Financial
Crime Embassy of Switzerland - Ghana
SWITZERLAND AND THE FIGHT AGAINST FINANCIAL CRIME
Introductory
remarks
Ever since the dramatic terrorist attacks of 11 September, financial centres throughout the world have
found themselves playing a crucial role in the struggle against terrorism. The fight against the financing of terrorist activities,
which has frequently been identified as a key issue, has in fact mobilised Western governments, major financial centres, intelligence
units and specialists in combating crime and money laundering. Despite the enormous financial outlay, actions taken against
terrorist networks to date, and the blockage of numerous bank accounts (including in Switzerland), this is undoubtedly going
to be an extremely difficult and long-term task.
But there are also other criminal activities that may be less dramatic and spectacular than the destruction
of the twin towers of the World Trade Center, but which nonetheless have a considerable economic and political impact: for
example money laundering, corruption, the pillaging of public funds by dictators, fiscal crime, etc. And of course these affect
us all in one way or
another.
How does Switzerland face up to these challenges? What steps have we taken to date? How do we co-operate
with other countries? Is banking secrecy an obstacle in the fight against crime? Are the criticisms we frequently read in
the press justified? Are some of the clichés and prejudices perhaps applicable? What makes Switzerland's financial centre
successful?
These are some of the questions I would like to try to answer today, without side-stepping the problems.
And after I have finished, I feel sure that we will all be able to enjoy a lively and stimulating discussion.
The fight against the financing of terrorism
At this time, no major financial centre is able to exclude the possibility that terrorists or other criminals
are using its services for illegal purposes. It is therefore essential that the authorities that are responsible for financial
services participate without bureaucratic barriers in the intensive investigations that are being carried out on a global
scale today into financial operations associated with terrorism. It is also crucial that financial intermediaries in both
the banking and non-banking sectors thoroughly verify their client relationships in order to better identify suspicious circumstances
and elements. They also have to co-operate fully with the relevant authorities in order to locate and freeze assets linked
to terrorist activities. In this connection, strict observation of the "know-your-customer"-principles is of the utmost importance.
Swiss legislation on fighting money laundering stipulates that all financial intermediaries – not just banks and certain
other institutions – who suspect that a given client may be involved in money laundering are obliged to notify the relevant
authorities and immediately block the assets of the client concerned. This provision has been very useful to process efficiently
the various lists of persons suspected of pursuing terrorist activities that we have received from other governments, and
in particular from the US authorities.
Switzerland will not tolerate the use of its financial system by terrorists for committing criminal acts;
we introduced the necessary measures many years ago to
prevent it from being used to finance terrorist activities. In accordance with our legislation governing
international judicial co-operation and the international treaties we have signed, Switzerland co-operates fully in the investigation
of international criminal activities. Our banks are obliged by law to provide information of any nature relating to criminal
investigations if requested to do so by the judiciary authorities. To put it simply:
Switzerland's banking secrecy does not protect terrorists, nor does it protect criminal organizations or criminal
activities of any nature whatsoever. In such cases, Switzerland does not hesitate to offer international co-operation in judicial
matters and to freeze incriminated assets.
Switzerland also immediately and fully applied the sanctions imposed by the United Nations against the
Taliban regime in 1999 and 2000, in that we blocked a
certain number of Afghan bank accounts. Furthermore, we immediately ordered the freezing of accounts belonging
to persons figuring on lists published last autumn by the Sanctions Committee of the United Nations Security Council. To date,
Switzerland has already frozen some 69 accounts with total assets of 42 million Swiss francs on the basis of UN resolutions.
We have also blocked other accounts within the scope of our own investigations and our co-operation with the United States.
At this juncture, and as far as we are able to reliably determine, we have no grounds for concluding that any individuals
or organisations located in Switzerland were in any way involved in the preparation of logistical aspects of the acts of terrorism
committed on 11 September in the
USA.
Furthermore, Switzerland is in favour of tough multilateral efforts aimed at preventing the unlawful use
of the world's financial centres by criminal organisations. We are offering our fullest co-operation at the international
level. We welcomed the adoption of UN Security Council Resolution 1373 on the fight against terrorism and took steps to secure
its swift implementation. Already in June 2001, we signed the United Nations Convention for the Suppression of Terrorist Financing,
which we will ratify as quickly as possible.
