Introduction

As at today (Sept 2015) Tax offences (including tax fraud) do not constitute felonies.(2) Therefore, the proceeds (or rather, unlawful savings) of tax offences cannot form the object of a money laundering act.

From January 1 2016 servicing tax fraudsters may expose financial intermediaries in Switzerland to prosecution for money laundering. With the entry into force of the new rules, the implementation of one of the Financial Action Task Force’s (FATF) key 2012 recommendations will be completed in Switzerland.

The approach to the prevention of money laundering under Swiss law is twofold.

1. the Penal Code makes money laundering a criminal offence.

2. the Federal Act on Combating Money Laundering and Terrorist Financing in the Financial Sector stipulates diligence and reporting duties aimed at facilitating the detection and prosecution of suspected money laundering.

Criminal law provisions

Article 305bis(1) of the Penal Code provides that:

“any person who carries out an act that is aimed at frustrating the identification of the origin, the tracing or the forfeiture of assets which he knows or must assume originate from a felony, is liable to a custodial sentence not exceeding three years or to a monetary penalty.” (informal translation)

Article 305ter(1) of the code states that:

“any person who as part of his profession accepts, holds on deposit, or assists in investing or transferring outside assets and fails to ascertain the identity of the beneficial owner of the assets with the care that is required in the circumstances is liable to a custodial sentence not exceeding one year or to a monetary penalty.” (informal translation)

Pursuant to Article 305ter(2), persons that may be held criminally liable pursuant to Article 305ter(1) are entitled by law to report to the public prosecutor any observations which indicate that assets originate from a felony.

Anti-money laundering rules

Article 9 of the act requires a financial intermediary to file a report immediately to the Money Laundering Reporting Office Switzerland (MROS) if it knows or has reasonable grounds to suspect that assets involved in an existing business relationship are:

1. connected to an offence in terms of Article 260ter (ie, controlled by a criminal organisation) or Article 305bis (money laundering);
2. the proceeds of a felony; or
3. subject to the power of disposal of a criminal organisation and serve the financing of terrorism (Article 260quinquies).(1)

Article 10 further directs that a financial intermediary must immediately freeze the assets concerned for up to five days from notification to the MROS.

The financial intermediary may not inform the persons affected or third parties about the report for as long as the assets are frozen by the financial intermediary (Article 10a). If the report so justifies, the public prosecutor may then order the financial intermediary to extend the freeze until the anti-money laundering issue is resolved.

What’s new?

Starting from January 1 2016, an amendment of Article 305bis(1) of the code and a new Article 305bis(1bis) will take effect, stating that serious tax offences are predicate offences to money laundering.

A ‘serious tax offence’ is defined for the purposes of the code as conduct that:

1. fulfils the elements of tax fraud (as defined in Article 186 of the Direct Federal Tax Act 1990 and Article 59(1) of the Federal Act on Tax Harmonisation 1990); and
2. results in avoidance of tax exceeding Sfr300,000 per tax period.

Pursuant to new Article 9(1)(a)(2), the Anti-money Laundering Act requires financial intermediaries to report immediately to the MROS if they know or have reasonable grounds to suspect that assets involved in existing business relationships are the proceeds of a qualified tax offence.

Revised Article 10 further provides that the MROS will analyse the report and, if it considers this justified, forward it to the public prosecutor and inform the financial intermediary accordingly.

Under the new regime, the financial intermediary will be required to freeze the assets concerned for up to five days from the date of MROS notification, subject to extension by order of the public prosecutor.

As under existing anti-money laundering rules, non-compliance of financial intermediaries with their reporting duties may incur severe penalties, independently of whether the money-laundering suspicions prove to be correct.(3)

Narrow definition of ‘tax fraud’

Tax fraud, as referred to in the new criminal provisions, presupposes that a person utilises forged or falsified documents (eg, financial statements, salary certificates, formal declarations on the material ownership of assets or other certificates that are generally accepted as valid proof of a certain fact) with the intention of deceiving the tax authorities. Mere failure to file complete or correct tax returns does not qualify as tax fraud.

Regarding acts committed abroad, Article 305bis(3) of the code specifies that such acts constitute a predicate offence if “subject to prosecution at the place of commission”.

Accordingly, the new anti-money laundering rules also govern cases where the relevant tax offence was committed outside Switzerland and where foreign tax law was violated. The new rules do not even require that the assets be taxable in Switzerland.

As a result, even cases where a bank account is held by a bank outside Switzerland may be subject to the new rules.

Consequently, where (only) foreign taxes are concerned, the revised rules apply if:

1. the conduct at issue, had it occurred in Switzerland, would qualify as tax fraud according to the Swiss definition;
2. the tax offence is subject to criminal liability under the foreign jurisdiction; and
3. the tax amount avoided abroad exceeds Sfr300,000 per tax period.
4. No retroactive effect

The application of the revised criminal laws is subject to the principle of nulla poena sine lege (ie, the rule of legal certainty of criminal law).

As a result, financial intermediaries may not be held liable for any actions taken before January 1 2016. In addition, as stated in a transitional provision of the Federal Act for the Implementation of the 2012 FATF Recommendations of December 12 2014, Article 305bis of the code shall not apply to qualified tax offences committed before January 1 2016.

This rule is interpreted to the effect that the first tax period which may be reportable to the MROS pursuant to the revised anti-money laundering rules will be the tax period beginning in January 2016. Given that final tax declarations for 2016 will not, as a rule, be filed before the end of 2016, the general consensus is that the new anti-money laundering reporting obligations will have no practical bearing before the end of 2016.

Endnotes

(1) The same duty to report applies if the financial intermediary terminates negotiations aimed at establishing a business relationship because of a reasonable suspicion of any of these circumstances (cf Article 9(1)(b) of the Anti-money Laundering Act).

(2) Felonies are offences that carry a custodial sentence of more than three years (cf Article 10(2) of the Penal Code).

(3) Article 27(1) of the Anti-money Laundering Act demands that “anyone who fails to comply with the duty to report in terms of Article 9 shall be liable to a fine of up to 500,000 francs”. Pursuant to Article 27(2) of the Anti-money Laundering Act, the maximum penalty is reduced to Sfr150,000 “if the offender acts by negligence” (informal translation)