Frequently Asked Questions

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Anti-money laundering
> How is the Supervision regarding Anti-Money Laundering Legislation organised?
> Brochure: "Combating Money Laundering in Switzerland"
The last time this brochure was updated was in October 2003 and it thus does not cover newer developments and minor changes. In addition, the statistical data at the end of the brochure is no longer accurate. However, as the brochure still provides a good overview of the preventive system of combating money laundering in Switzerland, it makes sense to continue to make it available on the website. Details covered by the brochure have to be verified independently. For current statistical data, please consult the annual reports and the websites of the relevant authorities (SFBC, FOPI, SFGB, MLCA, MROS) and the statistical data published by the Swiss National Bank.

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> Frequently asked questions regarding the SFBC ordinance on money laundering
The following practical examples correspond to concrete questions that have been submitted to the Secretariat of the Swiss Federal Banking Commission (SFBC). The answers were drafted by officers of the Secretariat and are intended to provide practical assistance on the application of the Ordinance. These answers do not amount to formal decisions of the SFBC, which is not bound by them.
Politically Exposed Persons PEP (Art. 1)
Representation Offices of Foreign Banks (Art. 2)
General Application of the MLO SFBC (Art. 3)
Relationships with correspondent banks (Art. 6)
General management of legal and reputational risks (Art. 9)
Transaction Monitoring System (Art. 12)
Internal Anti-Money Laundering Body (Art. 13)
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Verifying the identity of contracting partners and establishing the identity of beneficial owners (art. 14)
Cross-Border Wire-Transfers (Art. 15)
Additional Investigations in case of High Risks (Art. 17 ff)
Exception Concerning Business Relationships Involving Higher Risks (Art. 21)
Approval of PEP Business Relationships by Senior Executive Body (Art. 22)
Availability of Information (Art. 23)
External Auditors (Art. 31)
Transitional Provisions (Art. 32)
Agreement against fraud between Switzerland and the EU
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How is the Supervision regarding Anti-Money Laundering Legislation organised?

Article 305 bis of the Swiss Criminal Code (SCC) sanctions money laundering, whereas article 305 ter SCC addresses the lack of vigilance concerning financial transactions. The Act related to the Fight against Money Laundering of 10 October 1997 (AMLA) is intended to coordinate the efforts to curb money laundering as defined by article 305 bis SCC and to ensure an adequate level of vigilance in financial transactions.

The term "financial intermediaries" covers not only institutions subject to the supervision of the SFBC (banks, securities dealers, fund management companies as far as they manage unit accounts and offer or distribute units of collective investments, investment companies with variable capital, limited partnerships for collective investments, investment companies with fixed capital and asset managers of collective investments as far as they manage units accounts or offer or distribute units of collective investments), but also insurance companies and all other persons and undertakings which, on a professional basis, accept, keep on deposit, or help to invest or transfer assets belonging to third parties. Financial intermediaries as defined by the AMLA are subject to various due diligence obligations. In particular, they must establish the identity of the contracting parties and the beneficial owners, and clarify the economic background of suspicious transactions. In addition, they must take all necessary measures relating to their internal organization in order to prevent money laundering and are also required to keep the documents concerning transactions effected and the clarifications sought (paper trail). A financial intermediary who knows or presumes that assets are cri me (especially money-laundering) related must notify the Reporting Office for Money Laundering .

The SFBC reviews the implementation of the AMLA within all the financial institutions that are subject to its supervision. The scope of the duties contained in the AMLA is set out in the SFBC Money Laundering Ordinance (in  German). This Ordinance confirms the application of the client identification rules put forward in the Agreement on Due Diligence 2003 (CDB 03) .

The AMLA compliance of financial intermediaries not subject to the supervision of authorities established by specific laws is monitored by recognized professional associations (self-regulating bodies). Self-regulating bodies are authorized by the Anti-Money Laundering Control Authority. The Anti-Money Laundering Control Authority assumes the supervisory role for all financial intermediaries not so affiliated.

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Why are persons performing official public functions in Switzerland excluded from the scope of the definition of PEP?