Targeted economic sanctions ("smart sanctions")
In this connection I would like to mention the initiative launched by Switzerland aimed at enhancing the
effectiveness of sanctions imposed by the United Nations. As a country with a longstanding humanitarian tradition and a high
level of expertise in the area of financial transactions, Switzerland organised two seminars in Interlaken in 1998 and 1999
and in New York in 2001 in collaboration with the UN Secretariat, which brought together experts from a variety of countries
on an informal basis for the purpose of examining the question of imposing targeted sanctions, particularly of a financial
nature.
In view of the highly detrimental impacts of general sanctions on the population of the country concerned
as well as on its neighbouring countries, and since the results of sanctions are seldom very convincing, these studies set
out to lessen the undesirable impacts of sanctions and at the same time to enhance their effectiveness. The outcome was a
refined concept of targeted (or "smart") sanctions, in particular of a financial nature, which may for example be aimed at
certain people in power in the country concerned.
In order to develop the substantial work that was already accomplished in Interlaken (http://www.smartsanctions.ch)
and put the new concept into practice, the Swiss government in co-operation with the Watson Institute for International Studies
(Brown University, USA) conducted more in-depth studies. These gave rise to a manual outlining the concept and detailing how
targeted financial sanctions
could be implemented. The document was submitted to the UN Security Council in New York last October.
Switzerland contributed a number of specific proposals aimed at reinforcing international co-operation,
improving the application of sanctions and ensuring better control of their implementation.
The UN sanctions against the Taliban regime are targeted financial sanctions, and after 11 September the
intensification of efforts aimed at combating terrorism clearly underscored the suitability and relevance of these proposals.
Money laundering
Right from the start, Switzerland played a major role in the struggle against the laundering of money of
criminal origin, firstly with the introduction of the
Obligation of Due Diligence governing Acceptance of Money in 1977, and subsequently within the Financial
Action Taks Force on money laundering (FATF), of which our country was a founding member. Switzerland outlawed the laundering
of money of unlawful origin in Article 305 of the Swiss Penal Code in 1990, and
passed a separate law on money laundering that came into effect in April 1998. The latter introduced an
obligation that is applicable throughout the banking sector and extends to all financial intermediaries, to report any suspicions
of unlawful transactions. These provisions are rounded off by the directives of the
Federal Banking Commission. Furthermore, the revision of the Federal Law on International Mutual Assistance
in Criminal Matters, which came into effect in February 1997, considerably simplified the process of mutual legal assistance.
It greatly shortens the duration of implementation procedures by limiting the possibilities of appeal and narrowing the circle
of persons entitled to appeal. An evaluation of Switzerland carried out by the FATF in 1998 confirmed that our country's legislation
aimed at combating the laundering of money of criminal origin is among the most advanced in the world.
However, the implementation of this ambitious legislation was by no means a simple task, and certain difficulties
were encountered particularly in the non-banking sector. By extending its money laundering legislation to all financial intermediaries,
Switzerland was breaking entirely new ground, and even today its legal provisions still go further than those of most other
countries. But by taking this step, our authorities also encountered a number of practical obstacles to its implementation
(e.g. recruitment of qualified staff at a time when the labour market was dried out), though most of these have meanwhile
been
overcome.
In 1999, Parliament approved a variety of measures aimed at supporting the fight against organised crime,
in particular by entrusting the federal government with new powers (that had previously been held by the cantons) to deal
with organised crime and corruption.
It also approved additional funding and staff. And last October, Switzerland participated in an evaluation
of its financial sector by the International Monetary Fund (Financial Sector Assessment Program, FSAP). We are the first country
to have extended the scope of application of this assessment to include its legislation against money laundering, and this
clearly underscores our active commitment to the fight against unlawful use of the global financial system.
