Risk situation in connection with money laundering (2021)

A large number of new customers of the Swiss asset management industry are to be found in the emerging markets, where there is a significant threat of corruption. Recent global corruption and money-laundering scandals, as well as the numerous violations of money-laundering regulations by financial institutions, show that the risks for financial institutions involved in the cross-border wealth management business remain high. Experience has shown that 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 risks are increased further by complex structures that may impair transparency when it comes to identifying the beneficial owners of the assets concerned. These structures include the likes of domiciliary companies, fiduciary relationships and insurance wrappers.

In the past year, FINMA has been dealing with five enforcement cases in connection with the Venezuelan oil conglomerate PDVSA, with three of these cases now closed. These cases clearly illustrated the following points: a bank’s compliance framework must be adapted in line with risk appetite; institutions must establish the provenance of assets and whether the clients concerned really are the beneficial owners; and they must report any dubious relationships to the Money Laundering Reporting Office (MROS).

The increase in the number of MROS reports indicates a cultural shift as well as better monitoring systems, but also the continued existence of a number of very significant risks. The reports submitted to the MROS and the corresponding calculations reveal an increase of around 25% for the year 2020 (see graph above). For the first time, moreover, transaction monitoring was the method that most frequently revealed suspicious conduct on the part of financial intermediaries (36%, see graph below). For many years, media reports were the primary source of information. This development could point to greater awareness and a more proactive approach on the part of banks when exercising their reporting obligations.

In addition to the well-established money-laundering risks (especially in connection with cross-border asset management), risks in the crypto area are becoming increasingly apparent, particularly in connection with cryptocurrencies. While new technologies facilitate efficiency improvements in the financial area, the threats of money laundering and the financing of terrorism are also heightened due to the potential for greater anonymity along with the speed and cross-border nature of transactions. In particular, cryptocurrencies are often used in connection with cyberattacks, or as a means of payment for illegal trading on the dark web. Money laundering risks can be significant for FinTech companies too. Financial institutions active in this area that do not have adequate money-laundering risk defences could seriously damage the reputation of the Swiss financial centre.

(From the Risk monitor 2021)