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Swiss anti-money laundering barriers are full of holes

Despite beginning to open up its once-notoriously secret banking system, Switzerland remains the go-to destination for the more discerning kleptocrats and assorted lawbreakers.

The reason “why” lies in its very stability. White-collar criminals are drawn to stable legal systems, like Switzerland’s, because they know a contract of deposit with a bank will be honored there.

Wrong-doers will typically “run to law” to hold the proceeds of their crime, because a thief knows only too well not to hand their booty to another thief. Therein lies the paradox of today’s modern economic criminal — the lawbreaker needs access to a stable environment that values secrecy and confidentiality.

It is a point recently underlined by the former head of Swiss anti-money laundering operations, Daniel Thelesklaf, who acknowledged in comments to the press what many of us already knew: namely that Switzerland is inadequately combatting its money laundering problem.

Talking to the Swiss daily newspaper Tages-Anzeiger, after he abruptly left his job in July, Mr. Thelesklaf spoke out about what he saw as an outdated and inefficient system of spotting and catching criminal money being rinsed through offshore bank accounts in Switzerland.

Notably, he raised the case of the Bolivarian Republic of Venezuela. The country’s economy has imploded, despite having the largest oil reserves in the world. Accusations of grand corruption abound, and the people are suffering severely as a consequence.

“The cases around Venezuela show how highly suspicious money makes its way to us, and how our entire toolkit for combating money laundering fails,” Mr. Thelesklaf said.

Since the 1920s, the widely held perception is that Swiss bank accounts have been veiled in absolute secrecy. So much so that the average person is likely to say that Switzerland is a money-laundering haven. Give the Swiss their due: they have sought to increase regulation. And prosecutors in Geneva in particular are world-class. But sadly, as a whole, the nation is moving too slowly towards reform.

I have defended the confidential status of offshore companies on the grounds that controlled systems of transparency (where UBO identification data can be accurately collected and disclosed to law enforcement when good cause is shown) are more effective than open UBO registers (where crooks will lard up the registers with rubbish).

On this basis, some may wish to accuse me of being hypocritical. Nothing could be further from the truth. Armed with a court disclosure order or a request from law enforcement, I know the majority of jurisdictions in the upper echelon of offshore service providers will be able to provide the information needed to right wrongs. The position is more complex and nuanced in Switzerland, which still embraces a culture of secrecy.

In his press comments, Mr. Thelesklaf stated that the Swiss Special Crime Unit (SCU) set up in 1998 lacks staff and is technology challenged. He also inferred that there may be some politics at play affecting the unit’s effectiveness.

In addition, Swiss banks are swamping their Money Laundering Reporting Office (MLRO) with suspicious activity reports (SARs), with an estimated 6,000 reports reportedly remaining unread at the end of last year. This further hinders the state’s ability to counter the money laundering problem.

(In fairness, the problem of the regulated sector swamping units responsible for receiving SARS is a global one, and not limited to Switzerland.)

Given that Switzerland is at the end of several rainbows for global money laundering, it doesn’t instil confidence in investigators, regulators, and lawyers when the immediate former head of the anti-money laundering regulator in the confederation warns that the country’s regulatory processes are as full of holes as some of its famous cheeses.

Swiss politicians have shown little inclination to tackle reforms. After a coterie of ugly money scandals involving Nigeria, Venezuela’s state-controlled oil firm, the Malaysian 1MDB sovereign fund, and surrounding FIFA, it’s beyond time for the nation to now clean up. My criticism is leveled directly at Swiss politicians.

With thanks to Tony McClements, Senior Investigator at Martin Kenney & Co, for his assistance with this post. He served for 33 years with UK police forces and has specialized in Fraud & Financial Investigation since 1998. He is also a lecturer in these subjects at the University of Central Lancashire (UCLAN).

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1 Comment

  1. “a thief knows only too well not to hand their booty to another thief … the lawbreaker needs access to a stable environment that values secrecy and confidentiality.” Excellent and useful insights Martin Kenney (and Tony McClements MSc). You make important points re jurisdictions receptive and fertile for fraudsters and kleptocrats.

    Your article also points toward the impactful utility of leveraging psychological understanding of the antagonist. Not simplistically as in “think like a criminal to catch a criminal.” But rather in beneficially exploiting the wrong-doer’s inadvertent yet unavoidable exposure of how he operates, what matters to him, and thus where certain of his vulnerabilities are. This is a good working example of the sort of strategic application of psychodynamic intelligence analysis I’ve been advising in cases with you and your team.


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