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February 2024
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February 2024
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Analysis: New rules in Switzerland designed to strengthen country’s anti-money laundering framework – will they work?

Swiss regulations
By Paul Mackintosh   
September 6, 2023

Following last week’s report on the fallout from UBS’s rescue takeover of Credit Suisse, it’s interesting to see that Switzerland is now introducing legislation apparently designed to help reduce the reputational damage the country has suffered as a financial haven as a result of the Russian invasion of Ukraine and other issues. Karin Keller-Sutter, head of the Federal Department of Finance, launched a consultation procedure at the end of August 2023 focused “on strengthening the anti-money laundering framework”. The draft proposals include a federal register of companies and legal entities in Switzerland, including their beneficial owners, accessible to professionals and enforcement officials. Other proposals include enhanced due diligence on some consulting activities, and strengthening anti-money-laundering rules, especially around sanctions evasion. Greater scrutiny will be introduced on real estate assets, and cash payments in precious metals will be restricted.

These measures might spare the Swiss government and financial system from such embarrassing headlines as the conviction in Zurich in March of four bankers for assisting a close associate of Vladimir Putin in depositing millions of Swiss francs – transactions revealed in the Panama Papers. However, doubts have already emerged about the strength and enforcement of any final legislation. The draft proposals have been submitted for open consultation until end November 2023, prior to the submission of a final bill to the federal parliament in 2024, and expectations are that pressure from financial players may lead to their dilution.

So just how effective will these regulations be? That partly depends on their real intention. Swiss government materials state that their aim is “to reinforce the integrity and competitiveness of Switzerland as a financial and business location”, but much of their intent is surely to reinforce Switzerland’s tarnished reputation as a clean and scrupulously managed foreign wealth management business centre. That raises the intriguing question of how much of the roughly US$2.4 trillion of foreign wealth domiciled and managed in Switzerland is there precisely because the beneficial owners of trusts and corporate entities in the country didn’t need to be registered? And how much can Switzerland continue to get by purely on its reputation for solid asset management if its regulatory laxity is out of the picture? Then there’s the fact that you have investor groups in Switzerland, Asia, and elsewhere now suing over the money they lost in the government-backed forced merger of UBS with Credit Suisse. It may need more than a few regulatory tweaks to cure the reputational damage that Switzerland has suffered.