Jonathan Rusch (photo courtesy of author)
Introduction
More than a decade after it ratified the United Nations Convention Against Corruption, which obligated all signatory nations to institute a comprehensive anti-money laundering (AML) regulatory and supervisory regimes for their banking sectors[1], Switzerland has made gradual, though sometimes tortuous, progress toward such an AML regime.
In its 2020 evaluation of Switzerland’s progress in strengthening AML and counter-terrorism financing (CTF) measures, the intergovernmental Financial Action Task Force (FATF) acknowledged that “overall, Switzerland’s AML/CFT regime is technically robust and has achieved good results but that it would still benefit from some improvements in order to be fully effective.”[2] In particular, the FATF’s assessment of Switzerland’s AFT/CTF regime found that Switzerland was compliant on factors such as financial institution secrecy laws and recordkeeping and largely compliant on factors such as assessing risk and applying risk-based approach, a money laundering offense, and reporting of suspicious transactions, but only partially compliant on customer due diligence and sanctions.[3]
Even though the Swiss financial regulator FINMA has conducted investigations and civil enforcement proceedings against various financial institutions for money-laundering violations[4], one recurring question with regard to Swiss AML enforcement has been how willing Switzerland is to pursue criminal enforcement of its AML laws against culpable individuals at the executive level. Only last year, in the first criminal trial of one of Switzerland’s leading banks, Credit Suisse and one of its former relationship managers were convicted of AML violations for failing to prevent money laundering by a drug-trafficking gang over a five-year period.[5]
Recently, Swiss prosecutors secured a criminal conviction of four former executives, including the former Chief Executive Officer, of Gazprombank (Switzerland) Ltd. (Gazprombank Switzerland), for failing to conduct due diligence on Swiss accounts that were opened in the name of a Russian cellist, Sergei Roldugin, with close ties to Russian President Vladimir Putin of Russia and were used to make deposits worth tens of millions of dollars.[6] This post will discuss the background and significance of that case.
The FINMA Investigation
The genesis of the criminal case was a 2016 decision by FINMA to open an investigation into more than 30 banks, based on information from the Panama Papers. As part of that investigation, FINMA opened enforcement proceedings against Gazprombank Switzerland in relation to potential breaches of AML rules. In those proceedings, FINMA “examined the manner in which the bank had exercised its anti-money laundering due diligence requirements for a number of business relationships involving private clients and politically exposed persons using offshore companies.”[7]
The FINMA investigation, which was completed in January 2018, found that Gazprombank Switzerland was in serious breach of its AML due diligence requirements from 2006 to 2016, in four respects:
- In many cases, the bank’s risk categorization of its business relationships was found to be incorrect or was carried out too late;
- The bank failed to clarify the background of business relationships and transactions with the necessary depth and attention to detail;
- The bank failed to keep appropriate records of the transactions and relationships, and frequently did not validate the documentation it obtained; and
- The bank also failed in some instances to report suspicious business relationships to the Money Laundering Reporting Office Switzerland (MROS) within an appropriate timeframe.[8]
Consequently, FINMA took four actions. First, it instructed Gazprombank Switzerland to review and, to the extent necessary, modify its AML processes, and appointed an external auditor to supervise the process. Second, in view of the shortcomings that it had identified in the bank’s AML control system, FINMA banned Gazprombank Switzerland from expanding its activities with private individuals. Third, it stated that between 2016 and 2017, it had initiated enforcement proceedings against seven bank managers (though it did not specify whether any of those were Gazprombank managers).[9] Fourth, it made a criminal referral of the matter to the Zürich Public Prosecutor’s office.
Subsequently, in 2022, after the Swiss Bankers Association excluded Gazprombank following Russia’s investigation of Ukraine, Gazprombank announced in 2022 that it had decided to cease operations in Switzerland, after “a strategic review of various options.”[10]
The Criminal Investigation and Trial
On March 1, 2023, the Zürich Public Prosecutor’s Office announced that it had obtained an indictment against the former Chief Executive Officer and three other executives of Gazprombank Switzerland. The indictment charged the four executives (who could not be named under Swiss law[11]) with concealing some 60 million Swiss francs in Gazprombank accounts that were nominally associated with Roldugin.
The indictment specifically charged that the accounts that Gazprombank Switzerland set up for Roldugin were to receive dividends from a massive Russian media conglomerate, but that it was “implausible” that Roldugin could have afforded such a large investment in the conglomerate from his income as a cellist and conductor. The Public Prosecutor’s Office also asserted that the bank “had to be aware. . . with due diligence” of a New York Times interview in which Roldugin stated that he was “not a businessman” and “doesn’t have millions”.[12] The indictment further stated that “[i]t is notorious that Russian President Putin officially has an income of just over 100,000 francs and is not wealthy, but actually has enormous assets that are managed by people close to him.”[13]
After a one-day trial on March 8, Judge Sebastian Aeppl of the Zürich District Court on March 30 convicted all four defendants of failing to exercise due diligence with regard to the Roldugin accounts, and sentenced each defendant to a seven-month suspended sentence (per the prosecutors’ recommendation).[14] The court also imposed a fine amounting to 540,000 Swiss francs (approximately $590,000) on the former CEO and lesser financial penalties for the other defendants.[15] The Public Prosecutor’s Office touted the verdicts as “an important signal that due diligence obligations under money laundering law must be observed.”[16]
Observations
Although some are likely to criticize the leniency of the sentences in this case, the case provides a significant precedent for Swiss prosecutors to pursue bank executives for Swiss AML violations. The indictment and sentencing in the case underscore the significance that prosecutors should attach to executive-level failures to see that banks conduct appropriate AML due diligence, particularly with regard to depositors of substantial amounts of funds.
