Financial intermediaries are not merely required to identify the contracting party in order to combat money laundering. They are also required to investigate the business relationship demanded by the contracting party, i.e. to understand this.
In this conjunction, the GwG imposes (i) general as well as (ii) specific duties of clarification. The aim and purpose of the standardised background clarification is to safeguard due diligence in relation to financial transactions as well as to safeguard the reputation of the respective financial intermediary.
General duty of clarification
Within the framework of a general duty of clarification, the GwG obliges financial intermediaries to identify the type and purpose of the business relationship desired by the contracting party. The information that a financial intermediary must procure within the context of identifying the business relationship is determined by the level of risk associated with the contracting party.
- In terms of the type of business relationship it is necessary to ascertain what financial intermediary service this entails (e.g. loan, currency exchange, payment transaction etc.).
- The purpose of the business relationship means the objective pursued by the financial intermediary service (e.g. asset investment etc.)
Special duty of clarification
In addition, within the framework of a special investigation, a financial intermediary is also under an obligation to clarify:
- the economic background and
- the purpose of a transaction or of a business relationship
(Art. 6 Para. 2 GwG) as soon as:
- it appears unusual, unless the legitimate nature thereof is considered apparent;
- there are indications that assets derive from a crime, the power of disposal is subject to the control of a criminal organisation (Art. 260ter Fig. 1 StGB) or serves to finance terrorism (Art. 260quinquies Para. 1 StGB).
The obligation to conduct special clarifications does not constitute a permanent duty for a financial intermediary. To decide whether a special clarification is required, however, permanent monitoring of the (i) business relationship as well as of the (ii) transaction is required in order to identify the key signals or suspicions. The special clarification must enable the financial intermediary to comprehend, i.e. to understand, the seemingly unusual business relationship or transaction.
Ascertainment of heightened risks
In order to rate the level of risk associated with a contracting party, a financial intermediary must define criteria which draw attention to an existing risk.
In a non-definitive catalogue, Art. 12 and 13 GwV-FINMA of the Ordinance of the Swiss Financial Market Supervisory Authority concerning the Prevention of Money Laundering and Terrorism Finance (Verordnung der Eidgenössischen Finanzmarktaufsicht über die Verhinderung von Geldwäscherei und Terrorismusfinanzierung) specifies criteria which serve on the one hand (i) to individualise business relationships as well as (ii) transactions with heightened risks depending upon the business activity of the financial intermediary. This means that the scope of the information which needs to be obtained, i.e. additional investigations, may be stipulated.
Criteria used to ascertain a business relationship with heightened risks:
- domicile or place of residence of the contracting party and/or of the beneficial owner or their nationality;
- type and location of the business activity of the contracting party and/or of the beneficial owner;
- absence of personal contact with the contracting party as well as with the beneficial owner;
- nature of the requested services or products;
- volume of the contributed assets;
- volume of the inflows and outflows of assets;
- origin or country of destination of frequent payments;
- Complexity of the structures, in particular if this involves the use of domiciliary companies.
The following are automatically classified as business relationships with heightened risks:
- business relationships with politically exposed persons (“PEP”) as well as
- business relationships with non-domestic banks for which a Swiss financial intermediary settles correspondence bank transactions.
If a business relationship is rated as being of heightened risk on the basis of the risk criteria deployed by the financial intermediary for his business activities, then the relationship must be flagged internally as such.
Criteria used to ascertain a transaction with heightened risks:
- the volume of the inflows and outflows of assets;
- substantial deviations from the transaction types, volumes and frequencies which are normal for the business relationship;
- substantial deviations from the transaction types, volumes and frequencies which are normal for comparable business relationships.
In this conjunction, transactions at the start of the business relationship are automatically classified as being transactions with heightened risk
- if on a single occasion or series of occasions
- with a current value of more than CHF 100,000
- are physically contributed.
Evidence of money laundering
Apart from the risk criteria, evidence pointing to business relationships or transactions with heightened risk have also been set out in the Appendix of the Ordinance of the Swiss Financial Market Supervisory Authority concerning the Prevention of Money Laundering and Terrorism Finance (Verordnung der Eidgenössischen Finanzmarktaufsicht über die Verhinderung von Geldwäscherei und Terrorismusfinanzierung – in short: “GwV-FINMA”).
If business relationship and/or transactions with heightened risk are ascertained, then a financial intermediary must without delay conduct additional clarifications. A reasonable effort must be made, taking the circumstances of the individual case into consideration (cf. Art. 14 GwV FINMA), to ascertain:
- whether the contracting party is the beneficial owner of the contributed assets;
- the origin of the contributed assets;
- the intended utilisation of withdrawn assets;
- the background and the plausibility of substantial incoming payments;
- the origin of the assets of the contracting party and of the beneficial owner;
- the professional or business activity of the contracting party and of the beneficial owner;
- whether the contracting party or the beneficial owner is a politically exposed person;
- in the case of legal entities: by whom these are controlled.
A financial intermediary may use the following means to conduct additional clarifications (cf. Art. 15 GwV FINMA):
- obtaining written or oral information (contracting party/beneficial owner);
- visits to the location of the business activity (contracting party/beneficial owner);
- consultation of public sources and databases in the public domain;
- possible enquiries amongst trustworthy individuals.
The results of the additional clarifications must be checked. They must be plausible and documented.
Consequences of the clarifications
In other respects the GwG does not specify what the consequences of the clarifications are for the business relationship in question. Depending upon the outcome of the checks made to verify that the results are plausible, a decision may be taken on the following further measures relating to the respective business relationship: