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Substantive Law Features
1 Personal scope of application
According to Art. 2 (English translation) of the Act, basically all financial intermediaries are subject to the AMLA, apart from the few exceptions that fall under Art. 2, para. 4 of the Act. Under the AMLA, financial intermediaries are divided into two groups.
The first group covers various types of financial intermediaries, each of which is subject to comprehensive, prudential regulation under special legislation covering the whole range of their activities. Under these special laws, a financial intermediary is supervised in its activities by the appropriate regulatory authority designated in each of these laws. These financial intermediaries are the banks, securities dealers and fund managers, provided they manage share accounts and they offer or distribute shares in collective capital investments; certain investment companies and limited partnerships for collective capital investments, as well as asset managers within the meaning of the Collective Investments, they offer or distribute shares in collective capital investments; insurance institutions that deal in direct life insurance or offer or distribute shares in collective capital investments, as well as casinos. This group of financial intermediaries is described in Art. 2, para. 2 of the AMLA and is frequently referred to, somewhat imprecisely, as the banking sector, to distinguish it from the other financial intermediaries coming under Art. 2, para. 3 AMLA.
Art. 2, para. 3 AMLA describes the area of the financial sector generally known as the non-banking or para-banking sector. Unlike the case for the group of financial intermediaries described in para. 2, here the legislator was unable to make reference to financial services providers defined under special laws. Prior to the enactment of the AMLA, the heterogeneous services in the financial sector and the providers thereof that make up the so-called non-banking sector, were neither defined by law, nor subject to supervision. The legislator opted for selecting certain areas of activity as the baseline for defining the area of purview. This was achieved on the one hand, by means of a general clause, and on the other, by drawing up a non-exclusive list of services that the legislator clearly wanted to bring under the Act. The implementation of Art. 2, para. 3 AMLA, which requires a degree of interpretation, led to considerable difficulties right from the start. The development of the interpretation and the ensuing practice with regard to the area of purview for the non-banking sector has proven to be very time intensive.
The general clause contained in Art. 2, para. 3 AMLA, defines a financial intermediary to be "persons who on a professional basis accept or hold on deposit or who assist in the invetment or transfer of such assets". The non-exclusive list set out below the general clause covers the following services: credit transactions; services related to payments; trading on their own account or for third parties, in bank notes or cash, money market instruments, currency, precious metals, raw materials or with their derivatives; asset management; making investments as an investment adviser, as well as the management and custody of securities.
To settle the interpretation of the term "on a professional basis", a key element in making the AMLA applicable to financial intermediaries in the non-banking sector, the competent supervisory authority issued the Ordinance of the Anti-Money Laundering Control Authority concerning the Financial Intermediation in the Non-banking Sector as a Commercial Undertaking (OCU-AMLA). This ordinance introduced alternative criteria that are basically easy to verify, for the purpose of determining whether or not an activity is carried out on a professional basis. As the supervisory body in charge of the non-banking sector, the AML Control Authority (AMLCA) has laid down the interpretation of Art. 2, para. 3 of the AMLA, in a compilation on subordination entitled "The personal and geographic scope of the Anti-Money Laundering Act in the non-banking sector". When the need arises, this compilation (French, German, Italian) is supplemented by separate notes on the interpretation and scope of application of the AMLA which are then integrated into the compilation from time to time.
2.1 Financial intermediaries under Art. 2, para. 2 AMLA
Financial intermediaries that fall under Art. 2, para. 2 AMLA, are to comply with the regulations contained in the AMLA and in the implementing regulations, in addition to the provisions contained in the special laws that apply to them and the regulations for their implementation. The licence for practising as a commercial undertaking based on the special laws, is comprehensive and also covers the areas of activity that are subject to the AMLA. An additional licence is not necessary for this purpose. Supervision over compliance with the AMLA is carried out by the competent supervisory authorities established under these special laws. These special authorities can also, under certain conditions and at the request of a financial intermediary, carry out surveillance of a financial intermediary falling under Art. 2, para. 3 AMLA, if the financial intermediary belongs to a group which is supervised for compliance with the AMLA by one of the regulatory authorities established by special laws (for example, a financial intermediary that falls under Art. 2, para. 3 AMLA, but belongs to a banking group). Should a financial intermediary violate the applicable anti-money laundering regulations, the supervisory authority established under special law, can resort to measures based on the AMLA, as well as to measures based on the applicable special law for restoring order.
