/ 26 February 2022

Initiative to blacklist Switzerland gains traction in European Union

Switzerland Banking Fearture
Revealed: The Suisse Secrets investigation exposed how Swiss bank Credit Suisse abused the country’s banking laws to offer criminals and the corrupt a safe haven for their ill-gotten gains. (Sebastien Bozon/AFP)

A majority of members of the European parliament supported on Tuesday the initiative to blacklist Switzerland as a high-risk country for money laundering following the release of an international investigation that revealed Credit Suisse’s shady business practices.

This came after the European People’s Party (EPP), the largest political group in the EU parliament, made this proposal on Monday, arguing that Switzerland is not doing enough to prevent its banks from being part of money laundering.

Bank privacy laws should not be used as a pretext to facilitate such activity, the EPP said, urging the European Commission to reconsider whether Switzerland poses a threat to the financial integrity of the European Union. 

The initiative is a result of the Suisse Secrets investigation, which exposed how Credit Suisse abused the country’s banking laws to offer criminals and the corrupt a safe haven for their ill-gotten gains, accusations the bank has denied.

On Tuesday, the Socialists and Democrats (S&D) and Renew Europe parties, which comprise the second- and third-largest groups in the European parliament, followed the EPP’s lead and lent their support to the idea of blacklisting the banking giant. The EPP, S&D and Renew Europe comprise the majority in the European parliament.

Their stance on Credit Suisse’s business practices is shared by Switzerland’s Green Party, which said in a statement that the country’s banking laws favour “the particular interest of bankers over the general interest”.

“This practice is worthy of the worst authoritarian states. It must be stopped,” they added.

If Switzerland found itself blacklisted, it would be placed in the company of 23 other countries including North Korea, Iran, and Panama.

The purpose of the list is not to name and shame those on it, but to protect the EU’s financial system by requiring banks and other entities to apply increased due diligence on all financial operations that the sanctioned states are a part of. In essence, it is done to better identify any suspected money laundering activity.

If this came to fruition, Switzerland would see its financial sector lose much of its reputation, according to Daniel Thelesklaf, a former head of the country’s anti-money laundering body. Unless the country “undergoes a massive change of culture, it will lose the trust of its remaining clients soon”.

What is Suisse Secrets?

Suisse Secrets is an international investigation into one of the world’s wealthiest and most important banks. More than 163 journalists from 48 media outlets in 39 countries across the world spent months analysing bank account information leaked from Credit Suisse, Switzerland’s second-largest lender. The leak included more than 18 000 accounts that held in excess of $100-billion at their peaks.

Switzerland is a well-known destination for money from all over the world, in part because of its banking secrecy laws. There is nothing inherently wrong with having a Swiss bank account. But banks are supposed to avoid clients who earned money illegally or were involved in crimes. Reporters identified dozens of corrupt government officials, criminals and alleged human rights abusers among Credit Suisse account holders. Despite their notoriety — which, in some cases, would have been obvious from a quick Google search — Credit Suisse maintained relationships with some of these clients for years, though it is possible that some accounts were ordered frozen by law enforcement.

The Suisse Secrets project investigates these account holders, whose exploitation of Swiss banking secrecy is a prime example of how the international financial industry enables theft and corruption. Given Credit Suisse’s numerous pledges to reform its due diligence practices, the project highlights the need for increased accountability in this sector.

A bank’s responsibility

Journalists spoke to multiple financial experts, regulators, and banking insiders about what precautions Credit Suisse should have taken to prevent suspicious clients from being taken on.

Ross Delton, a US-based anti-money-laundering expert and lawyer, said that high-risk and politically influential people aren’t prohibited from opening bank accounts, but must be subject to enhanced scrutiny. The origin of their wealth needs to be examined, and a senior manager must approve them.

As for people convicted of corruption, “that’s a different level entirely”, he said. “There, the question should be whether to take the client on at all.” The same is the case for people who are convicted of drug dealing charges, appear on sanctions lists, or have outstanding Interpol notices.

“Although banks don’t like to say no, they are supposed to say no,” Delton said. “The probability of opening the bank to money laundering [in such cases] is so high that the account should not be open.”

Other specialists explained why institutions like Credit Suisse might be inclined to disregard these norms.

“Banks may make the calculation that they’ll earn more money from having that business than it will cost them in reputation,” said Graham Barrow, a financial crime specialist.

Another question pertinent to a bank of Credit Suisse’s size is what degree of responsibility it should assume when taking on clients through mergers. 

For example, in March 2013, the bank took on $13-billion in assets belonging to high-net-worth customers of Morgan Staneley’s Private Wealth Management division.

Monika Roth, a Swiss lawyer and jurist specialising in financial market legislation and white collar crime, said there’s no deadline in terms of when the bank must conduct checks on new clients coming from a merger. But the bank is still responsible for the risk of bringing them on.

“The more exotic the place, the more susceptible to corruption, the more vulnerable the country of origin or residence of the client, the higher the assets brought in, the faster you have to have done it,” she said.

“Usually before the merger is approved, there should be extensive due diligence, including on money laundering risks,” said Maira Martini of Transparency International. “It is not justifiable to say that they were not aware [of money laundering risks] because the clients came from the other bank.”

First published by the Organised Crime and Corruption Reporting Project, a consortium of investigative centres, media and journalists operating in Eastern Europe, the Caucasus, Central Asia and Central America.