Anti-money laundering and counter-terrorist …

1 December 2016 Anti-money laundering and counter-terrorist financing measuresSwitzerlandMutual evaluation report 2016 FATF/OECD. All rights reproduction or translation of this publication may be made without prior written permission. Applications for such permission, for all or part of this publication, should be made to the FATF Secretariat, 2 rue Andr Pascal 75775 Paris Cedex 16, France (fax: +33 1 44 30 61 37 or e-mail: reference:The Financial Action Task Force (FATF) is an independent inter-governmental body that develops and promotes policies to protect the global financial system against money laundering , terrorist financing and the financing of proliferation of weapons of mass destruction. The FATF Recommendations are recognised as the global Anti-money laundering (AML) and counter-terrorist financing (CTF) more information about the FATF, please visit the website: document and/or any map included herein are without prejudice to the status of or sovereignty over any territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city or area.)

2 This assessment was adopted by the FATF at its October 2016 Plenary (2016), Anti-money laundering and counter-terrorist financing measures - Switzerland, Fourth Round mutual evaluation report , FATF, Paris Anti-money laundering and counter-terrorist financing measures in Switzerland 2016 FATF 2016 1 CONTENTS EXECUTIVE SUMMARY .. 3 A. Key Findings .. 3 B. Risks and General Situation .. 4 C. Overall Level of Effectiveness and Technical Compliance .. 5 D. Priority Actions .. 10 Compliance and Effectiveness Ratings .. 11 Effectiveness & Technical Compliance Ratings .. 11 mutual evaluation report OF SWITZERLAND .. 13 Preface .. 13 CHAPTER 1. ML/TF RISKS AND CONTEXT .. 15 ML/TF Risks and Scoping of Higher-Risk Issues .. 15 Materiality .. 18 Structural Elements .. 19 Other Contextual Factors .. 20 CHAPTER 2. NATIONAL AML/CFT POLICIES AND COORDINATION .. 35 Key Findings and Recommended Actions .. 35 Immediate Outcome 1 (Risk, Policy and Co-ordination) .. 36 CHAPTER 3. LEGAL SYSTEM AND OPERATIONAL ISSUES.

3 43 Key Findings and Recommended Actions .. 43 Immediate Outcome 6 (Financial Intelligence) .. 46 Immediate Outcome 7 (ML Investigation and Prosecution).. 55 Immediate Outcome 8 (Confiscation) .. 67 CHAPTER 4. TERRORIST FINANCING AND FINANCING OF PROLIFERATION .. 75 Key Findings and Recommended Actions .. 75 Immediate Outcome 9 (TF Investigation and Prosecution) .. 76 Immediate Outcome 10 (TF Preventive Measures and Financial Sanctions) .. 83 Immediate Outcome 11 (PF Financial Sanctions) .. 86 CHAPTER 5. PREVENTIVE MEASURES .. 91 Key Findings and Recommended Actions .. 91 Immediate Outcome 4 (Preventive Measures).. 93 CHAPTER 6. SUPERVISION .. 105 Key Findings and Recommended Actions .. 105 Immediate Outcome 3 (Supervision) .. 107 CHAPTER 7. LEGAL PERSONS AND ARRANGEMENTS .. 127 Key Findings and Recommended Actions .. 127 Immediate Outcome 5 (Legal Persons and Arrangements) .. 128 CHAPTER 8. INTERNATIONAL COOPERATION .. 137 2 Anti-money laundering and counter-terrorist financing measures in Switzerland 2016 FATF 2016 Key Findings and Recommended Actions.

4 137 Immediate Outcome 2 (International Co-operation) .. 139 TECHNICAL COMPLIANCE ANNEX .. 153 Recommendation 1 - Assessing risks and applying a risk-based approach .. 153 Recommendation 2 - National Cooperation and Coordination .. 157 Recommendation 3 - Money laundering offence .. 158 Recommendation 4 - Confiscation and provisional measures .. 160 Recommendation 5 - Terrorist financing offence .. 162 Recommendation 6 - Targeted financial sanctions related to terrorism and financing of terrorism .. 165 Recommendation 7 Targeted financial sanctions related to proliferation .. 169 Recommendation 8 Non-profit 171 Recommendation 9 Financial institution secrecy laws .. 175 Recommendation 10 Customer Due Diligence .. 176 Recommendation 11 Record-keeping .. 183 Recommendation 12 Politically exposed persons (PEP) .. 184 Recommendation 13 Correspondent banking .. 185 Recommendation 14 Money or value transfer services .. 186 Recommendation 15 New technologies .. 187 Recommendation 16 Wire transfers.

