Money Laundering

Mon-ey Laun-der-ing n. [action whereby illicit money is washed clean of its criminal provenance by means of its clandestine incorporation into legal financial flows]

Money laundering is the activity, whereby money of criminal provenance is laundered by disguising its origin and integrating it into the legal economic cycle. These funds can originate from crimes such as drug dealing, corruption, embezzlement, kidnapping, blackmail or human trafficking. There are manifold techniques pertaining to money laundering - for example, money may be temporarily deposited in an offshore financial centre, and then later end up in Switzerland by bank transfer. Frequently, accounts in several countries are being used, which are then consolidated at a later point. These techniques contribute to the difficulty in disclosing the money's criminal provenance.

The most important pillars of anti-money laundering efforts are the identification of customers and beneficiaries. In this area, Switzerland has a pioneering role. The banks' due diligence agreement of 1977, stipulating detailed procedures for customer identification has influenced international efforts. Besides this, finance institutes must be under obligation to report to the authorities where there is suspicion of money laundering.

Swiss Rules on Combating Money Laundering

In Switzerland, there are various rules with regard to combating money laundering. Both the criminalisation of money laundering as well as insufficient due diligence in determining beneficial owners are regulated by the penal code (Art. 305bis and 305ter Swiss Penal Code). The federal law on combating money laundering, which came into force in 1998 and was amended in 2009, introduced two major changes: first of all, the due diligence obligation valid for the banking sector was extended to all persons employed in the finance sector (financial intermediaries). The financial market supervisory authority FINMA, which was created on 1 January 2009, acts as supervisory authority. Secondly, the obligation to report in cases of reasonable suspicion of money laundering was introduced, for which purpose the Money Laundering Reporting Office Switzerland (MROS) was created within the Federal Office for Police. In the past five years, MROS has received an annual average of roughly 800 reports of reasonable suspicion of money laundering. The percentage of cases being forwarded to the law enforcement agencies in recent years is at 76%. Roughly 41% of all cases forwarded to the law enforcement agencies since 1998 are still being reviewed. In international comparison, the number of cases of suspicion reported in Switzerland is exceptionally low. This may be due to the excessive demands suggested by the term 'reasonable suspicion'. In return, the reports of suspicion received in Switzerland are of a high quality, which is why the percentage of forwarded cases is high by international comparison.

In Switzerland, only crimes according to the penal code are regarded as predicate offences to money laundering. Laundering proceeds of tax offences (including tax fraud) or of trading child pornography is not criminalised. For money deriving from such predicate offences there is no obligation to report. The same loophole exists for a number of corruption offences such as for example private corruption in the commercial sector.