Still to be determined is whether Swiss prosecutors are prepared to seek, and Swiss courts to impose, actual prison sentences against bank executives for significant AML violations, as they have in other cases involving financial crimes that cause financial loss to banks.[17] With the entry into force of the new Swiss Anti-Money Laundering Law as of January 1, financial intermediaries subject to Swiss law are now subject to strict due diligence obligations, including verification of the identity of the beneficial owner and a general obligation to update client data.[18] As a consequence, both FINMA and Swiss prosecutors are more likely to pursue future cases in which banks fail consistently to meet those obligations.
Compliance professionals should therefore advise Swiss banks to implement the new due-diligence requirements promptly and to provide appropriate funding and support for their AML compliance programs to ensure compliance with those requirements.
Footnotes
[1] See United Nations Convention Against Corruption art. 14(1), https://www.unodc.org/documents/treaties/UNCAC/Publications/Convention/08-50026_E.pdf.
[2] Financial Action Task Force, Switzerland, https://www.fatf-gafi.org/en/countries/detail/Switzerland.html.
[3] Id.
[4] See John Revill, Swiss regulator investigates 12 banks in Lebanese central banker corruption case, Reuters, February 27, 2023, https://www.reuters.com/business/swiss-regulator-investigates-12-banks-lebanese-central-banker-corruption-case-2023-02-27/;
[5] See Reuters, Credit Suisse found guilty in money-laundering case, CNBC, June 27, 2022, https://www.cnbc.com/2022/06/27/credit-suisse-found-guilty-in-money-laundering-case.html.
[6] See, e.g., Nick Cumming-Bruce, Bankers are convicted of allowing a Putin ally to deposit millions in Swiss accounts., New York Times, March 30, 2023, https://www.nytimes.com/live/2023/03/30/world/russia-ukraine-news.
[7] FINMA, FINMA concludes Panama Papers proceedings against Gazprombank Switzerland (February 1, 2018), https://www.finma.ch/en/news/2018/02/20180201-mm-gazprombank-schweiz/.
[8] Id.
[9] Id.
[10] See Agence France-Presse, Gazprombank To End Operations In Switzerland, Barron’s, October 10, 2022, https://www.barrons.com/news/gazprombank-to-end-operations-in-switzerland-01665395107; Gazprombank to discontinue Swiss operations, Reuters, October 10, 2022,https://www.reuters.com/business/finance/gazprombank-discontinue-swiss-operations-2022-10-10/.
[11] Jamey Keaten, Swiss bankers accused of lax control of Putin pal’s accounts, Associated Press, March 2, 2023, https://apnews.com/article/putin-switzerland-gazprombank-roldugin-trial-5681d43e851394f3d88c17c89025f7cf.
[12] Oliver Zihlmann and Catherine Boss, Putins Geldspur in die Schweiz: Es kommt zum spektakulären Prozess in Zürich, Tages Anzeiger, February 28, 2023, https://www.tagesanzeiger.ch/putins-geldspur-in-die-schweiz-es-kommt-zum-spektakulaeren-prozess-in-zuerich-385876148677 (informal translation). See Steven Lee Myers, Jo Becker, and Jim Yardley, Private Bank Fuels Fortunes of Putin’s Inner Circle, New York Times, September 27, 2014, https://www.nytimes.com/2014/09/28/world/europe/it-pays-to-be-putins-friend-.html
[13] Oliver Zihlmann and Catherine Boss, supra note 12.
[14] Reuters, Four bankers who helped Putin’s friend set up Swiss bank account convicted, CNN, March 30, 2023, https://www.cnn.com/2023/03/30/business/four-bankers-putin-convicted-swiss-bank/index.html.
[15] Bankers convicted of helping Putin’s friend, BBC News, March 30, 2023, https://www.bbc.com/news/world-europe-65123083.
[16] Jamey Keaten, supra note 11.
[17] See Karen Matussek, Hugo Miller, and Stephanie Bodoni, Ex-Swiss Bank CEO Vincenz Faces Jail in Embezzlement Scandal (2), Bloomberg News, April 13, 2022, https://news.bloomberglaw.com/banking-law/ex-swiss-bank-ceo-vincenz-faces-jail-in-embezzlement-scandal-2.
[18] See lecoqassociate, New Anti-Money Laundering Act in Switzerland: What You Need to Know, Lexology, April 5, 2023, https://www.lexology.com/library/detail.aspx?g=01fc45a9-59ed-460b-b950-00cb2f0fbba0.
Jonathan J. Rusch is Director of the U.S. and International Anti-Corruption Law Institute and Adjunct Professor at American University Washington College of Law, and Principal of DTG Risk & Compliance LLC.
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