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Restitution of illicit assets

Andreas Moll

The Federal Act on the Restitution of Assets of Politically Exposed Persons obtained by Unlawful Means (RIAA) came into force on February 1 2011. It governs the freezing, forfeiture and restitution of the assets of politically-exposed persons in cases where a request for mutual assistance cannot succeed in the requesting state due to the failure of its judicial system.

In some developing countries, heads of state and high-ranking government officials sometimes enrich themselves and their close associates at the expense of the state and hinder the development of the national economy. These so-called potentate funds are often transferred out of the country of origin and find their way to international financial centres.

Switzerland reacted to this situation at the end of the 1980s following a number of high-profile cases (for example Ferdinand Edralin Marcos, former president of the Philippines; Sani Abacha, former dictator of Nigeria; and Vladimiro Montesinos, former Peruvian politician) and has developed a two-pronged system based on prevention and mutual legal assistance.

The Federal Act on the Prevention of Money Laundering is one of the main instruments of this two-pronged system which imposes due diligence obligations ("know your customer") on banks and other financial service providers.

The second prong is based on the Federal Act on International Mutual Legal Assistance in Criminal Matters (MLAA) which allows for cooperation with other states to enable the seizure and restitution of assets of illicit origin. If, despite the various precautionary measures, illicit assets do find their way to Switzerland, these must be identified and returned to their country of origin.

In the past, Swiss authorities often faced difficulties when attempting to return assets frozen in Switzerland because of the failure of criminal proceedings in the countries of origin. Due to failure of state structures in the requesting state, a request for mutual assistance in criminal matters could not produce an outcome and, therefore, the Swiss authorities did not have a legal basis to return the assets.

The RIAA offers a solution that is subsidiary to the MLAA. It provides a possibility for the confiscation of assets that are clearly of illicit origin without the need for the prior conviction of the politically-exposed person concerned. To accomplish this, the Swiss government may take legal action before the Federal Administrative Court for the forfeiture of frozen assets. The subsequent judgment, against which an appeal can be filed with the Federal Supreme Court, permits if necessary the forfeiture of assets of unlawful origin which have been frozen pending their restitution to their state of origin by means of a transparent procedure, unless the legal origin of the assets has been demonstrated by the person concerned.

The government is convinced that the application of this law will help strengthen the rule of law and combat impunity. It is deemed to be in the fundamental interest of Switzerland.

The RIAA was established in context with the restitution of assets of the former Haitian Dictator Jean-Claude Duvalier. In Switzerland, assets of Duvalier in the amount of SFr5.48 million ($5.92 million) were frozen in 1986 based on a request for judicial assistance of Haiti, and have been frozen ever since. In its decision of January 12 2010, the Swiss Federal Supreme Court denied the restitution of these assets arguing that there was no legal ground for the restitution.

In reaction, the Federal Parliament drew up and passed the RIAA, which is also known as lex Duvalier. Created primarily for this one particular case, the future will show how helpful this law will be in other cases. As it is only applicable in cases of states whose judicial system failed to render a final judgment against the person concerned (sometimes referred to as weak states), all other states will still need to provide such a final judgment. Hence, the scope of application will mainly depend on the question of whether the state at issue is considered to be weak.

Andreas Moll

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