by Jonathan J. Rusch

For generations, the Swiss financial sector has carefully burnished its reputation as the “perfect home for wealth” and a “financial safe haven.”[1]  That reputation, not surprisingly, has led for some time not only to attraction of persons seeking legitimate investment and wealth management opportunities, but to a high degree of money laundering risk.[2]

In recent years, Swiss government authorities have responded to these money laundering risks with necessary changes in its anti-money laundering (AML) laws and general improvements in its legal and regulatory enforcement of those laws.  The Swiss Attorney General’s Office, for example, has demonstrated an increasing commitment to holding the Swiss banking community accountable for criminal violations of Swiss anti-money laundering (AML) laws.[3]  The Swiss Financial Market Supervisory Authority (FINMA), as the supervisor of the Swiss financial sector, has lately shown increased resolve in imposing significant sanctions on banks that fail to comply with AML laws.[4]

The most recent example of FINMA’s resolve took place on September 17, when FINMA disclosed that it had taken strong AML-related measures against a prominent Swiss private bank, Mirabaud & Cie SA.[5]  It stated that in June 2023, it had concluded enforcement proceeding against Mirabaud, finding that Mirabaud breached its AML obligations under Swiss law and “seriously violated provisions of financial market law concerning adequate organisation (governance), risk management and money laundering prevention over a prolonged period.”  It also took the highly unusual steps of confiscating CHF 12.7 million of unlawfully generated profits, opening three proceedings against individuals, and prohibiting Mirabaud from accepting any new clients with increased money-laundering risks until compliance with Swiss financial market law has been restored.

This post will explain the background and basis of FINMA’s actions and provide several observations on its significance.

The FINMA Investigation

FINMA opened its investigation in June 2021, after it found what it described as “indications of misconduct concerning a complex client structure alleged to have been connected with a businessman accused of tax evasion who has since died.”[6]  Although FINMA did not identify the businessman, Swiss media identified the likely person as American businessman Robert Brockman.[7]  In October 2020, a federal grand jury in the United States had indicted Brockman, identified as the Chief Executive Officer of a U.S.-based software company, on charges of tax evasion, wire fraud, money laundering, and other U.S. federal offenses.  Those charges stemmed “from an alleged decades-long scheme to conceal approximately $2 billion in income from the [U.S. Internal Revenue Service] as well as a scheme to defraud investors in the software company’s debt securities.[8]  Brockman, however, died in 2022 before his trial began.[9]

The FINMA investigation revealed that Mirabaud had maintained inadequate risk management for qualified tax avoidance.  It found that “Mirabaud maintained multiple business relationships after 2010 with companies and complex structures that could have been directly or indirectly connected with the aforementioned businessman.”  It further found that within the scope of these multiple business relationships, Mirabaud managed assets of up to $1.7 billion, which “at times accounted for almost ten per cent of the bank’s entire assets under management.”

In addition, FINMA’s investigation revealed that Mirabaud inadequately reviewed and documented the beneficial ownership and economic background of numerous transactions despite indications of increased money-laundering risks in particular in connection with qualified tax avoidance and concrete warnings since 2018 concerning the relevant client relationships. Mirabaud altogether did not have adequate organisation and sufficient risk management for monitoring these business relationships.

Given these facts, FINMA concluded that Mirabaud “therefore seriously violated provisions of financial market law concerning adequate organisation (governance), risk management and money laundering prevention over a prolonged period.”[10]

The FINMA Response

FINMA gave credit to Mirabaud for its cooperation during the proceedings, and with taking “operational, organisational and HR measures to rectify the shortcomings” during the proceedings.  Those measures included “a broad-based reorganization” and strengthening “the measures in place for anti-money laundering, risk management, the entire internal control system and governance.” FINMA also stated that it “generally considers these measures to be suitable for restoring compliance with the law.”[11]

Nonetheless, FINMA directed that (1) Mirabaud further adjust the AML measures in place, (2) Mirabaud expand its internal control system, (3) Mirabaud “renew and strengthen its corporate governance organisationally and in terms of HR,” (4) Mirabaud “review all its client relationships from a risk perspective”  and Mirabaud’s “executive board must then decide on this basis whether to continue them,” (5) Mirabaud “must also thoroughly review and if necessary re-document all relevant transactions with increased risks from 2018 to 2022”, and (6) Mirabaud “create new incentives in its remuneration policy for an appropriate handling of risks.”

