The following provides an overview of the scope of the GwG:
- Territorial scope
- Personal / objective scope
The GwG does not itself contain any provisions concerning the territorial scope. In accordance with the definition of financial intermediation set out in the regulations, the GwG is essentially applicable to financial intermediaries active in Switzerland.
Pursuant to the provisions of the “Ordinance on the Professional Exercise of Financial Intermediation” (“Verordnung über die berufsmässige Ausübung der Finanzintermediation”) (in short: “VBF”) for financial intermediaries from the non-banking sector (Art. 2 Para. 3 GwG), the following financial intermediaries are covered on the basis of the territorial scope of the Ordinance:
- financial intermediaries incorporated in Switzerland, even if they render their financial services exclusively abroad;
- branch offices of a financial intermediary incorporated abroad, which:
- is entered in the Commercial Register or effectively has branch offices in Switzerland, and
- employs persons who conclude financial intermediation transactions on a professional basis in Switzerland on behalf of the financial intermediary, or who can legally oblige him to conclude such transactions.
By contrast, financial intermediaries incorporated abroad are not covered if they:
- operate cross-border financial intermediation, and
- deploy non-domestic personnel merely on a temporary basis for individual transactions in Switzerland.
In the case of cross-border financial intermediation or financial intermediation rendered abroad, it must always be checked or considered whether these are governed by non-domestic statutory provisions.
It is essentially the case that the financial sector represents a particularly attractive target for money laundering activities.
Within this context the Swiss Money Laundering Act (Geldwäschereigesetz – “GwG”) covers and applies to all “financial intermediaries” (“FI”, cf. Art. 2 Para. 1 GwG). As a consequence, an unspecific legal or collective term is used to describe or to answer the question of the scope of the GwG. When it comes to assessing the characteristics of a financial intermediary, it is irrelevant whether the person being assessed is a natural person or a legal entity.
Specifically, the GwG distinguishes between two types of financial intermediation, i.e. that which:
- is already subject to special statutory supervision (so-called “banking or insurance sector”, cf. Art. 2 Para. 2 GwG), i.e. whose exercised activities are already governed by regulations set out in a dedicated statutory instrument, and that which,
- is subjected to its provisions on a mandatory basis on account of the professional execution of services in the financial sector (so-called “non-banking sector”, cf. Art. 2 Para. 3 GwG).
In a broad sense it is possible to state that within the meaning of the GwG a financial intermediary is a person or entity which operates intermediation in the financial sector, i.e. which on an essentially professional basis accepts, holds for safekeeping, investors or helps to transfer third-party assets in the financial sector.
(financial intermediaries pursuant to Art. 2 Para. 2 GwG)
Financial intermediaries who require a special statutory licence and are subject to special statutory supervision are per se governed by the GwG. Pursuant to the express list set out in Art. 2 Para. 2 GwG, these are the following financial institutions:
- Banks in accordance with the Swiss Banking Act (“Bankengesetz”) of 8 November 1934;
- Investment fund managements, insofar as they:
- maintain unit accounts and
- themselves offer or distribute units in a collective capital investment scheme;
- Investment companies with variable capital (Investmentgesellschaften mit variable Kapital – “SICAV”), limited partnerships for collective capital investment (Kommanditgesellschaften für kollektive Kapitalanlagen – “KkK”), investment companies with fixed capital (Investmentgesellschaften mit festem Kapital – “SICAF”) and asset managers within the meaning of the Swiss Collective Capital Investment Act (Kollektivanlagengesetz) of 23 June 20069, insofar as they:
- themselves offer or distribute units in a collective capital investment scheme;
- Insurers pursuant to the Swiss Insurance Supervision Act (Versicherungsaufsichtsgesetz) of 17 December 2004, which:
- operate direct life insurance schemes, or
- offer or distribute units in a collective capital investment scheme;
- Securities traders pursuant to the Swiss Stock Exchange Act (Börsengesetz) of 24 March 1995;
- Casinos pursuant to the Swiss Casino Act (Spielbankengesetz) of 18 December 1998.
(financial intermediaries pursuant to Art. 2 Para. 3 GwG)
Financial intermediaries within the meaning of the GwG furthermore include other persons who within the framework of their activities/services (Art. 2 Para. 3 GwG):
- on a professional basis
- accept or hold for safekeeping or help to invest or to transfer
- third-party assets.
