Greater Transparency at the Center of Europe?
Switzerland is poised to take another step towards greater transparency in its financial system: the Federal Assembly, the country’s legislature, is deliberating the introduction of a national Ultimate Beneficial Owner (UBO) registry. As Swiss bank secrecy is gradually chipped away at the edges, authorities have come to recognize that some of the greatest money laundering risks are not captured by existing financial regulation. In addition to information gathered from financial institutions such as banks and crypto exchanges, regulators may soon collect ownership information on most legal entities and process reports from non-financial advisors about gold and real estate transactions. Meanwhile, as pressure grows on governments around the world to crack down on corruption and human rights abuses, alternative avenues for illicit funds are coming into focus. Switzerland’s active commercial aviation industry and the country’s central role in the global gold market have come under scrutiny as vectors for sanctions evasion, money laundering, and human rights abuses. Time will tell whether the regulatory structure currently taking shape is robust enough to deter the world’s criminals and tyrants. In particular, the outcome of the new rules will depend on the resources and initiative of Swiss law enforcement.
Proposed Ultimate Beneficial Owner Registry
On May 22, 2024, the Federal Council, Switzerland’s highest executive body, approved draft legislation to strengthen the country’s anti-money laundering (AML) framework. Pending legislative approval, the draft legislation is expected to be approved and come into force no sooner than 2026. It would establish an UBO registry, introduce and expand due diligence requirements for advisory activities in the non-financial sector, and provide for additional measures to combat money laundering and sanctions evasion in the real estate and precious metals sectors.
Key Points
- Beneficial ownership of companies and other legal entities
- Available to government agencies and financial intermediaries—not to the public
- Managed by the Swiss Federal Office of Justice
- Over 500,000 legal entities affected
If approved, the UBO registry (Transparenzregister juristischer Personen, TJPG) will be managed by the Federal Office of Justice. It will be accessible to government authorities and financial intermediaries but not to the public. Under the proposed rules, Swiss legal entities, including companies of all types as well as associations, foundations, and some trusts, will be required to disclose their beneficial owners; furthermore, foreign entities with property or subsidiaries in Switzerland will be subject to the same requirements. A beneficial owner is defined as a person who, individually or together with another person, holds at least 25% of the capital or voting rights of the company or exerts control in another way. If these criteria are not met, the most senior individual in the organization is considered the beneficial owner. The legal entity must provide its beneficial owners’ full legal name, date of birth, nationality (citizenship), address, country of residence, and information about the extent and nature of control, along with corresponding documentation. As only individuals may be considered beneficial owners, the measure will increase the transparency of previously opaque corporate structures.
Swiss authorities have identified that, while financial institutions are already subject to a robust regulatory regime, the key gaps in Swiss AML regulation remain in the non-financial sector. Under the proposed rules, due diligence provisions will be increased for activities not previously covered by such requirements. For example, additional due diligence checks will be required for advisers assisting their clients in the establishment of companies and in real estate transactions. These advisers will be required to identify their clients and beneficial owners, and in the case of high-risk clients, the adviser must ascertain the origin of the funds or request additional information about the purpose of the transaction. The rules also introduce due diligence and reporting requirements for precious metal and precious stone transactions conducted with cash over CHF 15,000 (USD 17,500) as well as cash real estate transactions of any size.
Commercial Aviation
While authorities consider major improvements to the existing AML framework, the country is already grappling with its limitations. On May 16, 2024, Swiss newspaper Die Wochenzeitung (WOZ) published an investigation into two commercial aviation providers operating out of the Euro Airport near Basel, detailing their connections with several of the world’s most notorious regimes. Amac Aerospace and Jet Aviation are reported to service jets belonging to the governments of authoritarian countries known for corruption and human rights abuses, ranging from Azerbaijan to Qatar and Equatorial Guinea. Kenya-based journalist Emmanuel Freudenthal told the publication, “I have noticed for several years that the Euro Airport is one of the most important destinations for airplanes owned by dictatorships.” Freudenthal, along with fellow journalist François Pilet and with support from the Organized Crime and Corruption Reporting Project (OCCRP), established the website Dictator Alert to track planes owned by the world’s authoritarian regimes. The WOZ investigation noted that in the three years leading up to May 2024, 60 out of the 190 aircraft tracked by Dictator Alert visited the hangars of Amac Aerospace and Jet Aviation at the Euro Airport near Basel, including two particularly noteworthy planes: a Gulfstream jet which had allegedly been used in the 2020 abduction of Rwandan human rights activist Paul Rusesabagina, famous for his portrayal in the film Hotel Rwanda, as well as the Gulfstream jet identified by a UN report as one of the aircraft used in the 2018 murder of Saudi Arabian journalist Jamal Khashoggi.
“Luxury goods services such as the purchase, sale, or repair of private jets should be subject to the anti-money laundering law, but unfortunately that is not yet the case.”