In addition, FINMA took several more severe actions against Mirabaud.  First, it confiscated CHF 12.7 million of unlawfully generated profits in favor of the Swiss Federal Treasury.  Second, it prohibited Mirabaud — pending full implementation of the above measures and restoration of Mirabaud’s compliance with the law — from accepting any new clients with increased money-laundering risks.  Third, it banned “all activities that increase operational risks.”  FINMA further stated that it “is closely monitoring implementation of and compliance with the measures and has also appointed an audit mandatary[12] for this purpose’, and that it “has opened three enforcement proceedings against individuals in this connection.”[13]

Although FINMA concluded its enforcement proceedings against Mirabaud in June 2023, Mirabaud did not contest FINMA’s ruling but contested FINMA’s disclosure of public information about the proceedings in the Swiss courts. The appeal has now been dismissed by the Swiss Federal Supreme Court.[14]

Observations

The FINMA action against Mirabaud is noteworthy in two respects.  First is the breadth and severity of the sanctions that it imposed on Mirabaud. That severity is reflected not only in the unusually critical language that FINMA used in its public documents to describe Mirabaud’s conduct, but in the range of FINMA’s response — directing various corrective actions, confiscating CHF 12.7 million, and temporarily prohibiting acceptance of new clients with increased money-laundering risk.  Other financial institutions, not only in Switzerland, should peruse the FINMA Final Notice to see the multiple ways in which Mirabaud’s AML compliance process failed and benchmark their own AML compliance processes against those failures. 

Second is the fact that Mirabaud, though it did not contest FINMA’s ruling, was able to delay public disclosure of the proceedings for fifteen months, by using the Swiss court system, up to and including the Federal Supreme Court, to do so.  Once a Swiss financial institution has been ruled to have committed multiple and serious violations of AML law, and is not contesting the ruling, the investing public, as well as the general public, have a right to be promptly informed of the proceedings.  Swiss authorities should therefore use the Mirabaud case as a basis for amending the Swiss financial law to prevent future delays in disclosure of material information about FINMA rulings.

Footnotes

[1]   See UBS, Switzerland: The perfect home for wealth, https://www.ubs.com/global/en/wealthmanagement/topics/family-wealth/why-switzerland.html.

[2]   See, e.g., FINMA, FINMA Risk Monitor 2023 at 3, 18 (November 10, 2023), https://www.finma.ch/en/~/media/finma/dokumente/dokumentencenter/myfinma/finma-publikationen/risikomonitor/20231109-finma-risikomonitor-2023.pdf.

[3]   See, e.g., Office of the Attorney General of Switzerland, Annual Report 2023 24-25 (April 11, 2024), available at https://www.bundesanwaltschaft.ch/mpc/en/home/taetigkeitsberichte/taetigkeitsberichte-der-ba.html; Jonathan Rusch, Recent Developments in Switzerland’s Anti-Corruption and Anti-Money Laundering Regime,  Compliance and Enforcement,  December 22, 2023, https://wp.nyu.edu/compliance_enforcement/2023/12/22/recent-developments-in-switzerlands-anti-corruption-and-anti-money-laundering-regime/#_ftn1\.

[4]   See FINMA, FINMA proceedings:  Banque Audi (Suisse) SA violated money laundering regulations, March 25, 2024, https://www.finma.ch/en/~/media/finma/dokumente/dokumentencenter/8news/medienmitteilungen/2024/03/202403225-mm-audi.pdf.

[5]   FINMA, Release: Mirabaud & Cie SA seriously violated financial market law, September 17, 2024, https://www.finma.ch/en/news/2024/09/20240917-mm-mirabaud/.

[6]   See id.

[7]   Peter Kuster, Finma Tightens the Reins on Mirabaud Bank, finews, September 17, 2024, https://www.finews.com/news/english-news/64390-finma-mirabaud-geldwaescherei-robert-brockman-steuerhinterziehung-enforcementverfahren-2.

[8]  U.S. Department of Justice, CEO of Multibillion-dollar Software Company Indicted for Decades-long Tax Evasion and Wire Fraud Schemes, October 15, 2020, https://www.justice.gov/opa/pr/ceo-multibillion-dollar-software-company-indicted-decades-long-tax-evasion-and-wire-fraud.

[9]   See, e.g., Ken Dilanian, Robert Brockman, billionaire charged in $2 billion tax evasion case, dies at 81, NBC News, August 6, 2022, https://www.nbcnews.com/news/us-news/robert-brockman-billionaire-charged-2-billion-tax-evasion-case-dies-81-rcna41882.

[10]   See FINMA, supra note 5.

[11]   Id.

[12]   A mandatary is a person to whom some kind of mandate is given.  See mandatary, Oxford English Dictionary (accessed October 11, 2024), https://www.oed.com/search/dictionary/?scope=Entries&q=mandatary.  FINMA has the authority to appoint mandataries such as auditors who assist in ongoing supervision by conducting audits at supervised institutions.  See FINMA, FINMA mandataries, https://www.finma.ch/en/finma/finma-mandataries/.

[13]   Id.

[14]   FINMA, supra note 5.

Jonathan J. Rusch is Director of the U.S. and International Anti-Corruption Law Program and Adjunct Professor at American University Washington College of Law and a Senior Fellow with the NYU Program on Corporate Compliance and Enforcement at New York University Law School.

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