I feel sure you will also be interested in learning how the American authorities perceive their co-operation
with Switzerland. At a hearing on money laundering held by the US Senate Banking Commission on 26 September last year, within
the context of the fight against the financing of acts of terrorism, Jimmy Gurule (Under-secretary of the Treasury for Enforcement)
stated that Switzerland observes the 40 recommendations of the FATF. And Michael Chertoff (Assistant Attorney General, Criminal
Division) added: "Over recent years, Switzerland has become one of our most significant partners in pursuing asset forfeiture
and sharing for criminal activities". Finally, Stuart Eisenstat (former Deputy Secretary of the US Treasury) stated: "They're
(the Swiss) members of FATF. They
have tough rules. They are complying. They are sharing information. So we can't point the finger at a lot
of countries. They can almost point the finger at us".
In the meantime, the feedback we have been receiving from the USA has served to confirm this positive view.
In a public statement on 9 January 2002, Treasury Secretary Paul O'Neill underlined the Swiss efforts in
tracing and blocking terrorist related accounts. In other words, Switzerland has shown not only that its banking secrecy is
by no means an obstacle, but also that it is no longer even a matter for discussion in
the fight against the financing of terrorism and financial crime.
But Switzerland is not content to simply comply with international standards. We have also launched our
own initiatives for supporting them. Within the scope of the current revision of the recommendations of the FATF, Switzerland
has submitted various specific proposals of its own, and is supporting others, aimed at improving the practical application
of the "know your customer" rule. In particular, we feel that the procedures for identifying bank clients should be extended
to include financial beneficiaries as well as clients who are the bank's contact person. Throughout the world, banks should
not be content to simply accept official documents such as extracts from commercial registers concerning legal entities or
fiduciary companies, but instead need to obtain sound information concerning those persons who effectively control the assets
concerned. This particularly applies to bank clients acting through professional intermediaries (lawyers or fiduciary representatives),
or who use legal entities, front companies or trusts. Furthermore, it is essential that these regulations apply to both the
banking and non-banking sectors – all the more so
under the present circumstances in which international terrorist organisations have sophisticated financial
networks at their disposal that include fiduciary companies, front firms and charity foundations.
Corruption
Another aspect of financial crime that has gained in importance in the international arena over the past
few years is corruption. This can largely be explained through an awareness of the severity of the problem, its negative impacts
on the progress of numerous developing countries or nations in transition, and the necessity to bring those efforts to completion
that have been initiated by the international community to combat organised crime and money laundering.
Furthermore, it has to be noted that severe cases of corruption are frequently associated with the problem
of illicit funds deposited by leading political figures (e.g. heads of state). Switzerland is actively involved in the fight
against corruption, both at home and in the international arena. We played a major role in the formulation of the 1999 OECD
Convention on Combating Bribery of Foreign Public Officials in International Business Transactions. The workgroup was chaired
by Professor Mark Pieth (University of Basle), while the negotiations group was presided over by a Swiss diplomat, Ambassador
Marino Baldi. Switzerland has already ratified this convention and accordingly amended its Penal Code, thereby outlawing bribery
of foreign public officials in international business transactions. On 26 February 2001, Switzerland also signed the Council
of Europe Criminal Law Convention on Corruption which includes clauses governing the responsibility of legal entities. Finally,
Switzerland is pursuing its commitment within the framework of a future United Nations convention to combat corruption, work
on which was initiated in Vienna on 21 January.
Beyond the adoption of international agreements and appropriate legislation, it is of course also essential
that the political will exists to implement them thoroughly – and this is certainly the case in Switzerland. If it were
necessary to cite an example of Switzerland's readiness to co-operate, we could take the Mobutu affair in which Switzerland
is, to our knowledge, the only country out of eighteen that were contacted by the government of the Republic of Congo to have
frozen all the identified assets of its former head of state, even though it is well known that he held considerable amounts
in other countries, too. The same story has been repeated in the case of the former President of Nigeria, Sani Abacha, which
involves a large number of countries as well as many banks from different countries. Here, Switzerland was one of the first
countries to freeze the assets of the former head of state and his entourage, whereas other countries in which such assets
were deposited appear to have taken little action to date.
