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16 August 2002
In July 2002 the Swiss Federal Banking Commission (FBC) presented two new drafts for consultation. One relates to the revision of its guidelines concerning the preparation of financial statements, while the second concerns a new money laundering ordinance (for more details please see the FBC's website at www.ebk.admin.ch).
The guidelines on the preparation of financial statements propose that banks which currently prepare annual financial statements in accordance with the 'true and fair view' principle should in future comply with Swiss generally accepted accounting principles and accounting and reporting regulations. The draft also proposes a comparison of the operations of strategic derivatives with trade operations, and clarification of some points in relation to doubtful loans. Institutions open to FBC supervision are also invited to comment on information relating to customer assets.
Following the events of September 11 2001, the Swiss anti-money laundering regime has proved itself a particularly efficient system for the detection of transactions and assets of terrorist origin. The Money Laundering Act provides that the Money Laundering Reporting Office must be informed as soon as a bank or another financial intermediary has reason to believe that a criminal organization is exercising power of disposition over assets. Under the draft ordinance, terrorist organizations now fall under the definition of 'criminal organizations', and thus any financial institution must report its suspicions to the local authorities where an unusual transaction may have a link to a terrorist organization or more generally to terrorism. This is crucial in cases where a client is listed as a member of an organization suspected of terrorist activities.
At the same time, the FBC proposes to clarify and strengthen the identification obligations in relation to politically exposed persons. These changes became necessary in the wake of the Abacha and Montesinos Cases. In September 2000 the FBC issued a report on an investigation conducted into 19 banks which had accepted assets from the family of Sani Abacha, the former Nigerian head of state. The FBC similarly investigated five financial institutions which accepted assets from Mr Montesinos, former head of the Peruvian Secret Service and personal adviser to the former President Fujimori. From these two cases, the FBC concluded that more detailed due diligence is required from financial institutions that deal with assets held by politically exposed persons.
The draft ordinance provides for:
Financial institutions are now required to investigate higher-risk business relationships in greater detail. Risk categories must be established in order to assess which relationships present higher risks. Suggested criteria of relevance when defining risk categories include:
Banks must utilize all available resources in order to verify their relationships. Politically exposed persons must be monitored by senior management on a regular basis. Electronic monitoring will be systematically required for higher-risk transactions - that is, where assets worth over Sfr100,000 are physically deposited with the bank - or if the size or type of the transaction appears unusual in view of the client's commercial activity and financial situation, or for other reasons. The ordinance lists additional identification and clarification tests which banks must undertake.
The ordinance applies to all financial institutions registered in Switzerland, including branches of foreign banks and international finance groups. The monitoring unit of the group's head office must have access to the business relationships of all group companies in Switzerland and abroad.
The consultation procedure will last until the end of September 2002. Implementation
is expected for mid-2003, when the agreement on the Swiss Bank
Code of Conduct will also be revised by the Swiss Bankers Association.
For further information on this topic please contact Guy-Philippe Rubeli at Pestalozzi Lachenal Patry by telephone (+41 22 80 94 500) or by fax (+41 22 80 94 501) or by email (email@example.com).
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