Report: Switzerland Ill-Equipped in Fight Against Money-Laundering

An audit by Swiss financial authorities revealed that the country is presently ill-equipped to properly investigate and deter cases of money laundering across multiple economic sectors.

Credit Suisse FlagsAn audit by Swiss financial authorities revealed that the country is presently ill-equipped to properly investigate and deter cases of money laundering. (Photo: Suw Charman-Anderson, Flickr, License)Compiled by the Swiss Federal Audit Office (SFAO), the report evaluated how well the country is faring in its fight against white-collar crime, specifically money laundering.

Audits carried out by SFAO, dated from 2015 to 2012, “revealed weaknesses and, hence, financial and reputational risks for the Swiss authorities,” the financial agency said in a summary report.

“In several cases, these improvements also require changes to the legal framework, for which the political authorities are responsible,” a Public Ministry statement read.

One point of vulnerability highlighted was the country’s real estate sector, specifically its land registry, which was noted to be lacking proper surveillance and is therefore ill-protected against money laundering.

Despite the fact that SFAO recommended in its report further development in Switzerland’sFederal Office for Land Registry and Land Law’s (EGBA) mission scope: to ensure that land ownership laws in the country are properly enforced, the office said that there was no legal scope through which they could mitigate money laundering through the land registry system.

The EGBA declined to expand on this point when asked by OCCRP.

Real estate is a popular commodity criminals and the corrupt pursue when seeking to launder their ill-gotten gains. Though there are federal laws that, by and large, restrict the acquisition of Swiss land by foreigners—outside of land purchased for commercial purposes—it is up to state authorities to uphold them.

This potentially leaves Switzerland's supervisory and financial authority bodies fragmented when it comes to monitoring threats of money laundering through the country’s real estate sector, the SFAO report found.

Another sector critiqued in the SFAO audit was commodities, specifically that of precious metals such as gold and silver.

In 2018, the report said, almost 2,300 tons of gold worth CHF 63 billion (US$64.4 billion) passed through Swiss customs inspections, as did CHF 18 billion ($18.4 billion) worth of watches and jewelry made from precious metals.

However, the country’s financial authorities noted that there was significant room for improvement with regards to precious metal control and surveillance.

Until early 2019, for instance, authorities’ supervisory powers were limited to brief administrative checks at the precious metal smelters.

However, under the country’s Federal Law on Combating Money Laundering and Terrorist Financing (AMLA), authorities are left blind when it comes to the purchase of melted goods. Privilege to that information rests between financial intermediaries in the precious metals sector.

As it stands, authorities are limited “to examining trade in gold bars that have already been melted down between the trade auditors and the financial institutions,” the report said.

Not only that, but the report’s mention that the country’s poor quality of tariff data hinders Switzerland's precious metals control offices in their efforts to even properly classify customs declarations that they do have authority over, which therefore reduces their overall effectiveness.

Officials at SFAO did not comment when asked by OCCRP to elaborate on the extent to which they would like to see the country’s precious metals authorities’ supervisory powers be expanded upon.

The speed in which investigations are conducted is addressed in SFAO’s report as an important factor in the fight against economic crime. This is especially relevant to Switzerland, with both Zurich and Geneva ranking amongst the world’s largest financial centers.

On this point, the financial office critiqued “the slowness and inefficiency of criminal proceedings in money laundering” and in investigations against white-collar crime in general.

One explanation was that the country’s financial authorities and courts are simply overworked; a single court, the report noted, “has to sort through considerable amounts of sealed computer data (hard drives, USB sticks, telephone taps, etc.)” and proceedings “can last up to 400 days on average,” at which point the country’s statute of limitations could come into play.

As for when a sentence is handed down, SFAO noted that, under the current legislation, the maximum fine is a measly five million Swiss francs ($5.1 million). This substandard deterrent has been raised in the past by both Swiss and U.S. authorities, to no effect.

Switzerland’s Federal Office of Justice (FOJ) did not respond to comment when asked by OCCRP how the country’s anti-money laundering legislation could be strengthened to more effectively combat financial crime.

Although state authorities in Switzerland investigate cases of economic crime independently of one another, the country does have a federal analysis bureau where financial intermediaries report suspicious activity.

The Money Laundering Reporting Office (MROS), based at Fedpol, the country’s Federal Office of the Police, acts as a central hub and exchange centre for information pertaining to money laundering and all other forms of criminal financing.

In 2020, MROS received over 5,000 reports with a total of approximately 15.5 billion Swiss francs ($15.8 billion) being investigated for criminal activity, 90 percent of which came from banks, according to the SFAO report.

Information, however, appears to only flow one way in this system. The audit noted that “MROS does not know what happens to the dossiers it sends to law enforcement agencies,” thereby hampering its ability to further aid authorities as a particular investigation develops.

This handicap is not only limited to the country’s central money laundering office. Money laundering through the Swiss banking system enjoys particular protections not seen in other parts of the western world.

As mentioned in the Suisse Secrets investigation OCCRP released with its partners back in February, Article 47 of Switzerland’s banking law puts journalists in the country at risk of being prosecuted for merely possessing, much less publishing, private banking data. This acts as a shield for criminals and the corrupt because it mitigates the risk of exposure that they may face through an investigation into their illicit financial activities.

In short, Switzerland’s legislation towards banking privacy leaves the entire sector vulnerable to money laundering activity, and, as SFAO notes, so does the lack of proper communication between its law enforcement bodies mandated to investigate financial crime.

Befitting of the country’s penchant for privacy, its financial authorities did not comment when asked by OCCRP on how these problems could be properly addressed, even as the country recognizes it’s in dire need of enacting a tougher stance on money laundering.