Bern, September 14, 1999

Mister Chairman,
Distinguished Members

It is a privilege to have an opportunity to contribute to your hearings on Russian Money Laundering. On behalf of the Government of Switzerland, I appreciate the opportunity to submit written testimony for inclusion in the record of these hearings on Russian organized crime and money laundering activities. These are issues that should concern the law enforcement authorities in global financial centers throughout the world.

I commend you for your timely efforts to bring leading US and international authorities together to collectively share our experiences and engage in discussing practical means to further develop international cooperation to fight international crime. In Switzerland, we are all aware that the scope and depth of the problem can only be tackled through an internationally coordinated and dedicated approach. The task is awesome but through continued dialogue and joint and cooperative enforcement efforts, we can make it much less attractive for criminal elements in Russia or elsewhere to use global financial markets to mask the illegal origins of funds.

In Switzerland, we have long shared your concerns over money laundering and have consistently worked to insure that our laws protect our financial system from abuse. We consider it our responsibility to ensure that our place in the international financial system is not corrupted nor utilized for legitimizing the profits of illegal activities. Generating huge profits through illegal activities is only beneficial if those profits can be used for other purposes. For example, a mountain of cash, regardless of the currency, has no benefit unless it can be applied to other investments or to other purchases. If nations are vigilant and work aggressively to prevent their financial institutions from becoming a mechanism for funneling illegal proceeds back into the commercial mainstream, we will not only succeed in combating money laundering, but we will discourage people from engaging in large-scale criminal acts.

This explains the early priority that the Swiss authorities have given to the fight against money laundering. This priority has been visible on three fronts: strengthening of the Swiss criminal code; enhanced regulation of Swiss financial institutions; and, increased cooperation with international enforcement efforts.

In the mid 1980s, when global law enforcement authorities began to appreciate the significance of money laundering to organized criminal enterprises, Switzerland made an assessment of the adequacy of its laws. Unfortunately, like many countries, the Swiss criminal code did not sufficiently address the threat presented by money laundering. As a result, Switzerland developed more specific criminal statutes to target this burgeoning phenomenon. Therefore, after drafting a preliminary amendment of its Criminal Code in 1986, Switzerland has implemented several statutes and regulations and taken other administrative actions that are specifically designed to combat money laundering through direct enforcement, domestically and through greater cooperation with international investigations and prosecutions.

In the process of creating these new enforcement mechanisms, reference was made to existing US law and collaborative discussions were held with our US counterparts. Furthermore, the recommendations of the Financial Action Task Force on Money Laundering (FATF) were fully implemented. The process of amending the Swiss criminal code has been an evolving one. The first step was realized in 1990 punishing the laundering of the proceeds of crime, wherever the crime may have been perpetrated. It also established the obligation of due diligence with regard to customer identification. In 1994 additional provisions were introduced addressing specifically organized crime and the confiscation of assets. In 1997 the Swiss Money Laundering Act was enacted, extending to all professional financial intermediaries the obligations which already applied to the banking sector. Consequently, in July 1998, the Swiss Federal Banking Commission adapted its guidelines concerning the prevention and combating of money laundering. For its own part, the Swiss banking sector had already taken substantial steps to combat money laundering. Thus, since 1977, the Swiss banking sector has been obligated to "know their clients" under the provisions of the Convention on Due Diligence.

As a result of the efforts of the Swiss law enforcement authorities and the Swiss banking sector, Switzerland is considered a model among nations in terms of the steps it has taken to combat illicit financial transactions, and has been so recognized by the US law enforcement authorities. Over the past 15 years, the US bank regulatory approach to combating money laundering has gradually moved closer to the Swiss model by moving away from burdensome and questionably valuable transaction reports to a system of obligating banks to have a greater understanding of their customers ordinary transaction flows and to report occurrences that are out of the ordinary to the appropriate officials. We applaud the United States for this transition and hope that in time there is greater uniformity in the standards that apply to financial institutions throughout the world in connection with anti-money laundering efforts.

However, national legislation alone cannot address problems which go beyond national boundaries. The emerging global economy and its assorted tools of instant electronic communication have created new opportunities for legitimate economic pursuits and at the same time provided channels for illegal purposes. As a result, we must remain vigilant to emerging criminal practices and while we evaluate and adapt our domestic laws, we must do the same on the international level as well, to maintain the appropriate level of international collaboration in the face of such efforts.

Since 1959, Switzerland has actively participated in European initiatives to combat international crime. Switzerland was an early signatory to both the European Convention on Mutual Assistance in Criminal Matters, the European Convention on Extradition and the Council of Europe Convention on Laundering, Search, Seizure and Confiscation of the Proceeds from Crime. Also, after concluding several bilateral agreements with the United States to ensure cooperation in criminal matters, in 1973, Switzerland amended its statutes and introduced the Federal Act on International Mutual Assistance in Criminal Matters which went into effect on January 1, 1983. This act is significant because it allows Switzerland to provide assistance in international criminal enforcement matters, without the existence of a formal treaty.

