For decades, corrupt elites from across the world have used Swiss financial intermediaries and service providers to take advantage of legal loopholes that allow them to hide and launder their ill-gotten wealth. Now the Swiss government is putting forward some long overdue anti-money laundering measures. The Federal Council – the country’s highest executive authority – recently released its proposals for consultation.
A centrepiece of these measures is the proposal to create a federal register with information on companies’ real or “beneficial” owners. With this measure, the Swiss government wants to comply with the global standard set by the Financial Action Task Force. A beneficial ownership register is one of the new requirements under international anti-money laundering rules, which were revised following Transparency International’s campaigning for tougher global standards on beneficial ownership transparency.
A financial centre with a veil of secrecy
Switzerland’s role in the global financial system cannot be overstated. As a banking and professional services hub, it is also host to an ecosystem of gatekeeper professions – including wealth managers, accountants, lawyers and real estate agents – who discreetly manage the wealth of global elites. Conveniently for those with self-serving agendas, current rules do little to prevent shady individuals from setting up and using opaque ownership structures to transact and make investments under a cloak of anonymity.
There is no way to systematically assess who are the beneficial owners of Swiss companies and whether these persons may be exposed to a high risk of corruption. The instances where there is information on Swiss companies being used for corruption is either through leaks or arduous investigations by authorities. Tracing money is difficult and often fruitless in Switzerland, thanks to rules that do not meet international standards.
Even as the rest of Europe has recognised the need to clamp down on anonymous companies, Switzerland is one of the last remaining holdouts. The ownership information that does exist is not systematically checked for accuracy, and authorities only have access to it when they request it from obliged entities and only under very specific circumstances. This complicates both domestic and foreign law enforcement operations and prevents the systematic analysis of ownership data for risk.
What are the uses and impact of beneficial ownership information?Check out the evidence
Making the new register fit for purpose
In anticipation of forthcoming measures, Transparency International Switzerland has independently analysed the weaknesses of the current beneficial ownership framework. Our report, released just weeks before the government unveiled its plans, outlines three main ways for ensuring that the new register is effective:
- It is crucial that the central register carries information on all types of legal persons in Switzerland, and that this is extended to foreign companies holding assets – such as real estate – and conducting other forms of business within the country.
- For this information to be used efficiently and successfully, robust measures need to be implemented that ensure the quality of the data in the register. Authorities should undertake regular checks and require discrepancy reporting by relevant entities such as banks.
- It is vital that actors with a legitimate interest such as journalists and civil society organisations have access to information in the register, since experience shows that they can make an important contribution to the detection of cases of corruption and money laundering and the accuracy of the data in the register.
Some of these measures are already part of the government’s proposal that has now been released for consultation. For example, included in the reform is a requirement that the ultimate owners of Swiss companies, foundations, registered associations and collective investment schemes be named on a federal register. It would also require foreign companies that own real estate in Switzerland declare their owners. Overall, the proposed law has a good coverage of companies and other legal persons and foresees checks on the quality of the beneficial ownership data.
However, the current proposal fails to adequately regulate trusts and other legal arrangements. It is not sufficient that the trustees only need to hold the relevant information themselves, and solely provide it to authorities upon request.
Further, limiting access to the register only to the authorities and obliged entities will result in a half measure that will not solve the issue of shady entities evading scrutiny in the long-term. Journalists, civil society organisations and others with legitimate interest should have direct access to the new Swiss register. This is the direction in which the EU is currently heading, too.
Time to write a new chapter
The reforms that the Federal Council have placed on the table are promising, but more is needed to show a clear intent to thwart financial crime and embrace a new era of transparency. To increase transparency and the likelihood of unscrupulous individuals being caught, the register needs to provide unfettered access to those with legitimate interest and include information on the real owners of trusts. Transparency International Switzerland will make the case for these and other improvements in the response to the Federal Council’s consultation.
For now, because of this reform’s significance in the global fight against corruption and money laundering, it can be concluded that Switzerland has taken an important first step.