The WOZ quoted Transparency International researcher Martin Hilti on the legal and regulatory deficiencies that allow such conduct: “Luxury goods services such as the purchase, sale, or repair of private jets should be subject to the anti-money laundering law, but unfortunately that is not yet the case.” Although Switzerland’s primary anti-money laundering law, the Federal Act on Combating Money Laundering and Terrorist Financing, designates banks, precious metals dealers, fund managers, and other financial institutions as financial intermediaries, triggering numerous reporting and due diligence requirements, its provisions do not apply to aviation companies or dealers of luxury goods other than precious metals and precious stones. In other words, a jeweler must report and conduct due diligence when selling a gold necklace, but aviation companies are not required to ascertain the source of their clients’ funds. This gap raises questions about the effectiveness of AML legislation, about the way dictatorships can finance their services in Switzerland, and about the ways the aircraft may be used. It remains to be seen whether any further extension of AML legislation will impact the commercial aviation sector directly.
Increased Transparency in Gold Market
Even when authorities attempt to regulate non-financial sectors, such attempts have proven challenging, as Switzerland’s own precious metals regulations attest. On September 3, 2024, Swiss public broadcasting organization SWI swissinfo.ch published an investigation into the country’s gold imports, noting that since the Russian invasion of Ukraine in February 2022, Swiss imports of gold from post-Soviet nations Uzbekistan and Kazakhstan have dramatically increased, raising suspicions that they may have come from Russia in violation of international sanctions. According to the report, both Uzbekistan and Kazakhstan exported more gold than they produced, even after accounting for sales of central bank reserves and potential double-counting: Uzbekistan shipped 130 tons and Kazakhstan shipped 59 tons of gold to Switzerland in 2023. The gold was shipped by refiners in Kazakhstan and Uzbekistan that are members of the London Bullion Market Association (LBMA), a leading gold industry association which certifies quality. Responding to questions from SWI, leading Swiss gold refiner Valcambi’s CEO said he was aware of the risk of the mixing of Russian gold due to the lack of border controls between Russia and Kazakhstan but added that the risk was mitigated by only buying gold certified by the LBMA in London. Because Uzbekistan and Kazakhstan each have two gold refining members of the LBMA, their exports can be certified with LBMA Good Delivery accreditation. The LBMA has not indicated any suspicion with its Central Asian members’ sourcing, having certified that they are compliant with international sanctions.
However, this is not the only report of tainted gold finding its way to Swiss investors and refineries. In May 2024, Swiss foundation SWISSAID published a report detailing the vast amounts of gold smuggled out of Africa, primarily destined for the UAE, Switzerland, and India. To combat these and similar risks, on September 18, 2023, the 33 members of the World Gold Council, who represent the majority of the large-scale global gold mining industry, committed to publish the names and locations of their refining partners annually. Switzerland itself regulates gold dealers and refiners in various ways, primarily through the Federal Office for Customs and Border Security’s Precious Metal Control. Moreover, as mentioned above, precious metals intermediaries are considered financial intermediaries under Swiss AML law and are therefore subject to reporting and due diligence requirements. For example, gold dealers buying scrap gold must register with Precious Metal Control and document the personal information of their clients along with transaction information.
The central challenge with regulating gold transactions is the fact that, once melted down, gold cannot be traced. In contrast with cryptocurrencies such as Bitcoin or Ether, gold carries no record of its ownership history, meaning that if a reputable refinery can acquire illicit gold secretly, the origin may never be detected. Although the proposed rules show an appreciation for the potential for the Swiss gold market to be used in sanctions evasion and money laundering, neither the proposed Swiss rules nor the World Gold Council’s promise of transparency are likely to meaningfully counter this fundamental difficulty.
Navigating Switzerland’s Evolving Regulatory Landscape with Integrity Risk International
As Switzerland continues to balance its tradition of financial discretion with growing global demands for transparency, businesses need a partner who can help them stay ahead of the curve. IntegrityRisk’s on-the-ground presence in Switzerland demonstrates our commitment to providing clients with the most current, relevant, and actionable risk intelligence directly from this key financial hub at the center of Europe. Contact us today to see how we may be of assistance in Switzerland or around the World.
Contributing writers to this article:
Gilbert Pitcher, Research Director at IntegrityRisk, is a Washington, D.C.-based due diligence professional specializing in Europe, including the DACH and Benelux regions as well as the former Soviet Union. A graduate of the College of William & Mary, he has extensive experience living and studying in the region. Gilbert is particularly interested in issues relating to geopolitics, security, and political economy in Europe and beyond.
Geoffrey Winkleman, Senior Analyst at IntegrityRisk, is also based in Washington, D.C. and specializes in German, Russian, and Korean-language research. He is a Returned Peace Corps Volunteer, having served in the Kyrgyz Republic, and recently earned a master’s degree from the Johns Hopkins University School of Advanced International Studies. Geoffrey’s interests range from Europe and Central Asia to the world of cryptocurrency, US foreign policy, and the challenges of international development.
