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Recent updates in the field of suspicious transaction and activity reports

Introduction

In the context of the fight against money laundering, Switzerland has implemented a suspicious transaction report (hereafter "STR") and suspicious activity report (hereafter "SAR") system that enables financial intermediaries, such as banks, to report suspicion to the Swiss Financial Intelligence Unit1 (also referred to as the Money Laundering Reporting Office of Switzerland (hereinafter "MROS")) regarding their clients' activity or certain transactions.

Duty to report vs. The right to report

The Swiss legal system distinguishes between the duty to report suspicion and the right to report suspicion.

Article 9 paragraph 1 of the Anti-Money Laundering Act (hereinafter "AMLA") provides that a financial intermediary must immediately file a STR with the MROS under three different circumstances:

(i) The financial intermediary knows or has reasonable grounds to suspect that assets involved in the business relationship:

1) are connected to an offence in terms of Article 260ter para. 1 or 305bis SCC,

2) are the proceeds of a felony or an aggravated tax misdemeanour (within the meaning of Article 305bis para. 1bis SCC)2,

3) are subject to the power of disposal of a criminal organisation, or

4) serve the financing of terrorism (Art. 260quinquies para. 1 SCC);

(ii) The financial intermediary terminates negotiations aimed at establishing a business relationship because of a reasonable suspicion as defined here above.

(iii) The financial intermediary knows or has reason to assume based on the clarifications carried out under Article 6 para. 2 let. d AMLA that the data passed on by the FINMA3, the Federal Gaming Board or a self-regulatory organisation relating to a person or organisation corresponds to the data of a customer, a beneficial owner or an authorised signatory in a business relationship or transaction.

Unlike Article 9 AMLA, Article 305ter SCC provides that:

1. Any person who as part of his profession accepts, holds on deposit, or assists in investing or transferring outside assets and fails to ascertain the identity of the beneficial owner of the assets with the care that is required in

the circumstances is liable to a custodial sentence not exceeding one year or to a monetary penalty.

2. The persons included in paragraph 1 above are entitled to report to the Money Laundering Reporting Office in the Federal Office of Police any observations that indicate that assets originate from a felony or an aggravated tax misdemeanour in terms of Article 305bis number 1bis.

On the one hand, pursuant to Article 9 AMLA, a financial intermediary has a duty to report if he knows or has reasonable grounds to suspect that assets involved in a business relationship are related to certain offences or linked to a crime. On the other hand, pursuant to Article 305ter para. 2 SCC, the same financial intermediary may decide to exercise a right to report if the suspicions do not meet the required limits provided for in Article 9 AMLA, i.e. do not reach the threshold of reasonable grounds.

The duty to report and the right to report to the MROS do not overlap:

  • First, with regard to the level of suspicion. The duty to report according to Article 9 AMLA requires grounded suspicions while the right to report according to Article 305ter para. 2 SCC requires sufficient indications. In practice, this distinction is not always clear for the financial intermediaries.
  • Secondly, the duty to report must be exercised without any delay while the right to report does not entail any timeframe.

Article 9 AMLA implies that the financial intermediary has grounded suspicions. This does however not mean that it is restricted to certainty. It is less than that, but more than mere suspicion. The suspicions' background can be diverse and varied, such as reports in the press, on the Internet or information available in databases.

The report to the MROS should occur only following reflection and a clarification process undertaken by the financial intermediary. Indeed, if there is any indication or suspicion of money laundering the financial intermediary shall begin clarifications as quickly as possible (Article 17 of the FINMA Anti-Money Laundering Ordinance (hereinafter "AMLO-FINMA"). Measures to be taken could include (see Article 16 para. 1 AMLO-FINMA):

a) obtain written or verbal information on the contractual party, the controlling person or the beneficial owner of the assets;

b) visit the offices where the contractual party, the controlling person or the beneficial owner of the assets do business;

c) consult publicly accessible sources and databases;

d) if necessary, obtain information from trusted persons.

