Early this month, Transparency International Switzerland published its report titled ‘(In)transparent Businesses’, highlighting the need for the establishment of a beneficial ownership register in Switzerland.
Alexandros Christodoulidis
Among others, the report urged Swiss authorities to incorporate a central official registry that would maintain up-to-date records on legal entities, persons of interest, trusts, and all other domiciliary companies, including collective investment schemes and foreign legal entities with a substantial connection to Switzerland.
As a member state of the Financial Action Task Force (FATF), the international anti-money laundering (AML) and counter terror financing agency, Switzerland is obliged to adopt the more stringent recent FATF recommendations into national law. This includes the creation of such a register and permitting access to persons and organizations with a legitimate interest, including AML professionals and non-governmental and third-party due diligence authorities that aim to “check the integrity of business relationships”.
As argued in the Transparency International report, compared to EU countries, Switzerland thus far lags behind in terms of transparency. Indeed, while multiple EU countries and the UK already maintain central registers that include information on beneficial ownership, Switzerland has yet to establish a formal register.
Although Swiss cantonal registers provide some basic details, including information related to entities’ incorporation, its executives, and share capital, they don’t provide comprehensive information on beneficial ownership. The absence of such a register makes Switzerland particularly vulnerable to money laundering.
As a result, the country has earned a reputation as a “safe haven” for the concealment of potentially illicit assets. This is also relevant in the context of the ongoing Russian invasion of Ukraine, as wealthy Russian nationals and entities linked to the Kremlin look for avenues to conceal the identity behind their assets to avoid scrutiny, with Switzerland being a common location for these activities.
Work on a central owner registry began in October 2022 when the Swiss Federal Department of Finance reported that it was drafting a bill on increased transparency and easier identification of the beneficial owners of legal entities by June 2023 at the behest of the Swiss Federal Council, with the register itself is planned for a 2026 launch. The impetus was partly in response to the updated FATF recommendations, as well as international pressure that Switzerland faced in recent years, particularly since the spring 2022 invasion of Ukraine. However, according to the Federal Council, the future beneficial owner register in Switzerland should not be public, which is in line with decisions taken by some other EU countries, such as Luxembourg. That said, similar to Germany and Liechtenstein, it can be assumed that in the future Swiss financial intermediaries will also need to obtain an extract from the register when entering into a business relationship in order to review it for discrepancies.
The recent Transparency International report further illustrates the ever-growing global demand for financial transparency especially in the wake of regular leaks exposing corruption in the highest echelons of political and economic power. The pressure is particularly felt in countries with economies that benefit significantly from financial opacity. In that sense, Switzerland’s progress in its beneficial owner register should be monitored to assess its actual implementation and who will be granted access. Given that the country is a global financial center, the establishment of such a central register that provides accurate and detailed information on beneficial ownership will make it easier for companies and individuals to conduct more effective Know-Your-Customer (KYC) research and make the country less vulnerable to money laundering-linked activities.