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New anti-laundering law dilutes Swiss banking secrecy

KARACHI (May 28 2003) : Beginning from July this year the legendary Swiss banking secrecy, bank-client confidentiality, the centrepiece of Swiss banking success, would be significantly altered and perhaps eroded because of new regulations being enforced by the Swiss Federal Banking Commission (SFBC), the regulator for the Swiss banking system, according to information reaching here.

SBFC has notified July 1, 2003 as the date on which the SFBC Money Laundering Ordinance, (MLO SFBC) will come into effect.

Thereafter, all cross-border transactions, such as wire transfers, shall have to state the full details of the client remitting the funds ie complete particulars of beneficial owners behind the veil in the case of numbered or pseudonym accounts.

The ordinance, promulgated in 2002, allowed a transitional period of one year for implementation of certain provisions.

It seeks to tighten and strengthen the SFBC 1998 guidelines issued to the Swiss banks for prevention of money laundering, acceptance of drug money and ill-gotten funds through corruption from a state functionary or a politically exposed person.

To this list the ordinance adds the aspect of Prevention of the Financing of Terrorism, that is on top of the agenda after the 9/11 terrorist attacks in the US.

Countries and financial institutions around the globe have been under intense US pressure to curb informal transfers through the banking system such as Hundi or Havala and to filter all transactions to curb money laundering and choke financing of undesirable entities.

These efforts have borne fruits and are reflected in substantially higher levels of foreign exchange reserves of countries, such as Pakistan that previously had to cope with a hand to mouth level of reserves.

The key elements of the new law require financial intermediaries (ie banks) to take a risk-based approach to the prevention of money laundering.

If there are doubts about a business relationship, particularly where it involves a significant volume of assets, the banks must seriously consider reporting this to the appropriate authority.

The ordinance obliges all banks and securities dealers, with the exception of smaller institutions, to use computerised systems to monitor transactions to help identify unusual transactions, which must be assessed and investigated within a reasonable period of time following their identification.

The law will also apply to subsidiaries and establishments of Swiss financial entities outside Switzerland and correspondent banking relationships.

The Swiss constitution protects client privacy and Swiss banks are under legal obligation to maintain confidentiality.

Under the new law this very aspect of Swiss banking will come under strain and be tested.

The SFBC guidelines to the intermediaries advise Swiss banking groups to report to the SFBC any competitive disadvantage to them that may ensue as a result of the new provisions of law.

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