Federal Act on the Combatting of Money Laundering and Terrorist Financing – Legislative amendments coming into force on 1 January 2023

The Swiss system to tackle money laundering and the financing of terrorism is constantly evolving. In addition to the provision found in the Swiss Criminal Code (art. 305bis and 305ter CP), the Swiss legislation is technical and diversified and encompasses the following:

• The Federal Act on Combatting Money Laundering and Terrorist Financing of 10 October 1997 (AMLA);
• The Anti-Money Laundering Ordinance of 11 November 2015 (OBA) which sets out the requirements for the professional practice of financial intermediation and the due diligence obligations and reporting duties which traders must fulfil;
• The Swiss Financial Market Supervisory Authority Anti-Money Laundering Ordinance of 3 June 2015 (AMLO-FINMA) which sets out how the financial intermediaries are to implement their obligations to prevent money laundering and terrorist financing;
• Numerous FINMA Circulars and prescriptions from supervisory authorities such as the Federal Office of Police (FedPol), the Money Laundering Reporting Office Switzerland (MROS) and the Swiss Federal Gaming Board (SFGB);
• The revised code of conduct, which came into force on 1 January 2020, in the area of the fight against money laundering issued by the Swiss Bankers Association (SBA) as a self-regulatory agreement, approved by FINMA, which sets out the duties of the banks relating to the identification of contracting partners as well as the establishment of controlling persons or beneficial owners (CDB20).

In addition to which, Switzerland, Member State of the Financial Action Task Force (FATF) from 1990 applies its international standards on the combatting of money laundering and the financing of terrorism and proliferation.

In October 2016, the FATF published its fourth Mutual Evaluation Report of Switzerland [1] in which the assessment team encouraged Swiss authorities to strengthen their control regarding the obligation to report suspicious transactions, in particular for financial institutions. In addition, the assessment team suggested that the sanctions applied for failure to comply with AML requirements, both to natural and legal persons, should be commensurate to the seriousness of the misconduct identified and should prompt other institutions to reconsider their policies when necessary. In particular, the report highlighted the weaknesses of the rules applicable to associations and non-profit organisations recommending significant updates in this field.

In order to comply with the FATF recommendations, the Swiss Parliament approved on 19 March 2021 the revised version of the AMLA, which provides for measures for financial intermediaries in the areas of beneficial ownership, updating of client data and suspicious activity reports concerning money laundering. Moreover, it promotes the transparency of associations with a heightened terrorist financing risk and strengthens supervision and controls for precious metals.

The first part of the revised AMLA came into force on 1 January 2022 but the main part will follow on 1 January 2023.

Revised AMLA and OBA

Scholars are sceptical with regards to the real impact of the revised AMLA as most modifications seem to only confirm actual existing practice such as the identification of the beneficial owner (new art. 4 AMLA), and the actualisation of the client data (new art. 7 al. 1 bis AMLA).

The same comment goes for the definition of “reasonable grounds for suspicion” which was previously defined in the applicable case law and now finds its source in the law with new art. 9 al. 1 quarter AMLA which states: “In cases targeted by para. 1, there is reasonable suspicion if the financial intermediary has a concrete sign or several indicators that the criteria defined in para. 1, let. a may be fulfilled for the assets involved in the business relationship and that the additional clarifications carried out in accordance with Art. 6 do not allow the financial intermediary to dispel the suspicions”.

One modification that will undoubtedly have a tangible impact is the suppression of the time limit of twenty days imposed by the law for the processing of communications by the Swiss Money Laundering Reporting Office (MROS) (new art. 23 al. 5 AMLA). In practice this will only increase the number of pending complaints (already high) and extend the duration of the uncomfortable position of the financial intermediary. The legislator tackled this issue which was raised during the parliamentary debates by including in its revision new art. 9b AMLA which states that: “If within 40 working days of a report according to art. 9 para. 1 let. a of this Act or art. 305ter para. 2 Criminal Code the Reporting Office does not notify the financial intermediary that it is forwarding the complaints to a prosecuting authority, the financial intermediary may terminate the business relationship”. In doing so, the financial intermediary may only authorise the withdrawal of significant assets in a way that allows the prosecuting authorities to trace them (art. 9b para. 2 new AMLA) and the termination of the business relationship and the date on which it occurred must be reported to MROS without any delay (art. 9b para. 3 new AMLA).

