AML Compliance Guidelines: Switzerland

Located in the heart of Europe, Switzerland blends modern architecture and natural beauty. The majority of the landlocked country is covered by the magnificent Alps, scenic lakes, and historical places, making it a popular tourist destination.

Factors such as extensive infrastructure, favorable tax regime, transparent legal system, political stability, and highly skilled workforce have helped the country retain the status of a financial hub and attractive destination for foreign investment.

Switzerland’s role in cross-border wealth management makes it vulnerable to money laundering. Moreover, the surge in adopting new technologies like cryptocurrencies for illicit purposes has also introduced new challenges. Switzerland has implemented a robust framework to counter the risks of money laundering (ML) and terrorist financing (TF).

This guide provides an overview of the regulatory framework, supervisory authorities, AML-regulated sectors, their obligations, penalties for non-compliance, best practices, and proposed changes to AML laws.

Overview of AML Switzerland Framework

Switzerland’s AML framework is governed by the Anti-Money Laundering Act (AMLA) and elaborated by the Anti-Money Laundering Ordinance (AMLO). Each supervisory authority also issues AML/CFT regulations in the form of ordinances specific to their sectors. An AML-regulated entity in Switzerland is referred to as a financial intermediary (FI).

The Financial Market Supervisory Authority regulates entities operating in the financial industry. Also, the Money Laundering Reporting Office (MROS) is Switzerland’s financial intelligence unit.

Money Laundering Reporting Office Switzerland (MROS)

The Swiss financial intelligence unit (FIU), MROS, receives and analyzes suspicious activity reports from financial intermediaries and forwards verified reports to law enforcement agencies. MROS is part of the Crime Prevention and Legal Affairs directorate of the Federal Police Office (Fedpol). It shares intelligence with foreign FIUs and heads a subgroup responsible for national risk assessment (NRA).

Financial Market Supervisory Authority (FINMA)

The FINMA oversees and regulates Switzerland’s financial sector, setting rules, monitoring compliance, and imposing penalties to maintain a stable and trustworthy financial system. It also oversees the compliance efforts of Self-Regulatory Organizations (SROs).

Self Regulatory Organization (SRO)

Self-regulatory organizations (SROs) are not government bodies but are authorized to regulate or supervise member financial intermediaries under certain conditions. AMLA requires certain financial intermediaries to obtain the membership of an SRO.

Currently, there are 11 SROs recognized by FINMA. Swiss Bankers Association (SBA) is an example that supervises member banks and securities dealers. SBA is empowered to make rules or regulations, subject to approval by the FINMA, and may issue penalties up to CHF 2,000,000 in cases of serious violations.

Switzerland Money Laundering Related Laws

Anti-Money Laundering Act (GwG, SR 955.0)

The Anti Money Laundering Act, or ALMA, is the primary federal legislation that designates financial intermediaries to due diligence and reporting requirements to combat money laundering and terrorist financing. It also outlines the responsibilities of supervisory authorities in monitoring financial intermediaries’ AML/CFT compliance.

Anti-Money Laundering Ordinance (GwV, SR 955.01)

The anti-Money Laundering Ordinance (AMLO) elaborates on how the objectives mandated by AMLA will be achieved. It mainly defines the obligations of self-regulatory organizations (SRO). It describes the reporting and due diligence requirements of the dealers. It also sets out the obligations of all financial intermediaries about suspicious transaction reporting.

Anti-Bribery and Corruption Laws

Corruption and bribery is a criminal offense under the Swiss Criminal Code. These laws apply both to individuals and legal entities. According to Transparency International’s Corruption Index, Switzerland ranked among the top 10 least corrupt countries. However, the country faces significant inherent risks for cross-border corruption.

To mitigate these risks, Switzerland has introduced reforms to enhance transparency in beneficial ownership as well as prohibition on bribery of foreign public officials. Conviction on bribery offense of an individual may result in up to 5 years in prison whereas that of a legal entity may result in a fine up to CHF 5,000,000.

