Swiss regulator sees loopholes in bank dealings with politicos

In one of the first-of-its-kind initiative against any hoarding of illicit wealth and money laundering through Swiss banks, the Swiss financial market supervisory authority FINMA has conducted an audit on dealings of all Switzerland-based banks with PEPs (Politically Exposed Persons).

As per the international norms, banks are required to be extra cautious in dealing with PEPs, which includes heads of the state, their family members, government ministers and senior officials of various countries, among others.

There have been several unconfirmed reports about politicians from a host of the countries, including India, having allegedly stashed black money in Swiss banks.

Switzerland has been facing pressure from various countries, including India, for making the Swiss bank account details available to them for their probe into suspected tax evasion and black money hoarding.

After months of negotiations, a new treaty was ratified last month between India and Switzerland, pursuant to which the Indian authorities would be able to seek banking details from the European nation even in cases of tax evasion, as against in the cases of only tax frauds earlier.

The FINMA audit was completed last week, pursuant to which it said that enforcement proceedings would begin against four banks, whose provisions for dealings with PEPs were found to be inadequate.

Without disclosing the names of these four banks, FINMA said that most of the financial institutions in the country have satisfactorily conducted their due-diligence procedures in dealing with PEPs.

Reacting to the FINMA audit, Swiss Bankers Association (SBA) said in a statement: "We note that FINMA considers the existing provisions on dealing with PEPs as being sufficient.

"In single cases where rules have been infringed, banks will work closely with FINMA to improve their respective proceedings," SBA said, while adding that "Switzerland is, and wishes to remain, a clean financial centre."

The FINMA audited the approach adopted by 20 Swiss banks in their dealing with PEPs after the Switzerland government imposed bank account freezing orders in connection with the civil unrest in Tunisia, Egypt and Libya.

The accounts were frozen presumably on suspicion of money having been stashed in Swiss banks by the erstwhile leaders of these countries before they were unseated from the power.

FINMA said that its investigations showed that the majority of the 20 banks audited were well aware of their obligations when dealing with PEPS, and implemented them correctly and efficiently.

"At the banks, where minor shortcomings were identified, FINMA is monitoring the implementation of the measures introduced and is stepping up the intensity of its general anti-money laundering supervision.

"FINMA deemed specific points of the approach adopted at four banks to be inadequate and has initiated enforcement proceedings," it added.

FINMA, however, ruled out the need for any action in terms of anti-money laundering regulations where PEPs are concerned as of now.

The pressure has been mounting in recent past against a high secrecy wall surrounding the Swiss banks.

Last week, leading Swiss bank Credit Suisse agreed to share the account details of its American clients with the US government for suspected tax evasion.

The US has been particularly pressurising Switzerland for sharing account details of Americans suspected to have kept illicit wealth in Swiss banks, known for providing their clients with a very high level of secrecy.

The Credit Suisse list of account details would be the second major haul of such information for the US after it got hold of account details of about 5,000 American clients of another Swiss bank UBS, the largest in Switzerland.

UBS was asked by the Swiss authorities in 2009 to share these account details with the US government and had also paid USD 780 million to settle criminal charges in a major tax evasion case.

The intense American pressure had led to the Swiss Parliament passing a legislation in June this year for sharing of customer details by Swiss banks with the US authorities.
Swiss Parliament also passed earlier this year a treaty with India paving way for its ratification last month.