5 188 Recommendation 17 Reliance on third parties .. 191 Recommendation 18 Internal controls and foreign branches and subsidiaries .. 192 Recommendation 19 Higher-risk countries .. 193 Recommendation 20 Reporting of suspicious transactions .. 194 Recommendation 21 Tipping-off and confidentiality .. 195 Recommendation 22 DNFBPs: Customer due diligence .. 196 Recommendation 23 DNFBPs: Other measures .. 198 Recommendation 24 Transparency and beneficial ownership of legal persons .. 200 Recommendation 25 Transparency and beneficial ownership of legal arrangements .. 205 Recommendation 26 Regulation and supervision of financial institutions .. 207 Recommendation 27 Powers of supervisors .. 209 Recommendation 28 Regulation and supervision of DNFBPs .. 210 Recommendation 29 Financial intelligence units (FIU).. 212 Recommendation 30 Responsibilities of law enforcement and investigative authorities .. 214 Recommendation 31 Powers of criminal prosecution and investigative authorities.

6 215 Recommendation 32 Cash couriers .. 216 Recommendation 33 Statistics .. 219 Recommendation 34 Guidance and feedback .. 220 Recommendation 35 Sanctions .. 221 Recommendation 36 International instruments .. 224 Recommendation 37 mutual legal assistance .. 225 Recommendation 38 mutual legal assistance: freezing and confiscation .. 227 Recommendation 39 Extradition .. 228 Recommendation 40 Other forms of international cooperation .. 230 Summary of Technical Compliance Key Deficiencies .. 236 Glossary of Acronyms .. 241 Anti-money laundering and counter-terrorist financing measures in Switzerland 2016 FATF 2016 3 Executive Summary EXECUTIVE SUMMARY 1. This report provides a summary of the Anti-money laundering and Countering the Financing of Terrorism (AML/CFT) measures in place in Switzerland as at the date of the on-site visit (25 February 11 March 2016). It analyses the level of compliance with the FATF 40 Recommendations and the level of effectiveness of Switzerland s AML/CFT system, and provides recommendations on how the system could be improved.

7 A. Key Findings Swiss authorities generally have a good understanding of the risks of ML/TF, which was furthered by the first National Risk Assessment (NRA) published in June 2015. In 2013, Switzerland set up an AML/CFT co-ordination and cooperation body to bring AML/CFT strategy and policies in line with changes in identified risks. The Swiss financial system is exposed to a high risk of ML associated with the laundering of assets derived from offences that are mostly committed abroad. Banking, in particular private banking, is the sector most exposed to these risks. A number of important aspects specific to Switzerland, such as the use of cash or legal persons in general, including domiciliary companies, have not yet been analysed in detail with regard to the ML/TF risks to be included in the NRA. The risk of TF is more limited, but outreach is required to raise the awareness of non-profit organisations (NPOs). The Swiss AML/CFT framework has been developed using a risk-based approach and reflects the high risk level associated with the banking sector.

8 In general, Swiss authorities take identified risk into account in their objectives and activities. In general, financial institutions and designated non-financial businesses and professions (DNFBPs) understand the ML/FT risks they face and their associated obligations. Overall, they apply measures commensurate with their risks, although classification of customers into inappropriate risk categories can undermine this approach. The implementation of due diligence measures with existing customers is not always satisfactory, particularly for longstanding customers of banks and asset managers classified as low risk at the beginning of the relationship, and where the source of funds was not always identified in line with current requirements. 4 Anti-money laundering and counter-terrorist financing measures in Switzerland 2016 FATF 2016 EXECUTIVE SUMMARY The number of suspicious transaction reports (STR) has been steadily increasing for several years following awareness-raising campaigns for reporting entities led by the Swiss authorities.

9 However, the number remains insufficient, and most of them are produced in response to external information sources, usually when there is a grounded suspicion of ML/TF. FINMA needs to increase supervision and sanctions regarding compliance with the reporting requirement. The approach to AML/CFT supervision in Switzerland generally encourages a continuous monitoring of financial institutions and DNFBPs. The authority of the Swiss Financial Market Supervisory Authority (FINMA) is recognised by self-regulatory bodies (OARs) and the institutions/professionals it supervises directly. While this means that the remedial measures imposed by FINMA are generally complied with, its sanction policy for serious violations of AML/CFT obligations remains inadequate, as does that of the OARs. Furthermore, OARs are inconsistent in the way in which they take risk into account in their supervision activities. Work should continue in order to align the supervision practices of FINMA and OARs, particularly for the highest risk sectors such as fiduciaries.

10 The general quality of AML/CFT audits still needs to be improved, and should include more detailed controls by FINMA. The Swiss authorities demonstrate a clear commitment to prosecute ML. Large-scale complex investigations are carried out, particularly using the high-quality intelligence provided by MROS on both a federal and cantonal level. Convictions have been obtained for all types of ML, especially in cases involving predicate offences committed abroad, which reflects the international exposure of Switzerland as a major financial centre. Assets have also been confiscated in cases where no conviction could be obtained. Investigations, prosecutions and confiscations are generally consistent with the risks identified. However, progress still needs to be made in imposing sanctions that are proportionate and sufficiently dissuasive. The mutual legal assistance provided by Switzerland is generally satisfactory and has involved the freezing and restitution of large sums linked with international corruption, but shortcomings associated with maintaining the confidentiality of requests have been observed.