Switzerland AML Regulated Business

Financial Sector

The FINMA regulates and supervises the financial sector, including banks, fund managers, investment advisors, insurance companies, securities dealers, money exchanges, and payment systems. Anti-Money Laundering Ordinance – FINMA of FINMA, sets out AML obligations and conditions when such obligations are triggered for entities supervised by it, including :

Travel Rule Requirement

The payer’s FI must include the name, address, and account number of the payer and the name and account number of the beneficiary in wire transfers (payment orders). FI must ensure the information on both parties is complete and that the information related to the payer is also accurate.

Due Diligence obligation

Financial Intermediaries must verify the identity of clients and beneficial owners, assess and obtain information on the nature and purpose of business relationships, and conduct ongoing monitoring.

Record Keeping

Financial Intermediaries are required to keep records of transactions, identification documents, and due diligence activities for at least 10 years after closing a business relationship.

Reporting requirements

Financial intermediaries must submit suspicious activity reports and transaction reports to MROS if they know or have reasonable grounds to suspect money laundering or terrorism financing.

Prohibitions under Article 7 & 8 of AMLO-FINMA:

• FI is prohibited from dealing with assets if it knows or there are reasonable grounds to assume are proceeds of crimes or tax evasion, whether committed in Switzerland or abroad.
• FIs are prohibited from establishing a business relationship with a shell bank.
• FIs are prohibited from establishing a business relationship with a company or a person about whom they know or must suspect is financing terrorism or associated with a criminal organization.

Casinos

Federal Gaming Board (FGB), or ESBK (Eidgenössische Spielbankenkommission), regulates and supervises both land-based and online casinos in Switzerland. Currently, 21 casinos are licensed to operate in the country. Money Laundering Ordinance – ESBK provides risk-based due diligence requirements that casinos must meet. These measures include obligations like identity verification (for land-based transactions of CHF 4,000 or more), beneficial owner identification, record keeping, suspicious transaction reporting, and politically exposed person identification.

Large Scale Games

Large-scale games such as lotteries, sports betting, and skill-based games, other than casinos, are licensed at cantons level (states) and are supervised by the Gambling Supervisory Authority – Gespa. Money Laundering Ordinance FDJPD sets rules of AML compliance for large-scale game operators. There are different transaction thresholds for identity verification for land-based and online games, some triggering transactions worth CHF 5,000. It also mandates risk-based classification of business relationships, monitoring business relationships and transactions, record-keeping, and reporting obligations.

Trade Assayers

Under the AMLA, the trade assayers are designated as a financial intermediary. Trade assayers dealing in banking precious metals must obtain a license from the Central Office (Precious Metals Control Office). The granting of the permit under the Precious Metals Control Act (PMCA) is linked to conditions such as having a good reputation for AML and ensuring compliance with AML/CFT obligations using their internal controls or self-regulation.

Dealers

Any natural or legal entity that deals in goods commercially and, in doing so, accepts cash as a means of payment directly or through appointing a third party is known as a dealer for AML regulations. Dealers are obliged to perform due diligence when accepting a cash payment that reaches or exceeds CHF 100,000.

These obligations include:

• Identification and verification of customer and beneficial owners
• Recording and documenting transactions and identification details
• Assessing and obtaining details on the economic background and purpose of the transaction

Dealers must also file a report with the MROS if they know or suspect that the cash received involved proceeds from a predicate offense or property of a criminal organization or serves terrorist financing.

Switzerland AML Compliance Summary

• Verifying the identity of the customer
• Establishing the identity of the beneficial owner
• Assessing the intended purpose and nature of the business relationship
• Documenting and retaining records for up to 10 years
• Due diligence Exceptions for certain low-value assets
• Enhanced measures for certain high-risk clients
• Obligations to file Suspicious Activity Reports

Legal basis for PEP screening:

Article 7 of AMLA requires financial institutions to implement special due diligence measures in business relationships involving politically exposed persons. All business relationships with Foreign PEPs are deemed as high risk whereas those with domestic PEPs and heads of international organizations depend on their individual circumstances.