The abusive use of an account by a PEP in his country of origin is in principle less probable than the abusive use of a bank account in a foreign country. In addition, the broadening of the definition of PEP to include persons performing official public functions in Switzerland would have increased the number of concerned persons and therefore could have caused capacity problems at the level of the most senior executive body (see Art. 22(1)a MLO SFBC). It is not excluded that a Bank could consider that a Swiss PEP in certain cases presents higher risks on the basis of the risk criteria it developed or in the course of the transaction monitoring.

How are foreign PEP to be treated, when they open a bank account in their country of origin with a foreign branch or a foreign subsidiary of a Swiss Group?
In principle, business relationships of foreign PEP in their country are not to be qualified as higher risk relationships, unless other factors indicate a higher risk. Alternative rules of the concerned country of origin remain applicable.

Is a person who has ceased to perform the official public functions, which characterized him or her as PEP, still to be regarded and treated as a PEP?
No. It remains to be examined whether, because of other factors, the business relationship needs to be treated as business relationship with higher legal and reputational risk according to Art. 7 MLO SFBC.

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Is the MLO SFBC applicable to representation offices of foreign banks and securities dealers?

Representation offices of foreign banks and securities dealers do not fall, in Switzerland, under the AMLA nor the MLO SFBC if their activities are limited to pure representation activities pursuant to Art. 2(1)b of the Foreign Banks Ordinance and/or Art. 39(1)a 2° of the Stock Exchange Ordinance. If an institute engages in one or several of the activities listed in Art. 2(3) AMLA, it falls within the scope of application of the AMLA (see SFBC Newsletter of March 21, 2000).

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Which are the basic principles of the Ordinance that are applicable to foreign branches and foreign subsidiaries of Swiss groups?

The principle of the differentiated approach in relation to risks is applicable to foreign finan-cial intermediaries belonging to a Swiss group. Such financial intermediaries should be in a position to identify foreign entities' higher risk business relationships and transactions, and to launch the corresponding additional investigations.

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Which bank-to-bank relationships qualify as relationships with correspondent banks?
A correspondent bank is typically used to effect wire transfers, manage liquidities and facilitate short term loans and investments. Relationships in which a bank only administers client's funds at a third bank are not regarded as relationships with a correspondent bank (see Wolfsberg Principles). It must be noted that in certain circumstances, financial intermediaries when party to a business relationship with banks domiciled abroad have to obtain a declaration on the beneficial owners from the foreign bank (see. Art. 3 N°34 (4) of the Agreement on the Swiss Banks' Code of Conduct with Regard to the Exercise of Due Diligence of December 2, 2002).
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Can the Swiss subsidiary or branch of a foreign financial intermediary inform its parent abroad about individual business relationships?

Swiss subsidiaries which are part of a consolidated foreign financial intermediary or foreign financial group are allowed to give the internal audit organ of their foreign parent access to information about individual clients and beneficial owners if necessary for the consolidated management of their reputational and legal risks.

Should the Swiss subsidiary or branch of a foreign financial intermediary report suspicious business relationships concerning its parent to the Money Laundering Reporting Office (MROS)?
No. However, the SFBC has to be informed if there are grounds to suspect under the circumstances that the business relationship will affect the reputation of the financial intermediary or that of the Swiss financial center.

Does article 10(3) AMLA (on the prohibition to inform third parties of a communication to the MROS) apply in an intra-group context?
In our opinion, the parent - foreign or not - should not be considered as a third party pursuant to Art. 10(3) AMLA when the information transmitted is to enable the global management of legal and reputational risks. A company belonging to the same group as an intermediary that made a communication to the MROS (e.g. asset manager), should also not be considered as a third party pursuant to Art. 10(3) AMLA when the assets, which should be blocked, are de-posited with the said company.

What are the legal and reputational risks in connection with money laundering and financing of terrorism?
Reputational risks refer to the danger of negative publicity about the business practices and relationships of a bank, which - whether founded or not - could affect confidence in the integrity of the institute. Legal risks refer to the possibility that court proceedings, legal judgments against the bank or contracts unenforceable abroad affect the business activities of the bank (see Customer Due Diligence Paper of the Basel Committee on Banking Supervision).

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Which IT-System satisfies the MLO SFBC standards for Transaction monitoring systems?

