Swiss Money Laundering Methods Under Scrutiny: Concerns Rise Over "Proportional Approach"

In the past decade and a half, a series of high-profile investigations and revelations have laid bare the massive extent of global money laundering, with trillions of dollars funneled mainly from kleptocracies such as Russia and former USSR countries.

These illicit funds, meticulously obscured through sophisticated laundering mechanisms, have infiltrated Western financial systems via an intricate web of intermediaries. Notably, banks, lawyers, and real estate agents have become unwitting accomplices, allowing these funds to secure influence, political support, and positions within local establishments.

Efforts to counter money laundering have witnessed some success in various parts of the world. However, a concerning development has emerged in Switzerland, as it appears to be diverging from this trend. In a surprising move in the summer of 2021, the Swiss Attorney General’s Office (SAG) closed the Magnitsky money laundering case, which had been initiated following a complaint by Hermitage Capitals in 2011. This decision has sparked scrutiny and questions about the rationale behind it.

Money laundering is a complex, white-collar crime involving layers of transactions through shell companies. This intricate process aims to obscure the origin of criminal funds, making it challenging for authorities to trace and hold perpetrators accountable. In the Magnitsky case, the SAG gathered significant evidence that enabled them to reconstruct the path of illicit funds. However, their decision to employ the "proportional method" for assessing laundered amounts has raised eyebrows.

Under the "proportional method," the SAG calculates the ratio of potentially illicit funds at each stage of money laundering. For instance, if $1 million enters the process with $100,000 clearly originating from criminal activities and the remaining $900,000 from unknown sources, the SAG treats every dollar leaving the account as 10% "dirty." This approach is applied iteratively through subsequent layers, resulting in only a fraction of the original dirty funds being considered as such.

Critics argue that this method, seemingly out of touch with money laundering realities, has been used in the Magnitsky case to justify seizing a mere 25% of frozen funds. This precedent, they fear, paves the way for future money launderers to exploit the approach. By paying a nominal fee determined using this method, launderers could retain the vast majority of their ill-gotten gains, thus normalizing and profiting from their illegal activities.

The consequences of this decision are substantial. Not only has Switzerland's reputation suffered a blow, but the nation's financial system now appears vulnerable to large-scale money laundering. It has also cast a shadow over the efficacy of Switzerland's anti-money laundering framework. To address these concerns, the Financial Action Task Force (FATF) is urged to consider placing Switzerland on a "blacklist" of high-risk jurisdictions requiring action. Additionally, rating agencies such as S&P, Moody’s, and Fitch must revise their assessments of Swiss financial institutions to account for this legal precedent. Governments worldwide are also prompted to reevaluate their relationships with Switzerland, as the country's stance on money laundering no longer aligns with global standards.

This unsettling development in Switzerland serves as a stark reminder of the ongoing battle against money laundering, highlighting the need for continued vigilance and international cooperation to thwart these sophisticated financial crimes.

By fLEXI tEAM