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Beneficial Ownership Verification: A New Due Diligence in Anti-Money Laundering?

The Swiss Federal Council has initiated a consultation process to strengthen the anti-money laundering (AML) framework, including introducing beneficial ownership verification as a new due diligence requirement for financial institutions.

Proposed Legislation

Under the proposed legislation, financial institutions will be required to verify the identity of the beneficial owner of a legal entity or trust. This means they must establish and record information about the natural person who ultimately owns or controls the entity or trust.

Rationale Behind the Proposal

The consultation process follows a recent European Court of Justice ruling in Case C-37/20 and C-601/20 WM v Luxembourg Business Registers EU, which emphasized the importance of identifying beneficial owners to combat money laundering. The proposed legislation aims to bring Swiss law into line with EU standards on AML.

Due Diligence Requirements

Financial institutions will need to conduct thorough due diligence to identify the beneficial owner, including:

  • Verifying their identity
  • Addressing and other relevant information
  • Obtaining documentation such as passports, utility bills, and proof of address

Reactions from Political Parties

The consultation process has been met with mixed reactions from political parties in Switzerland. The Social Democratic Party and Green Party have welcomed the proposal, citing its importance for combating money laundering and terrorist financing.

  • The Centre Party expresses concerns about the potential burden on financial institutions and the need for clearer guidelines on the verification process.
  • The Liberal Party questions the effectiveness of the proposed legislation in preventing money laundering.
  • The Swiss People’Party has taken a skeptical stance, questioning the effectiveness of the proposal in combating money laundering.

Expert Opinion

Thomas Nagel, an expert on AML, notes that the proposal is “a significant step forward” in strengthening Switzerland’s AML framework. He emphasizes the importance of ensuring that financial institutions have sufficient resources and expertise to conduct thorough due diligence and verify beneficial ownership information.

Timeline and Implementation

The consultation process will run until March 2024, with the Federal Council expected to publish a final report on the proposed legislation later this year. The implementation of beneficial ownership verification is likely to require significant changes for financial institutions, but experts agree that it is a crucial step in maintaining Switzerland’s reputation as a trusted and stable financial center.

Sources:

  • Swiss Federal Council, Bundesgesetz über die Transparenz juristischer Personen und die Identifikation der wirtschaftlich berechtigten Personen: Erläuternder Bericht zur Eröffnung des Vernehmlassungsverfahrens (Federal law on the transparency of legal entities and the identification of beneficial owners: Explanatory report on the opening of the consultation process)
  • Emmanuel Goldberg, “Überprüfung des wirtschaftlich Berechtigten und Aktualisierung der Kundendaten nach der Revision von Geldwäschereigesetz und -verordnung” (Verification of the beneficial owner and updating of customer data following the revision of the Money Laundering Act and Ordinance)
  • Federal Council, Federal Council initiates consultation on strengthening the anti-money laundering framework
  • Thomas Nagel, “Vernehmlassungsantwort SP Schweiz_ Transparenz” (Answer to the consultation on transparency and beneficial ownership)

Reactions:

  • Social Democratic Party: welcomes the proposal as an important step in combating money laundering and terrorist financing
  • Green Party: supports the proposal and emphasizes its importance for protecting the integrity of the financial system
  • Centre Party: expresses concerns about the potential burden on financial institutions and the need for clearer guidelines on the verification process
  • Liberal Party: questions the effectiveness of the proposed legislation in preventing money laundering
  • Swiss People’Party: takes a skeptical stance, questioning the effectiveness of the proposal in combating money laundering.