The above list is not exhaustive.

Even though there is no specific definition of the "trusted persons" notion, qualified persons such as lawyers or recognized experts should be fully considered as trusted persons within the meaning of Article 16 para 1 lit. d AMLO-FINMA from whom a financial intermediary could request information.

This clarification approach should nevertheless be considered as part of a general duty to substantiate, i.e. look for solid evidence and put it in perspective with the available information.

Failure to comply with legal obligations

From a criminal standpoint, if by failing to report to the MROS (whether under Article 9 AMLA) the financial intermediary enables the commission of an act of money laundering (within the meaning of Article 305bis para. 1 SCC), the financial intermediary (or any natural person deemed liable) could be prosecuted. This can lead to criminal sanctions, such as severe monetary penalties imposed upon the financial intermediary.

In parallel, the breach of the duty to file a timely STR to the MROS may result to the opening administrative criminal proceedings.

Article 37 AMLA provides that any person who fails to comply with the duty to report in accordance with Article 9 AMLA shall be liable to a fine not exceeding CHF 500'000 (para. 1) or CHF 150'000 if the offender acts by negligence (para. 2).

According to the AMLA, only the violation of the obligation to report (Article 9 AMLA) is punishable, by opposition to the mere duty to report (Article 305ter para. 2 SCC).

The Federal Department of Finance (hereafter "FDF") is competent to deal with a breach of Article 37 AMLA (Article 50 para. 2, 2nd sentence of the Financial Market Supervision Act, hereinafter: "FINMASA"); it shall apply Administrative Criminal Law (hereinafter "ACL"). Where proceedings before the courts are requested (Article 21 para. 2 ACL) or if the FDF is of the view that the requirements for a custodial sentence or a custodial measure are met (Article 21 para. 1 ACL), the offence is subject to federal jurisdiction. In such a case, the FDF shall refer the matter to the Office of the Attorney General of Switzerland for proceedings before the Federal Criminal Court.

Liability

Natural persons are primarily liable for failures to file a STR to the MROS (Article 6 para. 1 ACL).

Under certain conditions, the responsibility may fall upon the legal entity, i.e. the financial intermediary.

Article 102 SCC, which deals with the general corporate criminal liability shall not apply in connection with Article 37 AMLA, since the latter is construed as a minor offence that is not deemed a crime or a misdemeanour.

However, according to Article 49 FINMASA, the determination of the natural person criminally liable may be dispensed subject for the corporation to be convicted (Art. 7 ACL) if:

a) the determination of the natural person criminally liable requires investigative measures that are disproportionate in comparison with the penalty to be imposed; and

b) a fine of a maximum of CHF 50'000 is contemplated for the breach of the FINMASA's criminal provisions or financial market acts.

Whereas in the past, fines imposed on banks and other financial institutions could often be discussed and negotiated with Swiss authorities, the FDF has lately shown a strong determination to prosecute individuals.

Recent experience proves that the FDF has now taken the view that the limited amount of the fines that can be imposed on financial institutions further to a lack or a delayed STR bears no real deterrent effect.

With the increased pressure of the FATF peer review system, Swiss authorities feel compelled to show more results in the prosecution and conviction of money laundering related offences.

One aspect that appears however problematic is the fact that the FDF seems minded to conduct its investigations strictly on the basis of the documented material available in the case file. Hearing of witnesses and/or parties (including the targeted person) is usually denied by the FDF.

Such investigative acts are quite often needed to determine the specific liability of any natural person who may have been involved in the perpetration of the offence. This is all the more true that in normal circumstances several individuals are involved in the decision making process to file (or not) a STR and its actual completion.

Hence, the approach recently witnessed whereby the FDF decides to target an individual mostly on the basis of its high ranking position in the compliance department of the financial institution should be rejected.


  1. Part of the Federal Office of Police (FEDPOL)
  2. Swiss Criminal Code
  3. Swiss Financial Market Supervisory Authority