The transaction monitoring system must be based on several parameters which identify unusual transactions. A mandatory parameter is the identification of a physical deposit of more than CHF 100'000.- at the beginning of a business relationship. In this case, Smurfing must be detected as well.
In principle, the system shall only automatically identify out of the pool of relevant transactions those transactions which show higher risks for money laundering according to the defined parameters.
Only the authorized body shall have access to the system. The parameters for the identification of unusual transactions shall only be changed by authorized bodies and all changes must be noted and documented.

Should the computer based transaction monitoring occur in real time, leading to the blocking of suspicious transactions?
The analysis of the data produced by the system does not have to occur in real time but within a reasonable period of time. If necessary, additional investigations into the business relationship have to be launched afterwards.

Under which circumstances can a financial intermediary renounce to use a computer based transaction monitoring system?
In cases where only few client relationships and few transactions are effected, a computer based transaction monitoring system can prove too expensive and therefore disproportionate. In such cases, the financial intermediary can abstain from using a computer based system but is not exempted from the obligation to monitor the transactions in other ways. A financial intermediary can abstain from using such a system if it can monitor transactions as effectively manually. In this case, the external auditor has to assess annually, through a more thorough analysis of certain points, the effectiveness of the manual monitoring.

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Does the outsourcing of the functions of the internal anti-money laundering body to the parent amounts to an outsourcing pursuant to SFBC-Circular 99/2 concerning Outsourcing?
The SFBC-Circular 99/2 concerning Outsourcing applies to group companies with consolidation obligations. Pursuant point 3.3. of the circular, there are certain facilitations for outsourcing within a group.
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Credit cards, client's cards, consumer credits and leasing: requirement of a declaration of authenticity of identification documents.
The SFBC and the Money Laundering Authority have jointly decided that the issuers of cards, when dealing with their clients by correspondence, may forgo the requirement of a declaration of authenticity of copies of identification documents, provided that the credit in question does not exceed CHF 25'000. Similarly, in the case of consumer credits and leasing, the declaration of authenticity of copies of identification documents for credits opened by correpsondence not exceeding CHF 25'000 is not required. With respect to credits superior to this amount, such declarations must be requested before making the credit available to the client.
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Should information on the originator be included in a transfer by a Swiss financial intermediary on an account, which was opened by a branch or a subsidiary abroad?

Yes. The fact that the transaction is effected from a bank account at a branch or a subsidiary of the same group is not in itself a legitimate reason to forgo the necessary information on the originator.

How does the disposition concerning information on the originator apply to numbered accounts?
The indication of the client's name must not take place without the consent of the client. Therefore, before executing such payment orders, the bank has to inform the client that its name will be stated in the process of effecting transactions to foreign countries.

Which identification number can replace the account number and the address of the originator?
The national identification number, the client's number at the financial intermediary or the transaction number.

Quid when the payment order does not come from the bank account holder but from his representative, or from the parents when their children happen to be the account holders?
Only the name of the contracting party (not the representative giving the order) has to be stated, which refers to the names of the bank account holder or the names of the children in case of transactions from a bank account in their names (see FATF-recommendations on Terrorism financing as well as the related Interpretative Notes).

Which names have to be stated when the payment order originates from a common bank account?
One must not state all names. One name is enough as long as the person is a bank account holder. Providing the name of the representative is not sufficient.

Under which circumstances can the financial intermediary forgo to indicate informa-tion pursuant to Art. 15(1)?
In principle, the legitimate reasons pursuant to par. 2 must directly relate to the originator. In certain cases, the financial intermediary has to weigh the risks and has to justify and to document his or her decision to forgo the indication of such information. The indication of the client's name should not take place without the consent of the client.

Should wire-transfers to Liechtenstein be treated as international wire-transfers?
Pursuant to art. 15(2) MLO-SFBC, financial intermediaries may omit to indicate the information required in relation to international wire-transfers when such transfers are directed to Liechtenstein. This interpretation of the exemption clause ("legitimate reasons") is in line with the current international trend. Similarly, draft EU legislation provides for exemptions for wire-transfers effected within the EU on the basis of the level of judicial assistance among Member States. Through judicial assistance, information on the originators of transfers to Liechtenstein effected by Swiss banks can be relatively easily obtained by the Liechtenstein authorities responsible for criminal prosecution. The SFBC cannot rule out that such interpretation of art. 15(2) may be modified in connection with international developments as part of the implementation of FATF Special Recommendation VII on terrorism financing.