2.2 Financial intermediaries under Art. 2, para. 3 AMLA
The regulation of financial intermediaries that fall under Art. 2, para. 3 AMLA is exhaustively covered by the provisions contained in the AMLA and in the implementing regulations pertaining to it. In order to ensure the implementation of regulations, the financial intermediaries in the non-banking sector who are not otherwise subject to specific requirements for obtaining a licence, are basically required to obtain a licence and are supervised for compliance with the AMLA. For this purpose, the legislator drew up a system based on choice and introduced a form of controlled self-regulation into legislation.
The self-regulatory organisations (SROs) are based on civil law. They have the right to exercise a surveillance function over their members. Financial intermediaries should have the opportunity to set up an organisation - namely an SRO - that concretises the implementation of their obligations as laid down in the AMLA specific to their industry sector, and an organisation that itself monitors compliance with AMLA obligations by its members and, in the case of non-compliance, can apply penalities. Through their own organisation, the SRO members also have peer group supervisors who are familiar with the problems specific to their sector. However, sector-specific self-regulation is not mandatory. For example, some SROs are organised on a regional-specific basis, or are open to all financial intermediaries of the non-banking sector, regardless of their precise type of activity. The SROs are recognised by the appropriate regulatory body of the non-banking sector, and regulated and supervised accordingly. For this reason, we speak of "controlled self-regulation".
Financial intermediaries, who are not already subject to supervision under a special law, can choose to be directly supervised by the responsible supervisory authority of the non-banking sector, or choose to join an SRO. The requirement to obtain a licence and the requirement of affiliation to an SRO are of equal value. In the former case, the supervisory authority issues a licence to the financial intermediary directly subordinated to it, to conduct financial intermediation and supervises its compliance with the AMLA and the relevant implementing regulations . In the second case, affiliation with an SRO replaces the need to obtain a licence from the authorities. A financial intermediary that joins an SRO, will be supervised exclusively by the SRO for its compliance with its obligations in relation to the AMLA and the applicable implementing regulations. Lawyers and notaries are denied this freedom of choice. They are obliged to join an SRO if they conduct business as a financial intermediary. This mandatory affiliation with an SRO stems from the various types of professional confidentiality that apply, as described in Art. 321 SCC (English translation; violation of professional secrecy), as well as from the rules of official secrecy, to which the employees of the supervisory authority are subject.
Through appropriate controlling measures and penalities, the SRO must ensure that an affiliated financial intermediary complies with regulations. Supervision on compliance can be done by means of periodic checks for example, carried out by an external AMLA auditor commissioned by the SRO, or by the SRO member’s duty to submit an audit report prepared by an external AMLA auditor. The SROs are free to choose what penalieties they apply in the case of a breach of their regulations (for example, reprimand, pecuniary penalty or expulsion from membership). The supervisory authority can neither opt to become involved in the internal controlling processes of an SRO, nor, in the case of a difference of opinion between the SRO and one of its members, can it be called upon to intervene. The toughest penality n is considered to be expulsion from an SRO. Following a legally-valid expulsion, the financial intermediary comes under the jurisdiction of the supervisory authority. The supervisory authority must be notified of an expulsion. The supervisory authority then prescribes, where necessary, appropriate measures. It supervises the case until the financial intermediary once again establishes an affiliation with an SRO, or, until it becomes directly subordinate to the supervisory authority itself, or, voluntarily or by force, at the instigation of the supervisory authority, it ceases operations in the areas of activities subject to subordination.
Thus, there are three categories of supervision over AMLA-compliance of the financial intermediaries:
- financial intermediaries subject to supervision under special legislation;
- financial intermediaries subordinated to direct supervision by the supervisory authority of the non-banking sector;
- financial intermediaries affiliated to a recognised SRO and thus only indirectly supervised by the supervisory authority of the non-banking sector; here the latter is responsible for recognising the SRO and directly supervising it.
