On 1 June, the Federal Council launched a new consultation procedure with a view to amending the Anti-Money Laundering Act (AMLA) yet again. The latest targets to come into the sights of the authorities are “advisors”: lawyers, notaries, tax specialists and even accountants if they provide certain services, in particular company and trust creation, management and administration. Under this draft law, these professionals would, like financial intermediaries and dealers, be subject to the AMLA and required to perform the due diligence set out in it.
Concretely, the draft law covers any preparatory work or services supplied on a professional basis in the following areas:
- creating, administering and managing legal entities or structures;
- organising contributions to these;
- purchasing and selling companies;
- providing an address or premises to house the head offices of relevant structures;
- acting as a nominee shareholder for these entities, or providing assistance for this.
As readers will recall, these activities are only currently subject to the AMLA if the intermediary accepts assets belonging to others or holds them on deposit, or assists in investing or transferring them. The same applies to activities carried out as an executive body of a domiciliary company. If advisors do not handle flows of money, they are not subject to the AMLA. The draft law, which is based on relevant recommendations from FATF, constitutes a new departure for Swiss legislation, in particular as regards lawyers. Up until now, the services they provide were divided simply into traditional (advisory services, legal representation, etc.) and non-traditional (trustee services, asset management, etc.).
Defining the concept for a structure will also fall within the scope of the AMLA.
It will therefore encompass trusts and all offshore companies (both trading and non-trading) and Swiss domiciliary companies (which are of course different from commercial companies because they are generally created simply to hold and administer assets). Swiss trading companies are excluded. Because of the safeguards in place when a Swiss company is created (capital payment account, requirement to use a notary, foundation report, etc.), the Federal Council considers that only foreign companies pose a risk.
The duty of due diligence imposed on “advisors” will be very similar to that currently applied to dealers. It includes requirements to check the identity of the contracting partner, identify the beneficial owner, create and keep documents and clarify the background to and aim of the services to be supplied. Lawyers will need to organise themselves appropriately.
However, if the lawyer suspects money laundering or terrorist financing, or if they are unable to fulfil their duty of due diligence, they will be required to refuse the business, or terminate their relationship with the client. They will specifically not have to inform the Money Laundering Reporting Office Switzerland (MROS). This is because lawyers do not actually manage flows of money when providing their services (whereas one of the reasons for informing the MROS is so that assets of criminal origin can be tracked and confiscated) and also to avoid endangering the lawyer-client relationship (confidentiality).
According to the Federal Council, an auditor will ensure the system is effective. (The idea of using a self-regulation body for lawyers similar to the system in place for financial intermediaries was rejected.) The auditor will be required to inform the Federal Department of Finance (FDF) if they suspect a lawyer of having failed to fulfil their duty of due diligence. The lawyer will be liable for a maximum fine of CHF 500,000 if they have acted intentionally, and CHF 150,000 if they have simply been negligent.
Note also that the Federal Council has decided not to impose due diligence requirements for advisory services relating to property sales or purchases, as it considers the current system sufficient (involvement of banks, notaries, etc.).
Beyond the risk of a loss of confidence between the lawyer and their client, and the ethical questions (is it actually any more morally correct for a lawyer to put together a defence strategy to help a client accused of money laundering escape a prison sentence and carry on their activities unpunished?), this new draft law also poses some practical difficulties.
Given that clients consult lawyers in the initial stages of creating an entity or trust, or even when they are just considering the idea, how can the lawyer be expected to determine in advance whether the structure, once it is created, is going to be used for money laundering or terrorist financing? It is easy to imagine, ten years down the line, the prosecutor saying to the lawyer “Well, you should have known your client intended to use this new company for dubious purposes!”
Without a doubt, the risk of sanctions will discourage many lawyers from giving legal advice in this area – and that appears to be the FATF’s intention. Evidently, advisors that do risk working in this field will use all possible means of obtaining guarantees from their clients, by having them sign certifications and disclaimers.
The consultation process lasts until 21 September, but we already foresee some very heated debates in parliament!