Dictators’ assets

“PEPs” are politically exposed persons, for example heads of state and their families, members of parliament or senior officials. Because there is theoretically a higher risk of corruption and money laundering for PEPs due to their roles, banks must exercise additional caution in their dealings with such persons.

PEPs can be banking clients…

PEPs can be accepted as bank clients. AMLO-FINMA permits business relationships with PEPs, however subjects these to particular duties for clarification. The same applies to the 40 FATF recommendations, according to which business relationships with PEPs are subject to stricter due diligence duties. Problems only arise if political events lead to such PEPs becoming personae non gratae (undesirable persons) in the eyes of the Swiss government, and sometimes also in the eyes of international bodies and organisations.    

…potentates, however, cannot

Due to the shift of power that occurred as a result of the Arab Spring in 2011, many politically exposed persons from the Ivory Coast, Egypt, Tunisia, Libya and Syria suddenly changed from being PEPs to personae non gratae (so-called potentates). The Federal Council reacted immediately by freezing their assets invested in Switzerland. Further countries, in particular EU member states, announced taking similar freezing measures. In the absence of a formal legal basis, the Federal Council had to fall back on its powers enshrined in the constitution pursuant to Art. 184 para. 3 of the Federal Constitution, in order to safeguard the interests of the country. Several years later, in the context of the crisis in the Ukraine, the Federal Council once again had to resort to emergency law in February 2014 in order to freeze assets.

Such a freezing of assets can be undertaken in specific situations, for example in the event of a political coup. They prevent assets from being withdrawn from Switzerland. The objective is to restitute the assets to the legitimate owners and any embezzled public funds to the affected states. In order to establish the illicit origin of assets, the state in question must submit a request for legal assistance to Switzerland. However, the procedure under emergency law is unsatisfactory in terms of upholding the principles of the rule of law,  and does not sufficiently guarantee the democratic legitimacy of the measures.

Switzerland’s prompt action attracted attention around the world. On the one hand because it garnered recognition for the fact that the PEP mechanism and therefore legislation in Switzerland are effective, and on the other hand, however, because a perception was created that Switzerland is a refuge for potentates’ assets, which is incorrect.

The Foreign Illicit Assets Act creates legal certainty

In order to create legal certainty and rebut the allegations that had emerged, the Federal Council (in part also at the suggestion of the Swiss Bankers Association) created a formal legal basis that enables the assets of PEPs to be blocked as a precautionary measure. On the one hand, the so-called Foreign Illicit Assets Act governs measures for dealings with illicit assets, and on the other hand, it creates legal certainty in dealings with “politically exposed persons” (PEPs) – or in other words, with potential “future” potentates.

The new law, which has been in force since 1 July 2016, addresses the most important issues. In particular, these include:

  • the waiving of a statute of limitations, so that legal proceedings cannot be dragged on by lawyers for tactical reasons;
  • reversal of the burden of proof (the person affected by the freezing must prove that their money was not acquired illicitly)
  • as well as closer collaboration between Switzerland and the affected countries (Switzerland can now transfer bank client information relating to dictators even before a request for legal assistance has been received).

This law also establishes a framework that upholds the rule of law, within which the rights of the person affected by the freezing of assets are safeguarded. The most important aspect, however, is the deterrent effect that the new law aims to achieve: potentates must know that assets stolen from their own people are not secure in Switzerland.