Switzerland has also launched initiatives aimed at bringing about a more coherent response at the international
level in cases of this sort. For example, it proposed specific precautionary measures to the Committee of Basle (consolidated
supervision of banks) and the FATF concerning the opening of accounts for "politically exposed figures". We also organized
two seminars dealing with the problem of "illicit assets of politically exposed persons" in January and November 2001 in Lausanne,
which were attended by representatives of the relevant authorities of the G7 countries and other financial centres.
It soon became apparent that major financial centers and banks in a large number of countries are exposed
to this problem. These two seminars presented an opportunity to exchange findings with respect to the prevention of such activities,
the tracing and freezing of accounts and the return of stolen assets, as well as to discuss questions relating to immunity
on the part of heads of state. They also supported the ongoing search for concerted solutions at the international level,
as well as the activities within international fora such as the Committee of Basle and the FATF.
Tax offences
I would now like to move on to another important and complex area, namely international co-operation with
respect to taxation. Switzerland is actively contributing to efforts being made at the international level, especially on
the part of the OECD. To date we have concluded 66 double taxation agreements.
In our view, the best way to prevent tax evasion is to operate a system that imposes moderate taxes, ensures
efficient and appropriate utilisation of government resources, uses an efficient method of tax collection that incorporates
a withholding tax on capital income, together with effective co-operation in the struggle against fiscal crime, including
the imposition of severe penalties. On the other hand, Switzerland does not support the creation of a wide-ranging system
of state supervision of all financial transactions carried out by its citizens. We feel that our current system secures an
appropriate balance between protection of the private sphere and safeguarding the interests of the state.
Some of our arguments have meanwhile entered the international debate. The OECD report on improving access
to bank information for tax purposes, which was approved in March 2000 following intense negotiations, explicitly acknowledges
the legitimacy of the principle of confidentiality and proposes a number of measures aimed at combating fiscal crime more
effectively. Switzerland approved this report. We are prepared to provide administrative assistance in cases of tax fraud
by means of amendments to bilateral agreements on double taxation. Several bilateral negotiations are presently in course
to achieve this goal.
We are also in discussion with the European Union concerning the taxation of savings. Like their counterparts
within the EU, the Swiss authorities believe that income on savings should be taxed appropriately. This is the reason why
Switzerland introduced a withholding tax which – contrary to the EU project – applies to residents and non-residents,
to interest as well as dividends, and to both natural persons and legal entities. So our own tax goes well beyond the scope
foreseen in the EU project.
At the request of the EU, Switzerland has joined in the dialogue the EU initiated with a number of countries
concerning these issues. If the EU and the dependent and associated territories of its member states introduce an efficient
method for taxing savings income, Switzerland would be willing to co-operate within its framework of taxation at source and
confidentiality in financial transactions.
However, Switzerland does not intend to participate in a system that calls for an automatic exchange of information. Finally, if it is to achieve the desired result, the system of taxation
that is currently being defined by the EU will have to include major financial centres outside of Europe.
Another issue that affects our relations with the EU is the problem of customs fraud – in particular
cigarette smuggling, which results in considerable losses in revenue for a number of countries. In the past, Switzerland has
come under criticism in connection with certain illegal activities allegedly organised and carried out by people living here.
Switzerland has absolutely no interest whatsoever in allowing its territory to be used for such activities,
and we have been taking measures over the past few years that have practically put an end to trafficking across our borders.
We are willing to find solutions, together with the EU and its member states, in order to even more effectively combat fraud
involving the movement of goods. In order to achieve this goal, we have proposed to provide the EU with increased administrative
and judicial co-operation in cases involving subsidy fraud, organised smuggling and, potentially, other organised illegal
activities involving indirect taxes or subsidies and which are associated with international movements of goods. Both the
EU and Switzerland are of the opinion that direct taxation should not be included in negotiations concerning customs fraud.
The Swiss Financial centre
The developments on the international scene that are aimed at promoting a broader exchange of information
cannot be separated from the fact that any easing of the observation of confidentiality in Switzerland would certainly be
welcomed by various rival financial centres, which would be only too happy to welcome certain assets currently deposited in
our country. In this context, in which significant economic interests are involved and arguments of an ethical nature raised,
it should be pointed out that a number of countries of the OECD have offshore financial centres within their zones of influence,
and which have been gaining rapidly in importance over the past few years. Other countries benefit from legislation that grants
an even higher degree of confidentiality than Swiss legislation.
