In the past, Switzerland was always busy positioning itself as a pioneer in the fight against money laundering. But it also didn't shy away from dealing with dictators funds. The nation recently earned praise abroad following the introduction of the "Lex Duvalier," which ordered the return to Haiti of stolen funds from former dictator Jean-Claude Duvalier. Not long ago, a journalist wrote in the New York Times that Switzerland was on its way to becoming "one of the most forward-looking countries in the quest to return stolen assets to developing countries."
Recently, however, reports that funds of dubious origin from Tunisia, the Ivory Coast and Kazakhstan are being kept in Swiss banks, and that former Egyptian President Hosni Mubarak has accounts in Switzerland, are threatening to damage the Confederacys exemplary image.
"Whats the use of Switzerland acting as a pioneer in the repatriation of funds with its new Potentates Act, when it still remains one of the first places where assets of dubious origin are deposited?" asks Mark Herkenrath of the Bern-based NGO Alliance Sud.
Herkenrath is among those calling for a reversal of the onus of proof when dealing with potentate funds, as applies to Mafia funds in Switzerland. This will require politically exposed people to prove they acquired their money legally when they open accounts and conduct larger transactions. The proposal comes from criminal law professor Mark Pieth, but has not yet received a hearing in the Federal Council.
In politics its the Social Democrats that most want to ratchet up the pressure on the banks. Responding to an inquiry about her partys campaign to deal with politically exposed persons, Social Democrat National Councillor Susanne Leutenegger announced two main strategies. On the one hand, the party is demanding that the Swiss Financial Market Authority (Finma) disclose to the National Council Economic Commission how closely it monitors potential money laundering by the banks. At the same time, the party intends to submit a motion during the winter session calling for a revision of the Money Laundering Act. The Social Democrats want to ensure politically compromised figures have to prove their money is clean.
Financial expert and former head of the Money Laundering Reporting Office Daniel Thelesklaf believes Switzerland has lost its pioneering role in dealing with politically exposed persons. He says the nation has fallen behind other top financial centers such as Luxembourg or Liechtenstein.
Thelesklaf points to the low number of suspicious transactions being reported to the Money Laundering Reporting Office as evidence of this trend. In 2009, the Principality received around 260 reports of suspicious transactions. In Switzerland, only three times as many reports were received in the same year even though its financial sector is 30 times larger.
According to Thelesklaf, the banks are reluctant to report suspicious transactions since they are only obliged to report them in cases where there is "reasonable suspicion" the assets are derived from criminal sources. In other words, the bank must have concrete evidence of an offense. "No bank would alert the authorities on the basis of suspicion alone," said Thelesklaf.
Banks pay a high price when they report their suspicions to the authorities. The account holders assets are immediately blocked and the banks usually lose the customer. Moreover, in Switzerland this process leads in nine out of 10 cases to the opening of criminal proceedings, which can also lead to a loss of reputation for the bank. "Many banks therefore avoid reporting to the authorities whenever possible," said Thelesklaf.
Experts also see gaps in money laundering regulations relating to transactions outside of the banking sector. The housing sector, for example, is not subject to the Money Laundering Act. "Its purely the absence of a legal obligation for estate agents to report suspicious financial activity that allowed the daughter of an Uzbek ruler to buy a villa in Geneva worth 70 million francs (55.5 million Euros) without being challenged," says Thelesklaf. Green Party National Councillor Bill Weiss called for an extension of the Money Laundering Act in a postulate back in December.
The Bankers Association doesnt see any need for action. "Switzerland has a good system for dealing with politically exposed persons," says spokesman Thomas Sutter. The number of reports of suspicious activity from banks may be fewer than in other countries, he says, but the reports themselves are more substantial. Sutter believes reversing the onus of proof for potentate funds would be impracticable and "legally questionable."
"It would place an entire group of people under general suspicion," says Sutter.
Read the original article in German