In addition, on the occasion of this legislative revision, the different modalities of the application of the law in the case of any suspicion of money laundering have been regrouped in a new chapter of the Ordinance.

On 31 August 2022, the Federal Council postponed the entry into force of the second part of the revised AMLA and other prescriptions of application from October 2022 to 1 January 2023, in order to have all modifications and revised provisions entering into force at the same time and avoiding any confusion.

The Federal Council also specifies that the updated modifications regarding communication to MROS will be applicable to pending communications as of 1 January 2023.

Focus on the changes applicable to Associations and non-profit organisations

In the midst of the AMLA revision, some significant changes have been made to the association law (art. 60 ss Swiss Civil Code) in order to improve transparency for associations and organisations at greater risk of financing terrorism. This revision implies substantial modification in the article 60 ff. Civil Code as well as in the Ordinance on the Commercial Register (ORC) as described hereafter.

a. Extension of the obligation to register onto the Commercial Register for charitable associations and non-profit organisations

Currently, an association or non-profit organisation does not necessarily have to register onto the Commercial Register unless it conducts commercial operations in pursuit of its purpose or if it is subject to an audit requirement (art. 61 Civil Code).

As of 1 January 2023, an association or non-profit organisation will have to register onto the Commercial Register whether it directly or indirectly raises or distributes funds abroad for charitable, religious, cultural, educational, or social purposes (new art. 61 par. 2 number 3 Civil Code and new art. 90 par. 1 let. c ORC).

An association or non-profit organisation that fulfils these conditions is, however, exempted from registering if (new art. 61 par. 2ter Civil Code and new art. 90 par. 2 ORC):

• during the past two financial years, neither the annual amount of funds raised, nor the amount of funds distributed exceeded CHF 100’000 (let. a);
• funds are distributed by a financial intermediary within the meaning of the AMLA (let. b);
• at least one representative of the association is domiciled in Switzerland (let. c).

However, this new and additional level of transparency can be problematic for the associations or non-profit organisations aimed at by this requirement.

Indeed, the fact that members of the board and people able to represent the association are, once registered, freely accessible, is not always appropriate. To address this valid concern, the Parliament introduced a “discretion mechanism” aimed at these associations and non-profit organisations newly subject to the registration obligation and for the ones who register voluntarily, indicating that: “only one member of the committee and one person authorised to represent the association and being domiciled in Switzerland” has to be registered (new art. 92 let. k ORC).

b. Mandatory list of members for all registered associations (new art. 61a CC)

All associations and non-profit organisations subject to registration must keep a list of all members mentioning name (or company name) and address of each member. The said list must be accessible at all times in Switzerland and the above-mentioned information has to be kept for five years after a member’s removal.

All associations and non-profit organisations subject to the registration obligation must have a member able to represent the association who is domiciled in Switzerland and has direct access to the list of members (new art. 69 par. 2 CC).

c. Consequences in case of default

New art. 327b of the Swiss Criminal Code provides that anyone who intentionally violates the obligations under articles 61a and 69 par. 2 of the new Civil Code shall be liable to a fine.

In this new context of a broadened obligation to register, a particular focus is made on art. 153 Criminal Code which provides that any person who causes an authority responsible for the Commercial Register to register a false entry or to withhold information which is required to be registered shall be liable to a custodial sentence not exceeding three years or a monetary penalty.

d. Transitional law

Existing associations or non-profit organisations under art. 61 par. 2 new Civil Code, have 18 months as of 1 January 2023 to comply with the new requirements as described here above. Existing associations under art. 61 par. 2 ch. 3 also have 18 months to register (new art. 6b bis Final Title of Civil Code).

In this context of an intensified fight against money laundering and terrorism financing, the latest AMLA amendments have, as shown, an impact at all legislative levels.

While some of the changes relate to legal organisation, others have a concrete impact on those concerned such as associations and non-profit organisations, which will be subject to additional documentation obligations that must be complied with.

[1] www.fatf-gafi.org/publications/mutualevaluations/documents/mer-switzerland-2016.html