Identifying the contracting party

The fundamental tenet of the GwG is the “know your customer” (KYC) principle. Within this context, the GwG obliges a supervised financial intermediary:

  • at the time of the commencement of business relationships
  • to identify the contracting party on the basis of a
  • conclusive document

The identification is intended on the one hand to enable the financial intermediary to assess whether the deployed assets are of legal or criminal origin, and on the other to lay a so-called “paper trail”).

The timescale components of the identification “at the time of the commencement of a business relationship” means that the identification must take place at the latest at the time of the signing of the agreement (in writing/orally or implicitly).

Attention

The GwG links its code of conduct obligations to the existence of a contractual relationship. For this reason, due diligence obligations pursuant to the GwG are established only within the context of the relationship between the financial intermediary and the contracting party!

The provisions of the FINMA Ordinance and the SRO regulations define conclusive documents as follows:

  • In the case of natural persons, these are primarily deemed to be identification documents bearing a photo of the person in question and issued by a Swiss or non-domestic authority.
  • In the case of legal entities, these are deemed to be approved identifications depending upon the particular legal form, primarily a commercial register extract or the articles of association or other foundation documents. If the contracting party is a legal entity, then in addition:
    • its authorisation provisions must be verified, and the
    • identity of the persons who are commencing the business relationship in the name of the legal entity must be checked.

Exemptions from identification obligations

In general terms, the risk of money laundering is deemed minor in the case of small sums. Furthermore, a financial intermediary should not be subjected to disproportionately onerous identification obligations under such circumstances.

From this perspective, so-called “cash transactions with a contracting party who has not already been identified shall be subject to identification only if one or more transactions which appear to be linked reach a substantial value (triggering threshold).

Cash transactions

Cash transactions are transactions which are not settled via an existing bank account at a financial intermediary, and which do not result in any further relationship (i.e. business relationship) between the client and the financial intermediary.

It is essentially the case that this covers all forms of cash transactions, in particular:

  • currency exchange,
  • the purchase or sale of precious metals,
  • the sale of traveller’s cheques,
  • the paying up in cash of bearer securities, cash bonds and warrant bonds,
  • the cashing of cheques,

insofar as these transactions to not entail any long-term business relationship (cf. Art. 2 lit. a GwV-FINMA).

The precise definition of the “substantial value” (i.e. triggering threshold) is set out in the implementation ordinances (GwV-FINMA) and SRO regulations, and in general terms amounts to:

  • CHF 5,000 in the case of currency exchange transactions
  • CHF 25,000 in the case of all other cash transactions.

This is designed to ensure that day-to-day financial services are not excessively hindered or made unnecessarily complex.

Digression: In the field of private insurance, insurers are also obliged to identify their contracting party only if the total sum of a one-off or periodic premium or the total premium volume reaches a substantial value. This substantial value is defined in the regulation SRO-SVV as generally amounting to CHF 25,000 (cf. Art. 3 SRO-SVV).

Attention

If the triggering threshold is not reached, but there are nevertheless suspicions of money laundering or terrorism finance, then an identification must be performed (cf. Art. 3 Para. 4 GwG)!