Secrecy hampers money laundering fight

Switzerland must adapt its bank secrecy legislation to fight money laundering Keystone

Switzerland’s bank secrecy legislation is causing problems in the international fight against money laundering.

It means that the Swiss Money Laundering Reporting Office (MROS) is obliged by law to hold back information from its foreign counterparts.

The government has now come under international pressure to change this situation.

On the one hand, the inter-governmental Financial Action Task Force (FATF) has declared that countries whose anti-money laundering bodies refuse to exchange information with their counterparts will end up on a black list.

On the other, the Egmont Group, an informal group of 127 financial intelligence units (FIUs) from all over the world, has said it will suspend MROS’s membership unless Switzerland changes its law.

The Swiss government has recently approved a move to amend the legislation and has invited interested parties to express their views on the proposed change.

The government in any case believes that a change is in Switzerland’s interest, since the MROS refusal to provide information means that in many cases it doesn’t receive any either.

Parliamentarian Susanne Leutenegger Oberholzer of the centre-left Social Democratic Party, whose background is in economics, told swissinfo.ch that Switzerland “cannot get out of aligning itself with international practice”.

“We have already had to make adjustments to meet the standards of the Organization of Economic Co-operation and Development (OECD). The sooner adjustments are made to the money laundering law, the better,” she said.

Reservations

But not everyone agrees that the proposed change is the right way to go about it.

Markus Hess, chairman of the Forum of Self-Regulatory Organisations, told swissinfo.ch that the amendment does not include the necessary mechanism to prevent data being used for purposes other than combating money-laundering.

Not only could it be used to track down tax evaders, but the FATF wants to define certain tax offences as money-laundering.

“We can see that Switzerland is in an uncomfortable position. We have no interest in finding ourselves on grey or black lists,” he admitted.

“But to put it crudely, the motivation for the whole exercise is probably fiscal. It’s not just a matter of a few more holes appearing in banking secrecy; rather, it will soon be practically nothing but holes.”

Strict rules…

The Swiss Bankers Association (SBA) has similar reservations, even though it recognises the importance of exchanging information with foreign counterparts, as spokesman Thomas Sutter told swissinfo.ch.

“It’s important for us that the exchange of information should remain tied to strict rules. For example, the exchange of information should only be permitted when the case is quite specific, and not across the board.”
 
He too is concerned that the information could be passed on to other authorities.

“The Swiss authorities must see to it that if there is any suspicion that information is being forwarded elsewhere, that particular foreign money-laundering unit doesn’t receive any [information] in future.”

…and safeguards

Thomas Pletscher, a member of the executive board of the Swiss Business Federation, economiesuisse, is worried about the same thing.

“If, quite against the Egmont rules, a country were to forward -for example for tax purposes – information obtained from Switzerland, that country should be automatically blocked by Switzerland and expelled from the Egmont Group,” he told swissinfo.ch.
 
But at the same time he believes it is important for Switzerland to adapt its legislation so that it can continue to play a role in international bodies, “precisely because it is an internationally important financial centre”.
 
“If the law includes safeguards against passing information on to unauthorised parties, banking secrecy will not be further dented.”

No more banking secrecy

Leutenegger Oberholzer finds the fears that money-laundering information could be used to track down tax cheats “ridiculous”. The law will lay down how the data can be used.

“In the long term Switzerland will only be successful if we fight tax evasion and take the clean money strategy seriously.”

 
“Banking secrecy is already at an end. Just think of the Hildebrand affair [in which stolen data from the private bank account of the Swiss National Bank chairman led to his resignation earlier this month] – that’s the best example.

“The law enforcement agencies are not even really taking it seriously as a criminal case.”

MROS head Judith Voney does not think there is a risk that information could be abused by tax authorities.

She told the Tages-Anzeiger

newspaper that Swiss banks do not have to report suspicions of tax offences to MROS.

So MROS would not have any sensitive tax data to pass on.

However, the government said in March 2011 that major tax crimes will in future be treated as “predicative offences“. (A predicative offence is one that has been committed to obtain the money that criminals want to launder.)

International anti-money laundering

Money laundering reporting offices are known as Financial Intelligence Units (FIU).

A group of FIUs banded together in 1995 to work together informally.

They took the name Egmont Group from the Egmont Arenberg palace in Brussels where they met.

It now has 127 members. Switzerland’s MROS joined in 1998.

The aim is to achieve the effective and secure exchange of information between FIUs, and has established basic rules to this end.

The central international forum for combatting money laundering is the Financial Action Task Force (FATF), to  which Switzerland also belongs.
 
It draws up international regulations on the subjects. These are currently being reviewed; the new ones are scheduled to be adopted in February 2012.
 
Two of its recommendations cover the tasks and powers of national FIUs. This has given rise to Switzerland’s moves to amend its law on money laundering.

(adapted from German by Julia Slater)