The 1983 Act and its underlying expression of a clearly defined political will was put to a major test in 1986 in connection with the Philippine government’s prosecution of the Marcos case. Switzerland did not hesitate to honor the request of the Philippine government to freeze funds allegedly taken illegally by Mr. Marcos and members of his family and deposited in their names in Swiss banks. In that case and in view of the evident legitimacy of the matter, the Swiss Constitution provided the basis for cooperation despite the absence of a formal treaty between Switzerland and the Philippines. A similar reasoning was applied when the government of the Republic of Congo sought help in tracing the assets of former president Mobutu. In that case, Switzerland was the only country to reply favorably to Congo’s request.

In addition, our investigation into the financial dealings of the brother of former President Salinas of Mexico, led to the freezing of over USD100 million in assets. International co-operation with the United States and Mexico, including 110 witness interrogations, was instrumental in the effective proceeding of this case. It is now up to the Geneva prosecuting magistrates to bring it to its conclusion.

These circumstances demonstrate a long-standing willingness to engage with our international partners and have prepared us to confront the current and future challenges such as organized crime of Russian origin.

As early as 1994, Russia and Switzerland concluded agreements on mutual judicial assistance and police co-operation. These instruments were complemented in April 1998 by a memorandum between the Office of the Attorney General of Switzerland and the Office of the Prosecutor-General of the Russian Federation aimed at strengthening co-operation against organised crime and money laundering within existing national legal frameworks. Switzerland and Ukraine signed a similar memorandum in April 1999. The two latter documents are designed to facilitate the exchange of information concerning organised crime and money laundering. Ukraine has also ratified most of the Council of Europe conventions concerning international mutual assistance in criminal matters.

In the same year, the Geneva cantonal authorities followed up a request for judicial assistance by the Ukrainian authorities, which led to the indictment of Mr. P. Lasarenko, former prime minister of Ukraine, on charges of money laundering.

In November 1998, the Office of the Attorney General of Switzerland received a request for judicial assistance from its Russian counterpart concerning suspicions of corruption of high-level officials of the Russian central government. Switzerland agreed to provide judicial assistance. The ensuing inquiry in Switzerland mainly concerned the cantons of Geneva and Ticino. So far, it has led to a search of the premises of a large Ticino-based company, which is suspected of having paid bribes to the indicted officials in order to obtain large contracts in Russia (in particular the renovation of some of the Kremlin buildings). In this context, orders were also issued to freeze several accounts in Swiss banks. The Geneva Public Prosecutor also opened a criminal inquiry into money laundering in response to the first results of an investigation conducted by the Office of the Attorney General of Switzerland, of the letters rogatory which were issued on grounds of suspicions of corruption.

In July 1999, the Office of Attorney General of Switzerland blocked several accounts in Switzerland in response to another request for assistance from the Office of the Prosecutor-General of the Russian Federation. This request concerned various persons suspected - in Russia - of having embezzled vast amounts of public funds with the aid of companies located in Switzerland. In this case, premises in Switzerland also were searched on the orders of the Office of the Attorney General of Switzerland, and material evidence was seized.

The cases outlined above – which are only examples – demonstrate that the Swiss law enforcement authorities are willing to co-operate actively with their Russian counterparts in the fight against organised crime and money laundering, who work courageously under very difficult conditions.

Switzerland appreciates the open co-operation it has enjoyed with US enforcement agencies in the exchange of intelligence and police information concerning Russian organised crime. We look forward to furthering these efforts in future cases. Such co-operative efforts are essential when combating this form of criminality.

Switzerland has established an office within the Federal Office of Police to identify and analyse organised crime originating in central and eastern European countries, and in Russia. In addition, the Swiss banking supervisory authority, the Swiss Federal Banking Commission, maintains particular contact with the US financial institution supervisory authorities concerning alleged instances of money laundering.

The Swiss Federal Banking Commission takes alleged cases of money laundering very seriously and pursues them very intensively. It also examines the banks for compliance with Switzerland's strict obligations to exercise due diligence. In this context it works closely with numerous foreign authorities.

If I try to sum up on the lessons we can draw at this stage on this subject, I would first like to recall a couple of facts and statistics: every year, Switzerland provides legal assistance in over 2000 international cases. In 1998 for instance, Switzerland and the United States have handled bilaterally more than 120 requests for Mutual Legal Assistance. In one of the more publicized cases, Swiss authorities confiscated and shared with the US Government over USD 160 million of Colombian drug money.

However, such good news should not lead us to believe that we have gained the upper hand on money laundering and organized crime. On the contrary, the very intricacy, magnitude and multifaceted nature of the international flow of illicit assets, particularly from Russian origin, calls for increasing overarching co-operation, both in the refinement of our national legal arsenals and in effective collaboration of parent agencies, regulating bodies and the financial sector itself. In implementing our duties as prosecutors, nothing less is at stake than the upholding of our democratic systems and the international rule of law.

Enclosure: legal appendix