Switzerland is pursuing the goal of tracking down company property in order to curb money laundering
The Swiss government plans to set up a central register to identify the true owners of now anonymous Swiss-registered companies and partnerships, a gradual but important anti-money laundering reform for the long-standing bastion of financial secrecy.
The country’s Federal Council, the Cabinet of Switzerland, has asked the government Treasury to draw up a law to prepare the new register by June next year.
The council said in a statement that the ministry would also consider whether “further adjustments should be made to the anti-money laundering toolkit”.
It noted that “a growing number of countries around the world – including all EU Member States – are turning to register-based solutions to increase transparency of legal entities”.
However, Switzerland has been criticized by transparency activists for saying the register is not open to the public, but only to “relevant authorities”.
In addition to the proposed business register, the cabinet has floated the idea of extending anti-money laundering laws to “the realm of the legal profession”.
The council said it launched the reforms after concluding that there was “room for improvement” in owner identification to strengthen financial crime prevention and prosecution.
The registration proposal following similar reforms in The United Statesthe European Union and elsewhere, comes a year after ICIJ pandora papers exposed the particularly active role of Swiss investment advisors in assisting suspected financial criminals in hiding assets. The global investigation, led by ICIJ in partnership with more than 150 media partners, was based on a treasure trove of millions of leaked documents containing information on more than 90 Swiss consultants – legal, notary and consulting firms – whose role in the offshore system is often shrouded in a cloak of secrecy that allows them to operate with little accountability.
The Pandora Papers investigation revealed that from 2005 to 2016, at least 26 Swiss firms featured in the documents provided services to clients whose offshore companies were later investigated by authorities looking for evidence of money laundering and other financial crimes.
A company, Fidinam group, was particularly active, ICIJ found. It controlled companies in Panama and the British Virgin Islands that held shares in client companies, brokered loans between shell companies of different clients and monitored clients’ bank accounts, the records show.
The investigation found that the firm provided critical business services for a British Virgin Islands registered shell company for over a decade, including power of attorney over a bank account that was later revealed to be the center of a $600 million embezzlement scandal.
In response to questions from ICIJ, Fidinam said last year that its “Swiss affiliates are scrupulously observing and complying with the legal and regulatory provisions applicable in Switzerland and the applicable international regulations”. The company declined to comment on its customers.
Create registration “just a first step”
Switzerland has been a hub for financial secrecy since at least the 1930s and has come under increasing scrutiny since the 2008 financial crisis for its role in international money laundering and helping foreigners hide assets from their home countries’ tax authorities. Under pressure from the US and other countries, Switzerland began reforming its banking sector, requiring banks to verify the identity of company owners and flag suspicious transactions. In 2016, ICIJ Panama Papers The project revealed the role played by Swiss consultants in the formation of offshore companies. In response to that Financial Action Task Forcean international anti-corruption watchdog, recommended obliging lawyers, notaries and accountants to comply with the same rules as banks – a measure against which Switzerland has so far resisted.
Anti-corruption groups welcomed the latest announcement but said the country should do more.
“Switzerland’s move to create a central register of beneficial owners is certainly positive given Switzerland’s global importance as a financial center,” said Kateryna Boguslavska of the Basel Institute on Governance, a Switzerland-based non-profit anti-corruption group a statement to ICIJ. “While some financial centers already have a UBO registry, there are still many that need to implement it and many more that need to implement it more effectively.”
Boguslavska, project leader of the Basel AML Index, an anti-money laundering tracker, added that the main hurdle remains implementation. “We see this in other countries: setting up the register is just a first step. It is more difficult to ensure that the information is correct, verified and up-to-date. If discrepancies are identified, there should be a mechanism to sanction misconduct,” the group said.
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The Swiss branch of Transparency International noted that the registration announcement would only align Swiss rules with what was already “the global standard.”
“Until then, the involvement of Swiss companies in international corruption or money laundering scandals should not come as a surprise,” says Martin Hilti, Director of Transparency International Switzerland.
The group also noted that the proposal calls for the new register to be available only to “competent authorities” and said the government should not stop “halfway”.
“The register should – contrary to what was decided by the Federal Council – also be publicly accessible and not only reserved for the authorities,” says a press release from the group.
The Swiss Federal Council said its proposal aims to “achieve a solution that is as effective and efficient as possible”.