Risk situation in connection with money laundering

The Swiss financial centre is a leading global cross-border wealth management hub for private clients. This makes it particularly exposed to money-laundering risks. Breaches of the law can result in significant sanctions and reputational damage to financial institutions both in Switzerland and abroad. A number of major international money-laundering cases with a connection to Switzerland in the past underline the risks that exist in this area.

As a result of shrinking margins, financial institutions may take the commercial decision to pursue relationships with profitable new clients from relatively high-risk emerging market nations where there is a significant threat of corruption. Recent global corruption and money-laundering scandals, such as those involving the Malaysian sovereign wealth fund 1MDB and the Brazilian and the Venezuelan oil giants Petrobras and PDVSA, show that the risks for financial institutions involved in the cross-border wealth management business remain high. This is in spite of the fact that many institutions have further improved their money-laundering prevention in recent years, are increasingly identifying suspicious clients and reporting them to the Money Laundering Reporting Office Switzerland (MROS). The financial flows associated with corruption and embezzlement can involve not just affluent private clients, who often qualify as politically exposed persons, but also state or quasi-state organisations and sovereign wealth funds. The complexity of the structures involved, particularly when domiciliary companies are used, can increase the risk of money laundering.

In addition to these traditional money-laundering risks, the financial industry also faces new risks in the area of blockchain technology and the cryptoassets that are attracting growing interest from clients. Although these new technologies promise efficiency improvements in the financial industry, they also accentuate the threats posed by money laundering and the financing of terrorism due to the greater potential anonymity they involve, as well as the speed and cross-border nature of the transactions. Malpractice by the financial institutions active in FinTech could significantly damage the reputation of the Swiss financial centre and slow down the development of digitalisation.

In its supervision of the combating of money laundering, FINMA applies a fully revised approach to auditing. This focuses heavily on material compliance with the obligations set out in Swiss money laundering legislation. However, the scope of each individual audit depends on the risk posed by the financial institution under scrutiny. FINMA will also focus strongly on risk management at financial institutions that look after quasi-state clients. In the area of digital assets, FINMA takes a technology-neutral approach, but requires institutions to comply with at least the same high standards that apply in the analogue business.

(From the Risk monitor 2019)