In general terms, financial intermediation within the meaning of Art, 2 Para. 3 GwG consequently means activities undertaken in the financial sector which are particularly vulnerable to money laundering and which – as opposed to the financial institutions subject to special statutory supervision mentioned in Art. 2 Par. 2 GwG – are not already subject to particular statutory regulation or supervision.
In order to give the scope of the definition of a financial intermediary pursuant to Art. 2 Para. 3 GwG a practical aspect, legislators catalogued the activities covered by the GwG, primarily in the financial sector. This is an exemplary, non-definitive list of financial intermediation activities performed by persons who:
- perform lending activities (specifically by means of consumer or mortgage loans, factoring, commercial finance of financial leasing);
- render payment transaction services, who specifically perform remittances for third parties or issue or administer means of payment such as credit cards and travellers’ cheques;
- trade on own or third-party account in banknotes and coins, money market instruments, foreign exchange, precious metals, commodities and financial assets (securities and book-entry securities) as well as their derivatives;
- manage assets;
- perform investment in the capacity of ain investment advisor;
- administer or hold securities for safekeeping.
The scope of the wording of Art. 2 Para. 3 GwG means considerable doubts and questions remain in the non-banking sector in respect of qualification as a financial intermediary, and consequently in respect of the question of who is subject to the GwG together with its rights and obligations. Legislators deliberately took this effect into account, in order to ensure sufficient flexibility was maintained to cover the continuously shifting parameters of the financial sector.
In this conjunction, the VBF sets out in further detail the conditions which establish that a financial intermediary meets the definitions set out under Art. 2 Para. 3 GwG. For example, the VBF contains regulations which expressly determine what is and what is not deemed to constitute financial intermediation.
Pursuant to the provisions of the Ordinance concerning the Professional Exercise of Financial Intermediation (Verordnung über die berufsmässige Ausübung der Finanzintermediation (Art. 1 Para. 2 VBF) the following are expressly deemed not to constitute financial intermediation:
- the purely physical transport of the purely physical storage of assets, subject to Art. 6 Para. 1 lit. c;
- collection activities;
- the transfer of assets as an accessory performance to a principal contractual performance;
- the operation of so-called 3a Pillar pension schemes by bank foundations or insurance companies;
- activities amongst group companies;
- the activity of vicarious agents of financial intermediaries who are licensed or affiliated in Switzerland, insofar as the vicarious agents:
- are carefully selected by the financial intermediary and are subject to his instructions and control,
- are included in the organisational measures of the financial intermediary to prevent money laundering and terrorism finance pursuant to Art. 8 GwG, and receive corresponding training and further training,
- act exclusively in the name of the financial intermediary as well as on his account,
- are remunerated by the financial intermediary and not by the client,
- are active in conjunction with money or securities transfer transactions only for a single licensed or affiliated financial intermediary,
- have concluded a written agreement with the financial intermediary in respect of adherence to the aforementioned criteria.
By contrast, financial intermediation within the framework of the provisions of Art. 2 Para. 3 Letters e – g GwG is deemed to constitute:
- the administration of securities and financial instruments on behalf of a contracting party;
- the execution of investment orders for third-party account on a one-off basis in the capacity of an investment advisor;
- the holding for safekeeping and possibly the administration of securities on behalf of a contracting party;
- activity as a managing officer of domiciliary companies.
Further information about questions of applicability in the non-banking sector
- Practice of the Control Authority for Combating Money Laundering in respect of Art. 2 Para. 3 GwG of 29 October 2008 – The Scope of the Swiss Money Laundering Act in the Non-banking Sector (German)
In the case of financial intermediaries in the non-banking sector (Art. 2 Para. 3 GwG), the criterion of professional activity is a key element when it comes to assessing the question of the applicability of the GwG. The characteristic of professional activity serves to prevent inconsequential financial mediation activities being subordinated to the GwG. Within the framework of the “Ordinance on the Professional Exercise of Financial Intermediation” (“Verordnung über die berufsmässige Ausübung der Finanzintermediation – “VBF”), the subject of making the regulations more detailed was addressed.
