In a major report released this week, Switzerland’s Federal Council has acknowledged that the country is not immune to financial crime and remains an attractive location for money laundering and proceeds from crime mostly committed in foreign countries.
This is a first-ever national report on money laundering and terrorist financing risks that lists areas which are more vulnerable to such illegal and criminal activity and proposes measures to strengthen cooperation across national organisations to flush out loopholes and plug them.
The analyses that is both quantitative and qualitative shows that both the threat to Switzerland and it's vulnerability could increase if terrorist financing networks were to exploit the countries’ alternative money transfer systems. At present, the financial intermediaries most exposed to this threat are banks, money and value transmitting service providers, and credit business
“We have looked at the banking sector in the past, but this is the first time we have conducted a comprehensive exercise taking account of risks across sectors and developed this national report,” Mario Tuor, of the State Secretariat for International Financial Matters (SIF) told The News Minute (TNM). Readied by an inter-departmental working group, the report contains analyses of key areas which fall under the country’s Anti-Money Laundering Act (AMLA) as well as others that do not. Among those who worked on this reports are departments of finance, police, foreign affairs, the intelligence bureau as well as the federal gaming authorities brought under the umbrella of the interdepartmental coordinating group on combatting money laundering and terrorism (CGMT) which was appointed by the Federal Council in 2013.
The report calls for eight measures which include promoting dialogue between the public and private sectors, developing and rationalizing statistics as well as extending the ambit of the work to areas not covered by the country’s money-laundering act namely the real estate sector, the commodities industry, foundations and free ports.
While the risk of money laundering has resulted in a medium risk for all areas covered under the AMLA, the level of risk is not uniform, the report says. The biggest threat comes from international banks followed by private banking, asset management, legal professions, fiduciary business and money and asset transfers.
Speaking on conditions of anonymity, a former financial expert in Switzerland said a major stumbling block in dealing with money laundering comes from over the counter (OTC) derivatives which are not listed in any exchanges and are unregulated. A derivative, as the name indicates, is a financial instrument which derives its value from something else which could be a commodity or a currency. “To work around regulated derivative markets (for example the Chicago Board of Trade CBOT), banks, dealers and brokers offer OTC deals which cannot be tracked or tracedm, posing a major challenge to governments and regulators,” he added.
Over the past decade, but more since the financial crisis of 2008-2009, Switzerland has undertaken a series of national and state level exercises to ferret out money laundering from criminal activities. But as the case of the raids on HSBC showed earlier this year, the battle is far from won. In that case, HSBC was fined what many said was a paltry sum of 40 million Swiss francs, but no root-and-branch changes asked of the global private bank.
The CGMT’s principal mandate is to coordinate all measures related to money laundering and terrorist financing. Tuor told TNM the risk analysis will be a continuous process. The report which will be published in the national gazette this week will be updated with other reports to ensure that the Swiss system is alert to new threats.