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LIVING IN SWITZERLAND

OPINION: Why Switzerland is failing in its fight against money laundering

As one of the world’s largest offshore financial centres, Switzerland is a magnet for money laundering.

Swiss franc notes held against a black background
How serious of a problem is money laundering in Switzerland? Photo by Claudio Schwarz on Unsplash

Money is channelled in and out of the country at multiples of what would be the normal rate for the size of the economy. 

In the ongoing Brazilian Petrobras/Odebrecht corruption scandal alone, Swiss prosecutors froze 1,000 accounts in 40 Swiss banks worth $1.1 billion. Seizing and returning illegal assets is something the Swiss do rather well, when asked. 

But are the Swiss authorities doing everything in their power to deter economic criminals? It really doesn’t look that way. There are weaknesses all along the justice pipeline from parliament to prison, which add up to little meaningful punishment for wrongdoing. 

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The verdict? Could do better.

Here are the five main failings in the Swiss fight against economic crime:

Weak laws

When Swiss parliament had the chance to close money laundering loopholes, it didn’t take it. A revision of the Anti-Money Laundering Act was approved by Swiss parliament in March of last year. The revision was a lengthy process and the government’s goal was to bring Swiss law into line with international practice. 

However, parliamentarians watered down the government’s proposed changes to the act, crucially excluding lawyers and financial advisors from the due diligence requirements. The Financial Action Task Force (FAFT), an international watchdog, had been calling for this step since 2005. 

Could the implacable resistance in Bern have anything to do with the fact that one in four members of parliament are qualified lawyers? Some Swiss media have raised the question.  

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Too slow

Complex international financial investigations take time. That’s understandable. The Petrobras affair has been under investigation by Swiss prosecutors since 2014, with one conviction so far in Switzerland. 

For the few financial fraud cases that finally come before the courts, there is often a ping pong game of appeals back and forth. The result can be that justice delayed is justice denied.

François Pilet of Gotham City, a Swiss platform reporting on economic crime, tracks large and small cases on their tortuous journey through the Swiss courts. His conclusion: “By exploiting the multiple possibilities for appeal at cantonal and federal level, it is possible to delay a case by around 10 years before an eventual conviction comes into effect.”

Too soft

One of the main players responding to fraud in the Swiss financial sector is the Swiss Financial Market Supervisory Authority Finma. As an enforcer, the authority is limited in how much pain it can inflict. It does not have the power to impose fines.  

Finma oversees 29,000 institutions and products, including 17,700 financial intermediaries and 500 banks. Where Finma finds wrongdoing, its usual response is to name and shame, and restrict some activities. In some egregious cases, Finma has ordered assets to be forfeited and imposed an external auditor. But mostly, the offending bank does not face life-changing measures.  

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In November 2021, for example, Finma announced the conclusion of its investigation into banks connected to alleged cases of corruption linked to the Venezuelan oil company PDVSA. 

After reviewing the activities of more than 30 banks, Finma found breaches of Swiss supervisory obligations in five cases. It ultimately opened enforcement proceedings against those five banks, including Julius Baer and Credit Suisse.

These proceedings amounted to recommendations, some restrictions of activities, obligations to report on progress, and some individual staff were banned from acting in a senior role. Just one institution, CBH Bank, was forced to terminate all remaining business relationships with Venezuelan clients. Julius Baer faced a one-year acquisition ban. 

No jail time

In the rare cases where a court manages to convict an intermediary, the punishment is usually relatively meaningless – a suspended sentence. This is partly because the Swiss legal system does not have the same punishment ethos that is the norm in other countries. 

Since 2007, all prison sentences under two years are automatically suspended. Because most sentences for fraud are under two years, it means people convicted of economic crimes, which may also ruin or cost lives, will never spend a day in prison. 

At the most, they will have to pay back the money they have stolen, if they still have it. This soft approach is at odds with other European countries which have become increasingly tough on white-collar crime. 

READ MORE: Why are Americans being turned away from Swiss banks?

Honour system

In the fight against money laundering, the Swiss system relies on the banks to follow due diligence rules to determine whether a given client’s assets are legal. Banks and financial intermediaries are meant to assess their own customers and report any suspicious activity to the Money Laundering Reporting Office (MROS). 

But an oversight system based on self-regulation has obvious limitations. According to Public Eye, “the friction between a bank’s legal duties and its drive to make profit is one of the main stumbling blocks in the Swiss supervisory system”. 

More often than not, banks end up responding to reports of suspicious assets that come from outside, rather than in house – chiefly uncovered by the media or prosecutors. By the time they act, the fraud has been long-running. 

The final unseen and unspoken failing lies in the cultural legacy of banking secrecy. Part of Switzerland’s success story is the strength of its financial sector. Swiss politicians, banks, and to some extent, the public, share a sense that keeping financial matters confidential is not such a bad idea.

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OPINION & ANALYSIS

OPINION: If foreigners think the Swiss are unfriendly who’s to blame?

There is a perception in Switzerland that Swiss natives and foreigners just don't really get on. Clare O'Dea looks at why there might be a lack of chemistry and where the blame may lie.

OPINION: If foreigners think the Swiss are unfriendly who's to blame?

I was once on a bus in Geneva, suffering from morning sickness on that particular day, on my way out to Cern for an interview. A man sitting across from me started to talk. Under the guise of striking up a friendly conversation, he kept asking me questions about myself. ‘Where do you live? Where are you going? Are you a student?’

It doesn’t happen to me anymore but young women will recognise this scenario. I felt cornered and it got the point where I had to tell him to stop quizzing me. ‘Typical Swiss,’ he snapped back at me. ‘Cold and unfriendly.’

It’s an easy accusation to throw around, based as it is on a well-known cliché. At the time I was not Swiss. I had only lived here for a few years having moved from Ireland, a nation famed for its friendliness. 

The extra irony is, I do chat to strangers on public transport, when it happens naturally and without an agenda. I’ve had interesting conversations in this way over the years. I became a Swiss citizen in 2015. Am I a friendly Swiss person or a friendly Irish person now? It shouldn’t matter. 

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But the reputation of the Swiss for coldness seems to have staying power. At the very least, the perception seems to be that there is a lack of chemistry between Swiss and foreigners in this country. So is that a fair and accurate assessment? 

When it comes to the romantic side of things. Swiss people marry foreigners in large numbers. In a given year, a quarter of Swiss brides and grooms choose foreign spouses. Presumably some chemistry is involved in those marriages.

My impression is that the main source for the idea of the Swiss being unfriendly is anecdotal. In my early years as an immigrant, I noticed that fellow foreigners enjoyed sharing anecdotes of encounters with unfriendly Swiss people. Integration can be a lonely and frustrating process beset with misunderstandings. But are these stories being emphasised because they confirm a stereotype or because Swiss unfriendliness is a widespread phenomenon? 

Hard facts are hard to come by in this subjective area. Some “expat” surveys back up the idea that it’s difficult to befriend the Swiss. But if someone defines themselves as an expat, does that not mean they are living somewhat apart from the local population?  

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There’s another stereotype, expat. A high-income foreigner living in Switzerland on a temporary basis, whose work life is English-speaking and multinational. The natives are just extras in the movie of their lives, a movie that will continue elsewhere. Is this the best group to be interpreting what the Swiss are truly like? Is this description fair and accurate? 

Of course there are many different types of foreigners and not enough surveys to cover them all. There are the people with Swiss partners, who have the advantage of tapping into their partner’s ready-made network, which usually means more fast-tracked integration.

There are foreigners born in Switzerland – one in four of the population – who grew up with the Swiss and probably have friends for life who are Swiss. How should their friendliness or lack of it be counted? 

Generally speaking, language fluency and time spent in Switzerland are probably the key determinants of whether the relationship between outsiders and the Swiss is successful. Not to forget personality! 

It also helps to put aside any pre-conceived notions about the Swiss when you come to live here. That’s easier said than done. The Swiss are the rich kid of Europe, somewhat aloof in their international relations, while domestic politics has its xenophobic moments. 

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But to view individual people you meet as embodying these characteristics can be a self-fulfilling prophecy. This is a very diverse country, in terms of language, class, politics, regional differences, and immigration background. 

Perhaps I should mention that I have found the Swiss warm, welcoming and kind. Not everyone, not everywhere, not always, but enough people to maintain my faith in Swiss humanity. Compared to the society I come from, they don’t feel social pressure to perform superficial friendliness. And that’s ok because different countries have different norms.    

The British-Swiss writer Diccon Bewes refers to the Swiss as being like coconuts, in that it’s hard to break through their outer shell, but once you do, you have a friend for life. 

Some things are universal. Two ingredients that have made it easier for me to establish friendships are regular contact and common ground. Times where people are thrown together and where nationality doesn’t matter.

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Maybe the issue is that many foreigners first encounter the Swiss through work or officialdom. But Swiss people are like Clark Kent, living double lives. They don’t reveal their true selves at work. Their true selves are in their passions. 

Hobbies are where it’s at. If you find the Swiss at play or following their passions, you will be able to connect with them because you will be like-minded to some extent.

Whether it’s sports, music or some commitment to the community, the Swiss love joining clubs and associations and organising stuff. Unlike work aperos, people don’t rush home after these gatherings. All you have to do is grab your little glass of white wine and join in.  

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