Furthermore it should also be emphasised that Switzerland applies the principle of "know your customer"
very rigorously, and contrary to the claims made in countless crime novels and thrillers, there are no "anonymous accounts"
in Switzerland. And, unlike Switzerland, some countries of the OECD do not appear to efficiently co-operate in the area of
international judicial assistance. It is essential that these principles are duly applied at the international level in a
coherent manner.
With all due respect to Mr. Arnaud Montebourg, Switzerland is certainly not an ideal location for washing
money of criminal origin. Our preventive measures are among the most rigorous anywhere, cases that are detected are pursued
with the utmost severity, the assets concerned are immediately frozen and banks at fault are openly penalised. A variety of
criticisms and clichés in circulation concerning Switzerland's financial centre are therefore either false or inaccurate.
How come Switzerland's financial centre to be so successful? The answer is that its success is based on
a variety of age-old traditions, and the factors that helped it flourish in the past are still applicable today. These include:
Switzerland's political stability and neutrality – which has allowed it to keep out of conflicts
– and our rule of law and legal security; the quality of services provided by our banking institutions, the guarantees
they offer and the
confidence they inspire, their level of expertise, and their mastery of new technologies, including e-banking
and e-commerce; an enormous range of specialised services in associated areas, plus top quality infrastructures; sound macroeconomic
conditions and moderate taxation; our geographical location in the centre of Europe, at the crossroads of major transport
routes; the opening up of our financial centre to external players, with the presence of 127 foreign banks and 37 insurance
companies from other countries; and last but not least, the observation of confidentiality and the historic strength and convertibility
of the Swiss franc, which make it a popular "safe haven" currency.
However, other financial centres are endeavouring to enhance their competitive edge, too, and are meeting
with success. This means that the Swiss authorities need to adapt and improve the framework conditions, while the banks themselves
have to set out to enhance their services and performance.
Our country's monetary policy, which is focused on price stability, forms an important component of these
framework conditions. We are also keeping a close eye on the development of the exchange rate between the Swiss Franc and
the euro, since the European Union is by far our most important trading partner: it is the destination of 60% of our exports
and the source of 80% of our imports, while we in our turn are its second most important partner after the USA and ahead of
Japan.
Switzerland's banking system currently comprises 378 institutions with a combined balance sheet total of
more than 2,300 billion Swiss francs. Our two biggest banks –UBS and Credit Suisse – are ranked among the ten
largest in the world, and in the area of asset management, Swiss banks are the world's leaders. To give you an example of
the scale we are talking about here, the Swiss National Bank estimates the total value of securities managed by banks in Switzerland
at around 3,400 billion Swiss francs, more than half of which are held by foreign clients. And on top of this there are some
1,350 billion Swiss francs deposited on bank accounts or custody accounts. According to other sources, more than a quarter
of the world's private wealth which is placed outside the country of residence is managed in Switzerland.
Conclusions
To conclude, I want to emphasise that Switzerland is fully aware of its responsibilities as an international
financial centre. In view of the challenges posed by globalisation and technological developments, the reinforcement of multilateral
co-operation is absolutely essential. Switzerland is therefore actively involved in the framing of new international regulations
aimed at securing the sound operation of financial markets, and in particular at combating financial crime. We have also launched
a number of initiatives aimed at enhancing the effectiveness of the international fight against money laundering, financing
of terrorism and corruption.
Within the framework of ongoing international negotiations, in particular with the EU and within the OECD,
Switzerland will safeguard its legitimate interests firmly and resolutely. We want to improve the framework conditions for
the financial centre still further, taking the importance of safeguarding the private sphere of individual citizens and meeting
the needs of financial institutions fully into account.
The Swiss authorities will further upgrade their capacity to combat any abuse of the Swiss financial centre.
At the same time, they expect all financial institutions to act in a manner that is beyond reproach. It is only by securing
an exemplary reputation and enhancing its competitive capacity still further that Switzerland will be able to effectively
deal with mounting turbulences and successfully meet the challenges of the 21st century.