3 Obligations of due diligence, the obligation to report, freezing of assets
The obligations of due diligence are laid down in Art. 3 to 8 of the AMLA (English translation), which must be met by every financial intermediary. The purpose of the due diligence obligations is to prevent Switzerland as a financial centre from being abused for money laundering. The financial intermediary routinely fulfils its obligations of due diligence in the context of daily business; i.e. they are an integral part of its business processes and practices. Verifying the customer's identity, establishing the identity of the beneficial owner, and requirements for special clarification in certain cases, are part of this practice. In addition, the financial intermediary must establish and keep on file documents on transactions and on points for clarification as required by the AMLA (obligations regarding documentation). The documents must be so drawn up that third parties can understand the transactions and can judge whether the provisions contained in the law have been respected. Financial intermediaries are required to take all measures necessary relating to their internal organisation to prevent money laundering. This includes ensuring that their staff receive adequate training in AMLA matters.
Additional obligations imposed by the AMLA on financial intermediaries include the obligation to file a report and the freezing of assets that is linked to it. The obligation to report arises if the financial intermediary in the course of business has a founded suspicion, as referred to in Art. 9 AMLA (English translation), that the assets are linked to money laundering, that they are the proceeds of a serious crime, or that a criminal organisation has the power of disposal over them. In such a case the financial intermediary must report the suspicion to the FIU (in Switzerland - the Money Laundering Reporting Office Switzerland, MROS) and freeze the assets linked to the reporting. The freezing of assets is to be maintained until receipt of a decision by the competent prosecuting authority. However, the freezing of assets is valid for a maximum of five working days from the time of reporting by the financial intermediary to the FIU (Art. 9 AMLA). For as long as assets are frozen by the financial intermediary, the latter may not notify the persons concerned or third parties of the reporting. Advocates and notaries shall not be subject to the obligation to report, as long as their activities are bound by professional secrecy in accordance with Art. 321 SCC. The FIU vets reports of suspicions submitted by the financial intermediaries and carries out its own independent investigations. If the founded suspicion of the financial intermediary corroborates, that, in effect, assets involved in a business relationship are linked to money laundering (Art. 305bis SCC; English translation), that they are the proceeds of a serious crime, or that a criminal organisation has the power of disposal over them (Art. 260ter, 1 SCC; English translation), then it forwards the report without delay to the competent prosecuting authority.
4 Implementing regulations
The AMLA merely lays down the fundamental principles of the obligations of financial intermediaries with regard to due diligence and other obligations and leaves the working out of more detailed rules to the supervisory authorities. As the AMLA is implemented by several authorities (see under "Institutional Arrangements" below), in particular by four supervisory authorities, each of these bodies has issued its own implementing regulations in the form of an ordinance; these ordinances are tailor-made to the peculiarities of the industry sector and they define the obligations of the financial intermediaries of the particular sector subordinate to the supervisory authority in more detail. For historical reasons, in the banking sector these obligations are covered by two specific documents. For the verification of the identity of the customer and the identification of the beneficial owner, the provisions under the "Agreement on the Swiss banks' code of conduct with regard to the exercise of due diligence" (Version 2003, CDB 03) apply. This agreement was made between the banks and the Swiss Bankers Association, and has been declared by the banking supervisory authority to be binding for their area of jurisdiction. The rest of the implementing regulations for the banking sector are set out in the ordinance to the AMLA of the banking supervisory authority.
In addition, in the non-banking sector the SROs issue the detailed rules for the implementation of the AMLA that apply to the financial intermediaries affiliated to them; however, the SROs are required to have these rules approved by the supervisory authority of the non-banking sector. These rules are set out in the SRO’s own regulations and to some extent in other documents such as by-laws and guidelines. Additionally, these rules contain the conditions for an affiliation and expulsion of a financial intermediary, as well as how compliance by financial intermediaries with the AMLA is to be checked.
Looking at the regulations as a whole that govern obligations of financial intermediaries for combating money laundering, they are comprised of firstly, the relevant provisions contained in the AMLA; secondly the four Anti-Money Laundering Ordinances of the supervisory authorities; thirdly, the Agreement on Rules for Due Diligence for Banks (referred to above as CDB 03); and lastly, the regulations and supplementary documents of the SROs. However, a financial intermediary is subject only to the provisions of the AMLA and the pertaining implementing regulations or rules issued, or declared as generally applicable and binding minimal standards, by the financial intermediary’s supervisory authority or SRO.
Last update: 07.09.2007