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2016/12/14 01:00:00 GMT+1

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A closer look at the FATF’s fourth mutual evaluation report

A closer look at the FATF’s fourth mutual evaluation report

The FATF has completed its report on the fourth country evaluation of Switzerland. The overall result in terms of the measures for the fight against money laundering and terrorist financing is good. An analysis of certain points of criticism, however, raises questions.

As part of the approximately two-year evaluation process conducted by the Financial Action Task Force (FATF), Switzerland’s defensive measures for the prevention of money laundering and terrorist and proliferation financing were subject to a comprehensive assessment. As part of this assessment, the FATF examined both the technical conformity as well as the effectiveness of the measures adopted. In seven of the eleven categories examined, Switzerland achieved the second-best rating “substantial effectiveness”, while for the remaining four areas, the FATF gave Switzerland a “moderate effectiveness” rating. Thirty-one of the 40 FATF recommendations were evaluated as being implemented in a compliant or largely compliant manner.

Overview about the results of the mutual evaluation report

Overview Mutual Evaluation report
Source: State Secretariat for International Financial Matters (SIF)

Legend: IO: Immediate outcome; NC: non compliant; PC: partially compliant; C: compliant; LC: largely compliant

No limits instead of some Moderation?

A comparison with other member states of the FATF that have already undergone assessments indicates that Switzerland is positioned in the upper middle range in terms of implementation. The only countries with a superior outcome are Spain and Italy, while countries like Norway and Austria received lower marks. In order to better understand the individual points of criticism regarding the implementation of the FATF recommendations in Switzerland, one can make a comparison with Italy, for example. In such a comparison, a number of questions remain unanswered.

A limitless flood of reports can be counterproductive.

For example, the FATF criticises Switzerland for its comparatively low number of suspicious activity reports. Last year, around 2,000 suspicious activity reports were made. According to the country assessment, this figure is too low considering the importance of the Swiss financial centre. In comparison, Italy is praised for its ongoing improvements to the quality of the approximately 70,000 suspicious activity reports that are made by the banking sector. What the FATF considers to be too few suspicious activity reports from Switzerland does in effect stand in a certain contrast to those made in Italy. That a limitless flood of reports can also, however, be counterproductive, is demonstrated by the fact that in Italy, only around 65 percent of reports were processed within two months. From a Swiss perspective, two months would be significantly too long: the Money Laundering Reporting Office Switzerland (MROS) has 20 days to decide whether to submit a report to the responsible law enforcement agency. This occurs in around 70 percent of cases, which is a substantial number. In Italy, further clarifications are undertaken for around 40 percent of suspicious activity reports.

A dangerous place to be

With regard to the prevention of terrorist financing, the FATF has determined that Switzerland is surrounded by neighbours that have already suffered terrorist attacks. The country assessment thus criticises that the Swiss authorities are not sensitised enough with regard to these dangers and that the self regulations to this end (e.g. CDB and SRO regulations ) have a few isolated shortcomings. The risk of terrorist financing in Italy, on the other hand, is considered to be relatively low. According to the FATF, although extremist groups exist, they do not currently pose any risk. This reasoning would appear questionable: why should there be a lower level of risk of terrorist financing in Italy than in Switzerland? The banks and other financial intermediaries in Switzerland must adhere to the self regulations that impose very far-reaching requirements for clarification.

Positive Swiss Finish

The maximum cash payment of CHF 100,000 allowed for retailers also comes under criticism; this is significantly in excess of the USD/EUR 15,000 recommended by the FATF. Italy’s cap on cash payments is EUR 2,999.99, and thus goes significantly beyond the FATF recommendations. The Swiss cap of CHF 100,000 on cash payments represents a parliamentary compromise, which was intensely struggled with in order to take into account different industry needs. Whether a lower cap as recommended by the FATF would in effect lead to additional prevention of money laundering and terrorist financing is the subject of controversial discussions in expert circles and remains to be seen. 
It would therefore appear that that for a number of points criticised by the FATF, a positive type of “Swiss Finish” has been applied: viewed from the outside, this does not quite fit perfectly into the system prescribed by the FATF, but it is, however, tailored to the realities in Switzerland and efficiently serves its purpose.

Explanation regarding the Immediate Outcome (IO)

Effectiveness Immediate Outcome (IO)
IO 1: Risk, Policy and Co-ordination
IO 2: International Co-operation
IO 3: Supervision
IO 4: Preventive Measures
IO 5: Legal Persons and Arrangements
IO 6: Financial Intelligence
IO 7: ML Investigation and Prosecution
IO 8: Confiscation
IO 9: TF Investigation and Prosecution

Source: FATF