques have consequently been adapted and improved with the aim of enabling Switzerland to fight this new form of organised crime effectively.

Swiss criminal law calls for sanctions against all offences that come under the category of organised crime. These include money laundering, corruption, fraud, narcotics and arms trafficking, pornography, etc. It also facilitates investigations into these offences. During judicial proceedings, the judge can order the waiving of banking secrecy and obtain account information from the bank concerned. Banking secrecy is therefore not an obstacle to the pursuit and conviction of the perpetrators of organised crime.

On 1 August 1994, the Swiss parliament improved these laws by adopting a series of articles aimed at combating organised crime (Art 260 ter, section 1 of the Penal Code (PC): Participation in a criminal organisation declared a criminal act) and strengthening measures related to the confiscation of assets of illicit origin, including the reversal of the burden of proof in cases of organised crime (PC, Art. 58-60).

In 1994 also, the Central Offices for Criminal Police Matters were established within the Federal Office of Police. They are charged with conducting investigations into narcotics trafficking and counterfeiting, co-ordinating the inquiry procedures between Switzerland and foreign countries, and evaluating all information related to organised crime.

On the international level, Switzerland collaborates in the fight against organised crime on several fronts. It is a member of Interpol and is thus involved in all exchanges of information between police authorities. Switzerland has ratified several international agreements, both bilateral and multilateral, through which it has committed itself to providing mutual assistance in criminal matters.

The Swiss penal code punishes both active corruption (Art. 288) and passive corruption (Art. 315) with prison sentences. Currently, active corruption is less severely punished than passive corruption. However, the relevant laws are being revised with the aim of making the penalties more severe for active corruption, as well as for the corruption of foreign officials.

On 17 December 1997, Switzerland signed the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions. Furthermore, Switzerland actively participated in preparing this convention, in particular, by chairing the working group charged with drafting the text of the convention. A bill containing a general revision of corruption offences and the ratification of the OECD Convention is currently being discussed in Parliament.

In addition, the Swiss Agency for Development and Cooperation supports good governance and the fight against corruption in carrying out its projects in developing countries.

Switzerland provides extensive international co-operation in criminal matters. Requests for mutual assistance in criminal matters are becoming increasingly frequent in particular because of the growth of organised crime on an international level (narcotics and arms trafficking, corruption, trafficking in women and children). Switzerland co-operates actively with foreign judicial authorities in providing extensive judicial assistance. Switzerland receives approximately 2,500 requests from abroad for assistance each year. In the large majority of cases, assistance is granted without any difficulty. The execution of these requests often requires the sequestration of assets located on Swiss territory and of bank documents relating to the alleged offence, and their transfer to the requesting state. In this case, when all the conditions set out below for assistance are met, the Swiss authorities can lift banking secrecy.

Switzerland grants international mutual assistance in criminal matters on the basis of:

• the European Convention on Mutual Assistance in Criminal Matters of 20 April 1959.
• the European Convention on Extradition of 13 December 1959.
• The European Convention on Laundering, Search, Seizure and Confiscation of the Proceeds of Crime of 1 September 1993 (the United States participated in the drafting of this convention but has failed to sign it to date)
• bilateral treaties on mutual assistance in criminal matters such as those concluded on 25 May 1973 with the United States of America, on 25 November 1991 with Australia, and on 7 October 1993 with Canada.
• the Federal Act on International Mutual Assistance in Criminal Matters which came into force on 1 January 1983. This law permits Switzerland to grant judicial assistance also to states with which Switzerland has not concluded a bilateral agreement and which are not party to the European Convention.

The conditions required for judicial assistance are essentially the following:

• Double criminality: The fact which forms the basis of the request for judicial assistance must also be punishable as a criminal offence in Switzerland.
• Speciality: The foreign authorities must commit themselves to use the information transferred to them by Switzerland solely for the purpose for which it was originally given. In particular, this means that the requesting authority is not allowed to transfer information obtained in the course of a mutual assistance proceeding to an authority of a different nature.
• Proportionality: A sufficient relation must exist between the crime under investigation abroad and the requested measures in carrying out the request for assistance.
• Reciprocity: In the absence of a treaty obligation, the requesting state must guarantee that it will give a favourable response to a demand by Switzerland for judicial assistance should the case arise.

Amendments to the Act on International Mutual Assistance in Criminal Matters, which took effect on 1 February 1997, have eased the process of assistance noticeably. In particular, they have clearly shortened the procedures involved by limiting the possibilities of appeal and by reducing the number of persons permitted to resort to these means to those personally and directly affected by the mutual assistance measure. The revised Act also, under certain conditions, permits the Swiss criminal prosecution authorities to transfer information and evidence to a foreign penal authority on their own initiative. Moreover, it has enlarged the powers of the Swiss federal authorities to act directly when provisional measures must be taken, as well as in complex cases or in cases of special importance.

The Swiss financial centre, like other financial centres, is used by foreign heads of state and government officials for investing assets. There have been individual cases in the past of assets which were found to be the proceeds from dubious activities such as corruption or dishonest management of the state.

In most cases such investments are spread across various countries and financial centres. The problem is thus one of international order.

One specific problem arises with foreign heads of state in office as a result of the immunity they enjoy under international law. Immunity under international law protects heads of state - and their assets - from coercive measures, in particular those under penal law for the time they are in office.

Switzerland has a very serious interest in preventing assets of dubious origin from reaching its financial centre. However, if assets of dubious origin owned by foreign heads of state or politicians nevertheless find their way to this country, Switzerland takes measures in co-operation with the country of origin to effect the blocking and restitution of the funds in question.

Responsibility for safeguarding the integrity of the Swiss financial centre lies - as far as prevention is concerned - with the financial institutions in the first place. The acceptance and management of certain funds can be in breach of the Banking Law (Art. 3 lit. c: Guarantee of irreproachable business conduct). Anti-money laundering legislation is applicable against money of criminal origin (fraud, drug trafficking, see point 2.). If such money arrives in Switzerland, the bank concerned must, on well-founded suspicion, report it to the authorities and block the funds for five days. During this period, the authorities consider whether or which further measures should be taken.

The Federal Act on International Mutual Assistance in Criminal Matters (Art. 18) authorises precautionary measures if an application for international mutual assistance is announced and the conditions for judicial assistance appear to be fulfilled (see point 5.). In addition, pursuant to Art. 102 section 8 of the Federal Constitution, according to which the government (the Federal Council) assumes responsibility for the protection of the interests of the Confederation abroad, the Federal Council can in certain cases freeze the bank accounts and assets of foreign persons.

The bank supervisory authority (Swiss Federal Banking Commission (SFBC)) has refined its guidelines to require the banks to be especially vigilant with regard to the acceptance of assets from persons with important public functions and from persons close to them. The banks are prohibited from accepting funds which they must presume stem from corruption or from the misuse of public funds (SFBC circular 1/98).

Assets are often blocked in connection with an application for judicial assistance on the initiative of a foreign authority, which must present or at least announce a request for judicial assistance. Experience has shown that the restitution of blocked assets poses difficult but not unsolvable problems, in particular over questions regarding authorised recipients. In the case of the former President of the Philippines Marcos USD 550m could be returned to the Government of the Philippines.

Switzerland is one of the few countries to have taken effective measures in recent cases to block and restore to the rightful owners assets of dubious origin held on the accounts of foreign heads of state and politicians. To provide an example, one can cite the Mobuto affair, where Switzerland is the only country of the 18 contacted by the government of the Democratic Republic of Congo to have frozen all the known assets of its former head of state.