AML in Switzerland – Reform of Money Laundering Act (AMLA) in 2021

On 19th March 2021, the Swiss Federal Council voted in favour of a reform of the anti-money laundering legislation. The primary goal of the revision is to allow Switzerland to pass its next FATF country audit in 2022. Banks and financial service providers are now examining how they can implement the new due diligence duties.

Planned revision of the Anti-Money Laundering Act in 2022

The Swiss authorities want to close more and more gaps cited in the FATF mutual evaluation report (MER). The new version of the Anti-Money Laundering Act (AMLA) applies to financial intermediaries and dealers that accept payments in cash. One important revision of the AMLA concerns the

• Verification of the identity of the person designated as a beneficial owner (UBO)
• Update of the clients’ data (KYC profile)

The revised Anti-Money Laundering Act is expected to enter into force mid 2022.

The Mountain of Suspicious Activity Reports (SAR) Is Growing

Despite the criticisms regarding lack of transparency, Switzerland’s Money Laundering Reporting Office (MROS) is still faced with a mountain of suspicious activity reports. Its 2019 Annual Report shows that the volume is growing steadily and exceeded 7,000 in 2019. According to MROS, at the end of November 2019 this involved a total asset volume of CHF 12.9 billion. As in previous years, most of the assets originated from offences involving fraud or corruption.

High Volumes of Suspicous Activity Reports Pending

According to the MROS Annual Report, a new strategy was defined in 2019 to transform MROS into a modern, proactive counter crime unit at fedpol (Federal Office of Police). The aim is also to reduce the time needed to process the reports. Despite this, at the end of 2019, over 6,000 suspicious activity reports were still pending – an increase of more than 20% compared with the end of 2018. Other steps to remedy the situation include taking on more staff and making better use of technology.

An Avalanche of Anti-Money Laundering Legislation

The Financial Action Task Force (FATF) subjects international financial centres to regular reviews and publishes its findings in a Country Report. Switzerland passed the country review in 2016 and is now in the “enhanced follow-up” process. The federal government and FINMA have now initiated changes to their regulatory requirements:

• Code of Conduct on Due Diligence for Banks (CDB 20) – in force since January 1, 2020
• Partial revision of the Anti-Money Laundering Ordinance-FINMA (AMLO-FINMA) – in force since January 1, 2020
• Revision of the Anti-Money Laundering Act (AMLA) –debated by Swiss Federal Council on 1st March 2021. Final review on 19th March 2021

This revision of the Anti-Money Laundering Act (AMLA) has been the subject of heated debate. After two years of wrangling, the Swiss lawmakers passed the revision to anti-money laundering laws.

FATF’s Country Audit Planned for 2022

In its planned fifth country report, the FATF will once again analyze the preventive measures taken by Switzerland. In 2016, it rated their effectiveness as “moderate” in four out of eleven areas and has been assessing its progress since then. This resulted in the publication of the 3rd Enhanced Follow-Up Report & Technical Compliance Re-Rating in January 2020. KYC is one of the areas highlighted as in need of improvement. According to the FATF, 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.

Banks and Financial Service Providers Still Have Scope to Improve their Anti-Money Laundering Procedures

90% of suspicious activity reports come from the financial sector. Of course, this is not a true reflection of the whole money laundering scene, because banks are not the only institutions that aid money laundering. Action is primarily needed from legislators and supervisory authorities. However, at this stage, this figure provides an indication of where rapid results can be achieved.

5 Recommendations for Banks and Financial Service Providers to Improve their AML Procedures

1. Improve KYC profiles through better customer information, e.g. origin of assets, anticipated flows in and out, expected transactions per unit of time
2. Use flexible software systems to enable rapid adaptation to changes in legislation
3. Integrate machine learning methods, e.g. when comparing data against sanctions lists and in transaction monitoring
4. Use machine learning to improve the false positive rate, verify past clarifications and cut costs by speeding up the clarification process
5. Conduct efficiency and effectiveness tests in transaction monitoring, e.g. with the help of external consultants