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How many risk categories must the financial intermediary create?

At least two: one category for client relationships without special risks and one for high risk client relationships (including PEP).

Is the creation of a client profile imperative?
Information on a client and his or her personal circumstances, when collected in the context of additional investigations, is intended to assist in better assessing a business relation's risks. Therefore, since it has a different purpose, the collected information differs from that collected for client profiles created for the purpose of consultation by the bank.

Does the SFBC-Circular 99/2 concerning Outsourcing apply in the context of the delegation of additional investigations to third parties?
Art. 19 MLO SFBC provides for relationships with third parties concerning the single or multiple realization of additional investigations. Where the financial intermediary wants to outsource the activity on a constant and systematic basis the circular concerning outsourcing is applicable. The criteria of independence and durability of the investigations carried out are decisive for the application of the circular.

How is the gathering of information regulated for group companies?
One must distinguish between:
a) the gathering of information pursuant to Art. 18(1)d MLO SFBC, which includes inquiries with trustworthy persons and is also considered part of special investigations (e.g.: group companies).

b) the constant outsourcing of investigations in application of SFBC-Circular 99/2 concerning Outsourcing. In such cases, special facilitations are applicable for group companies (see Points 6 ff. SFBC Circular 99/2).

In any case, the financial intermediary remains responsible for the proper application of the MLO SFBC. Moreover, the financial intermediary must ensure the plausibility of the results of the investigation.

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When risk factors are first discovered in the course of the relationship, is the authorisation by a senior person or body required?
If a business relationship becomes one with higher risks following a new evaluation, an ad-hoc authorisation needs to be obtained from the responsible body.
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Why is annual approval from the most senior executive body only required for the continuation of business relationships with PEP and not for other relationships involving higher risks?
The MLO SFBC does not impose the same rules for all business relationships with higher risks because the most senior executive body might not be able to treat all cases adequately given the possibly numerous applications. The responsibility could end up not being exercised properly. Instead, the most senior executive body shall be responsible for ordering, supervising and evaluating the quality of regular controls of all business relationships with higher risks.
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Should individuals who have powers of attorney on safes be included in the Register of Powers of Attorney?

When requested, the financial intermediary must give information about persons who have power of attorney over an account. This usually implies that a record keeping system has to be set up unless a special power of attorney is concerned or the power of attorney is recorded in a public register (e.g. the Trade registry). The identification of clients possessing safes or their representatives is determined in the Agreement on the Swiss Banks' Code of Conduct with Regard to the Exercise of Due Diligence of December 2, 2002.

Does the obligation to set up a register on power of attorney means that representatives have to be formally identified as well?
Art. 23 MLO SFBC only states the obligation to set up a record keeping system on power of attorney. The question of whether formal identification is necessary is answered in the Agreement on the Swiss Banks' Code of Conduct with Regard to the Exercise of Due Diligence of December 2, 2002. This agreement requires the identification of the account holder and the beneficiary. Therefore, these provisions will particularly apply when the person with the power of attorney is also the beneficiary.

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Can external auditors exercise counseling functions in the area of money laundering prevention?
External auditors have to mention explicitly in their auditor's report all violations of the MLO SFBC, and, in cases of financial groups, to discuss the group companies which fall under SFBC monitoring pursuant to Art. 2 MLO SFBC. The admissibility of the strategic counseling functions of auditors has to be decided in individual cases with due consideration to the decisive independence rules. Orders that are incompatible with the principle of independence are specifically orders that could lead the examination by an auditor of its own performances.
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Do business relationships which already existed when the ordinance came into force and which are defined as higher risk relationships require additional investigations and, if so, what timeframe would be adequate for doing so?
The obligation to investigate business relationships with higher risks applies to all business relationships and, therefore, also include those which already existed when the ordinance came into force. However, the financial intermediaries do not need to examine transactions retroactively. As far as additional investigations have not yet been carried out, they should take place as soon as possible.
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What are the effects of the Agreement between Switzerland and the EU on cooperation against fraud in relation to the banks' obligation of diligence?

As indicated by the Swiss Federal Council in its Message (available in German or French), the definition of money laundering in the Swiss Penal Code remains unchanged. As a result, neither this Agreement nor the MLO SFBC create any new obligation in this respect  for financial intermediaries.

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