|Andrew M Garbarski|
In a recent milestone decision dated May 24 2016 (decision 6B_503/2015), the Swiss Federal Supreme Court (SFSC) held, for the first time, that the duty of financial intermediaries to report suspicions of money laundering may extend beyond the end of the relevant business relationship.
Financial intermediaries subject to the Anti-Money Laundering Act (AMLA), such as banks, insurance companies, securities dealers, asset managers, fiduciaries and trustees, are bound by a wide range of duties set out in the AMLA and its related ordinances. Among other things, financial intermediaries have a specific, enhanced duty to clarify the background and purpose of a transaction or the business relationship in certain situations, notably if there are signs that the assets could stem from a crime or a qualified tax offence.
If, based on so-called founded suspicions, a financial intermediary knows or assumes that the assets involved in the business relationship result from such a crime or qualified tax offence, they have the duty to immediately file a suspicious activity report with the Money Laundering Reporting Office Switzerland (MROS). In practice, suspicions may typically be qualified as founded after the enhanced duty to clarify is completed.
The breach of the duty to timely report to the MROS may give rise to criminal penalties. Indeed, the law sets out a fine of up to CHF 500,000 ($515, 000) for an intentional breach; up to CHF 150,000 for negligence. Criminal liability is incurred in the first place by the individuals that acted, or failed to act, on behalf of the financial intermediary. The fine may only be imposed on the entity itself instead of the individual offenders under certain circumstances, and provided that it does not exceed CHF 50,000. The Federal Department of Finance (FDF) conducts the prosecution.
The SFSC's reasoning
One of the issues examined by the SFSC was the starting point of the seven-year limitation period applicable to the prosecution of the offence. In a nutshell, the appellant, a professional fiduciary, argued that the duty to report founded suspicions to the MROS expired on the termination of the business relationship, which was the triggering event in terms of the limitation period in case of a breach. According to the appellant, the offence was time-barred, since the first instance judgment had been rendered more than seven years after the termination of the business relationship.
While acknowledging that this issue is disputed in legal literature, the SFSC upheld the approach followed by the previous instances (and supported by certain scholars). It, therefore, concluded that the duty to report founded suspicions to the MROS may indeed survive a business relationship, so long as assets exist that may potentially be forfeited. The SFSC said that it would be appalling if a financial intermediary could terminate a business relationship to avoid its duty to report founded suspicions to the MROS.
In the case submitted to the SFSC, the consequence was twofold:
- the financial intermediary's duty to report to the MROS remained applicable until the suspicious funds were frozen by the prosecution authorities; and
- the criminal offence was not yet time-barred at the time of the first instance judgment.
The rather brief considerations by the SFSC and its somewhat peremptory conclusion in connection with the duration of the duty to report creates uncertainty. Among others, the following questions are raised:
- Whether the decision's scope is limited to cases where the financial intermediary had founded suspicions before the termination of the business relationship;
- or, alternatively, whether it also applies to situations in which such suspicions appear afterwards (for example, based on negative news spread in the media);
- which steps (if any) the financial intermediary is expected to undertake in such a scenario;
- how a financial intermediary should reasonably be able to tell, after the termination of the business relationship, if there are still assets (no longer under their control) that could be potentially forfeited;
- whether it could be interpreted as an implicit admission that a report should have occurred earlier and that the AMLA was breached if a financial intermediary refrains from reporting founded suspicions to the MROS after the end of the business relationship.
The practical impact of the decision remains, to a large extent, unclear. Pending further guidance from the courts, a cautious approach is recommended, notably in cases where the founded suspicions appear after the end of the business relationship.
In these situations, in view of minimising the potential exposure under the AMLA and depending on the particularities of each case, it might be advisable for the financial intermediary to consider reporting such suspicions to the MROS, at least pursuant to article 305 paragraph 2 of the Swiss Criminal Code, which deals with the so-called right to file mere suspicions of money laundering.
Andrew M Garbarski