The term PEP includes their family members and close associates. This obligation necessitates the requirement of a PEP screening tool that has global coverage for PEPs, their relatives and close associates (RCAs).

Legal Basis for Adverse Media Screening:

Article 6 of AMLA, requires FIs to take into account indicators that suggest that assets are proceeds of a crime or belong to a criminal or a terrorist organization. These indicators include the information present in the media or shared by any government authorities.

According to a FINMA report, an undisclosed bank received a penalty of CHF 150,000 in January 2023, for not taking sufficient measures related to high-risk clients, despite several reports from the press and from domestic and foreign authorities. This implies the importance of adverse media screening for risk assessment including for identification of high-risk clients.

Upcoming Changes in Swiss AML Regulations

On May 22nd, 2024, the Swiss Federal Council adopted a new bill to enhance effectiveness and bridge gaps in the existing anti-money laundering Switzerland framework. This new amendment will align the Swiss AML Framework with the international standards set by the Financial Action Task Force (FATF). The draft bill is expected to come into force in early 2026 after Parliament’s approval. Some key changes expected to be introduced include:

Transparency Register: This new bill aims to enhance transparency in the ownership of companies and other legal entities. As per the draft legislation, a central register of beneficial ownership will be maintained by the Federal Department of Justice and Police. If approved, companies, including other legal entities like foundations, associations, partnerships, and trusts will be obliged to disclose and submit up-to-date beneficial ownership information in the federal register.

Access to the register will be limited to the competent authorities and financial intermediaries to the degree or extent it is necessary to fulfill their due diligence obligations. Failure to meet beneficial owner reporting obligations may result in a fine of 500,000 Swiss francs.

Dealers in Precious Metals and Stones: Under new amendments, dealers in precious metals and stones must conduct due diligence when carrying out cash transactions of CHF 15,000 or more. This is far below the existing requirement, which triggers only CHF 100,000.

Real Estate Agents: Brokers or Dealers who engage in real estate cash transactions will be required to perform due diligence obligations.

Lawyers, Notaries, and Advisors: The draft bill amends the AMLA to add lawyers, notaries, and other advisors who provide legal or accounting-related services to the list of financial intermediaries. This will directly affect lawyers, notaries, and other advisors, especially those who carry out real estate-related transactions or provide services for creating and managing companies or trusts. Supervision of these entities will be shifted to self-regulatory organizations rather than regional bars.

Sanctions Compliance Switzerland

Since 2003, Switzerland has been imposing autonomous sanctions under the Federal Act

on the Implementation of International Sanctions (Embargo Act or EmbA). The Embargo Act provides the legal basis for sanctions ordered by member regional organizations and other significant trade partners to ensure compliance with international laws, especially regarding human rights.

The Federal Council has the authority to enact these measures. The State Secretariat for Economic Affairs (SECO) is the primary authority that enforces and monitors sanctions in Switzerland.

As a member of the UN, Switzerland adopts sanctions implemented by the UN Security Council Resolutions. Switzerland also adopts sanctions imposed by the EU Council, although it’s not a member of the EU. However, EU sanctions are not automatically applicable in the Swiss Confederation; rather it decides independently to what extent it will adhere to those sanctions.

All persons and institutions who hold or manage funds or are aware of economic resources likely to be subject to freezing measures must file a report to the SECO with certain information without delay.

Measures imposed under the Embargo Act may directly or indirectly restrict transactions involving goods and services, payment and asset transfers, and movement of individuals, as well as scientific, technological, and cultural exchange. To date, Swiss sanctions target 2 groups and 26 countries, which include measures against individuals, entities,  and ships.

Failure to meet obligations mandated by the provisions of the EmbA and related ordinances may result in imprisonment of up to 5 years and a monetary penalty.