Pursuant to the VBF, a financial intermediary exercises financial intermediation on a professional basis if he:
- generates gross proceeds of over CHF 20,000.00 pro calendar year;
- establishes business relationships with over 20 contracting parties per calendar year which are not limited to a one-off activity, or maintains at least 20 such relationships per calendar year;
- has indefinite power of disposal over third-party assets which exceed CHF 5 million at any one time; or
- conducts transactions whose total volume exceeds CHF 2 million per calendar year. In this conjunction the following applies:
- inflows of assets and regrouping within the same portfolio are not taken into account when calculating the transaction volume
- in the case of legal agreements with reciprocal obligations, only the performance rendered by the counterparty shall be taken into account
The following is not taken into account when assessing the professional basis of the financial intermediation:
- financial intermediation rendered for institutions and persons pursuant to Art. 2 Para. 4 GwG, i.e.:
- the Swiss National Bank;
- tax-exempt occupational pension institutions;
- financial intermediaries pursuant to Para. 2 or non-domestic financial intermediaries which are subject to comparable supervision to these.
- financial intermediation for relatives, insofar as the gross proceeds thereby generated do not exceed CHF 20,000 per calendar year.
Relatives are defined as follows:
- relations and in-laws of direct lineage;
- relations of the collateral line up to the third degree;
- persons with whom the financial intermediary has entered into marriage or has established a registered partnership, irrespective of a subsequent divorce or court dissolution;
- co-heirs up to the conclusion of the inheritance partitioning;
- reversionary heirs and reversionary beneficiary heirs pursuant to Art. 488 ZGB.
In derogation of the aforementioned general criteria, in the case of the following business fields special conditions are applicable when determining whether activities are performed on a professional basis:
- Lending transactions
- Activities are performed on a professional basis if gross proceeds of more than CHF 250,000 are generated in a calendar year, and if a lending volume of more than CHF 5 million has been issued at any given time.
- Gross proceeds are deemed to constitute only those revenues which do not serve to repay the loan.
Attention: If a person exercises not just lending activities, but is also active in additional fields of financial intermediation, then the criterion of whether the activities are performed on a professional basis must be ascertained separately in respect of each field. If a person is deemed to be active on a professional basis in one field, then the activities in all financial intermediary fields is deemed to be performed on a professional basis.
- Money or security transfer transaction
- This is always deemed to be exercised on a professional basis, insofar as it is not performed for a relative and insofar as the gross proceeds thereby generated do not exceed CHF 20,000 in a calendar year.
- Trading activity
- In the field of trading activity, in place of the criterion of gross proceeds, the criterion of gross profit in excess of CHF 20,000 causes this to be deemed to be exercised on a professional basis.
Change to financial intermediation exercised on a professional basis
A question or approach of considerable practical relevance is whether a financial intermediary activity which is not initially exercised on a professional basis within the meaning of the VBF nevertheless subsequently fulfils the criterion of being exercised on a professional basis pursuant to the VBF.
A change of this nature from financial intermediation exercised on a non-professional basis to financial intermediation exercised on a professional basis has the result that (cf. Art. 11 VBF):
- the obligations pursuant to Art. 3 – 11 of the GwG must be adhered to without delay; and
- within two months following the change, the financial intermediary must (i) join a self-regulating organisation or must (ii) submit a request to the FINMA for a permit to exercise the activity on a professional basis.
During the intervening period, i.e. before the person has joined the SRO or has been issued a permit by the FINMA, the financial intermediary is not permitted to:
- perform any new financial intermediary transactions;
- to perform actions within the framework of the existing business relationships which are not absolutely necessary to preserve the assets.
It is essentially the case that a financial intermediary activity subject to supervision exists only if third-party assets are involved. It is essentially the case that assets constitute moveable/immovable property and rights (e.g. claims). These are third party assets if they are not owned by the financial intermediary or – in the case of claims – if they are not the own claims of the financial intermediary or if the financial intermediary is not the creditor thereof.
Exemptions from the principle that the assets must be third party assets include inter alia the provisions relating to trade in:
- banknotes and coins, money market instruments, foreign exchange, precious metals, commodities and securities (securities and book-entry securities) as well as their derivatives,
as here too the trading activities are deemed to be performed on own account (Art. 2 Para. 3 lit. c GwG).