The Swiss banking sector generates nearly 6.7% of Switzerlands GDP, and wealth management accounts for nearly half of that, according to the Swiss Bankers Association (SBA). Swiss banks have to follow very strict due diligence procedures when starting a business relationship with a client for both retail and wealth management banking.
The customer needs to physically go to the bank for opening an account with documents to prove his identity. He/she is scrutinised based on know-your-customer rules. Once the bank agrees to do business with a customer, it will have to verify the identity and assets of the customer as mandated by law. It will need to determine whether the assets are linked to the customer.
Although Swiss banking is underscored by over-riding principles of privacy, there are provisions within the law where the need to expose suspicious activity supersedes this condition. A popular misconception about numbered accounts is that the account holder is forever guarded by privacy principles.
There are no such things as anonymous accountsthey are forbidden by law. A numbered account is one where there is a greater level of privacy for the customer, since the account is not identified by name, but by a code. The procedure to open a numbered account is exactly the same as for an ordinary accountthe bank must verify the identity of the client and beneficial owner, and make sure the origin of the funds does not come from crime. Within the bank, knowledge of the clients identity is kept to a small circle of bank staff. This is simply an internal security measure that offers an additional layer of privacy protection, according to SBA. It is a designated criminal offence to divulge client data to unauthorised parties. But that apart, a numbered account does not afford any special level of immunity from investigations. A bank cannot deny information about a numbered account in the event of criminal proceedings.
Anyone holding important public office in a foreign country is designated as a politically-exposed person (PEP). He/she is categorised under a different risk category. Stricter due diligence measures kick in if a bank decides to take as a client a person it has identified as being a PEP. Clearly, all PEPs are not criminals. As a PEP, however, he/she could pose a higher legal and reputational risk for a bank. The bank might even refuse to start a business relationship with a PEP if it believes the person poses too much of a legal or reputational risk. The decision to open an account for a PEP is not taken by the young clerk at the counterthe decision has to be taken at senior management level, James Nason, Head of International Communications at SBA, says. If a bank goes ahead and takes the PEP as a client, it has to monitor the account and transactions with extra vigilance.
What if the assets are managed by a third party In that case, the beneficial owner of the assets needs to be determined. Independent asset managers are required to furnish information and attest their signature about the owners of the assets they are doing business for. Switzerlands anti-money laundering legislation applies to all financial intermediaries, including independent asset managers who must belong to a self-regulatory organisation for the purposes of fighting money laundering. So while independent asset managers have to carry out anti-money laundering checks themselves, a bank still has to run its own checks on the assets an independent asset manager brings to the bank. It cannot assume the independent asset manager has carried out adequate due diligence, Nason adds.
Standards for the identification of clients and beneficial owners, for example, are laid down in SBAs self-regulatory Due Diligence Agreement, originally issued in 1977. Its self-regulation with teeth: banks face fines of up to CHF 10 million for violations, Nason says. The agreement is revised every five years to take into account legislative and technological developments (the version in force at the moment is the 2008 version). In addition, there are regulations laid down in the Federal Anti-Money Laundering Act of 1998 and in the banking regulators Anti-Money Laundering Ordinance of 2003.
In the event of unusual account activity, the bank can ask the customer about the source of funds or examine the transactions if there is a deviation from the normal pattern of use. There are mechanisms that will alert the banker, flagging transactions that need to be probed. Banks are obliged by law to investigate and clarify unusual or suspicious transactions. If banks have a well-founded suspicion about money laundering or other financial crimes, they are legally mandated to freeze the assets. They can step in on their own initiative. Unlike in many other countries, Swiss banks do not have to wait for a court order to intervene. Further, they have to report it to the Money Laundering Reporting Office (MROS) in Bern. The authorities then investigate and instruct the bank for further action. Both the Federal Anti-Money Laundering Act and the Anti-Money Laundering Ordinance have explanations with typical indicators of money laundering activity.
The author is a journalist, working in Switzerland