Federal Council’s AML Framework Update

On 22 May 2024, the Federal Council adopted a proposal to enhance the anti-money laundering (AML) framework, which will be submitted to Parliament. This initiative aims to bolster Switzerland’s financial and business integrity and competitiveness by introducing a federal register of beneficial owners and due diligence requirements for high-risk legal professions. These measures align with international standards.

Importance of the Framework

An effective AML framework is crucial for maintaining the reputation and success of Switzerland’s financial and business sectors. Money laundering and terrorist financing threaten the financial system’s integrity globally. Legal entities and trusts are often misused for these purposes, as seen with the current sanctions against Russia. Switzerland, as a major financial center, faces these risks and seeks to strengthen its AML framework in response.

Key Elements of the Bill

1. Federal Register of Beneficial Owners: A transparency register will be established, requiring companies and legal entities to disclose beneficial owners. This register, managed by the Federal Department of Justice and Police, aims to prevent the misuse of Swiss legal entities for money laundering. The register will not be public but will streamline law enforcement’s ability to identify actual owners behind legal structures.
2. Due Diligence for Advisory Activities: AML due diligence rules will extend to certain high-risk advisory activities, such as legal advice. This includes structuring companies or real estate transactions. Lawyers and notaries will have their professional secrecy considered, with self-regulatory organizations (SROs) overseeing compliance rather than regional bar associations.
3. Additional Measures: The bill includes measures to prevent sanctions breaches under embargo legislation. Cash payments over CHF 15,000 in precious metals trading and real estate will now be subject to due diligence obligations. The proposed reform of SRO sanctions systems was not included due to consultation feedback.

Consultation Feedback and Timeline

The draft legislation, consulted on from August to November 2023, was generally well-received, though advisory professions expressed skepticism. The bill will now proceed to Parliament, with an expected implementation date in early 2026. The measures comply with Financial Action Task Force (FATF) standards and Global Forum recommendations.

Impact on SMEs

All Swiss companies and legal entities must enter their beneficial owners in the federal transparency register. For most entities, including sole proprietorships, LLCs, foundations, and associations, the process is simplified if beneficial owners are already in the commercial register. A regulatory impact assessment indicates a minimal additional burden, with an initial effort of around 20 minutes in the first year and a few minutes annually thereafter.