Swiss Government Wants Banks’ Extra Care to Avoid Untaxed Money

Switzerland’s government wants banks to toughen up checks to avoid accepting untaxed assets, possibly including a refusal to do business with a client who can’t show the money has been regularized.

For clients from countries that aren’t covered by automatic exchange of information agreements, banks will need to conduct risk-based checks, the government said on Friday in a message to parliament. Lawmakers were asked to stiffen the current anti-money-laundering law.

“As part of the measures to achieve a tax-compliant financial center, the new due-diligence requirements should prevent the inflow of untaxed assets to Switzerland,” the government said in a statement. “The details of the risk-based assessment will be established by the supervisory authorities and the recognized self-regulatory organization.”

Switzerland has taken several steps to rid itself of its image as a haven for untaxed assets, including negotiating a pact allowing the automatic exchange of tax information of bank-account holders with the European Union. The accord would effectively end banking secrecy for citizens of EU countries with offshore accounts in Switzerland. Parliament will debate changing Swiss domestic law to allow the automatic exchange of information this autumn, the government said.

World Cup

Last month, Swiss police arrested seven soccer officials wanted by U.S. authorities in a case that includes charges of racketeering, wire fraud and money laundering in World Cup bidding. That came as part of a wider investigation by Swiss and U.S. prosecutors into how past hosts of the quadrennial tournament were chosen, as well as the selection of Russia and Qatar as hosts of the 2018 and 2022 World Cups respectively.

According to the Swiss government’s proposal, which parliament will need to vote upon, banks wouldn’t be allowed to accept new clients if they suspect their money is untaxed. Should a fresh deposit by an existing client raise red flags, the bank must check up on the clients’ entire assets and -- should it have doubts -- request the client demonstrate his or her tax compliance. If the client cannot do so and or hasn’t entered into the process of regularizing the money, the bank must dissolve the business relationship, the government said.

“The business relationship will not be terminated in cases where it is not possible for the client to provide proof of tax compliance or to regularize the tax situation without running the risk of unreasonable adverse effects,” it also said.

The stepped up due diligence requirements would not apply to foreigners living in Switzerland and also not to U.S. citizens, who are covered under the U.S. Fatca law designed to clamp down on tax evasion.

Sindy Schmiegel, a spokeswoman for the Swiss Bankers Association, said the change was inopportune.

“In practice banks are already undertaking risk-based checks for foreign clients,” she said. “The current point in time is very awkward because much tax-related regulation now needs to be implemented. Moreover, it’s unclear how the proposal will be put into force.”

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