Zurich - Swiss financial regulator FINMA has identified control problems at four banks following an audit of accounts held by politicians from unstable countries triggered by the freezing of assets of ousted North African leaders.
An examination of 20 Swiss banks found that most had done enough to check the identity of potentially risky political clients and the origin of their assets but deficiencies were found at four banks, FINMA said in a statement. It did not name the four.
“FINMA is... stepping up the intensity of its general anti-money laundering supervision,” the statement said. “FINMA deemed specific points of the approach adopted at four banks to be inadequate and has initiated enforcement proceedings.”
The audit is the latest effort by Switzerland to shed its image as a haven for ill-gotten riches.
This year it has frozen assets of Tunisia’s former president Zine al-Abidine Ben Ali, the late Libyan leader Muammar Gaddafi and former Egyptian president Hosni Mubarak, buying time for foreign prosecutors to build a case for restitution of funds.
Swiss law does not prohibit business relationships with so-called politically exposed persons (PEPs), but FINMA requires banks to treat such relationships with greater care, saying its rules go beyond international standards.
It said bank relationships with customers from states prone to corruption, political violence and human rights abuses should be subject to particularly close scrutiny, particularly when such customers wanted to invest sizable sums.
It said its preliminary investigation had concluded that Switzerland’s PEP regulations were adequate, provided banks comply.
The Swiss Bankers Association, which has expressed concern in the past that the freezing of assets could scare off investors, noted that most bank had complied and also that FINMA said the current rules were sufficient.
“In the individual cases, in which the rules were violated, the banks will work with FINMA to improve their processes. Switzerland is a clean financial centre and wants to remain so,” the association said in a statement.
Inadequate checksFINMA noted that 830 million Swiss francs ($925.6m) had been frozen by the start of May, 410 million relating to Egypt, 360 million to Libya and 60 million to Tunisia.
It said its investigation had shown that assets had reached Switzerland directly from Tunisia, Egypt and Libya but also via countries like France, Britain, the United States and Italy.
It said North African assets had also been transferred from Swiss banks to banks elsewhere, particularly in France and the United States.
As part of its investigation, FINMA asked banks to provide a wide range of documents including account opening details, client correspondence, internal memos, account statements and the tools they used to identify account holders.
Problems it identified at the four banks included inadequate documentation of client relationships and insufficient attempts to establish the origin of the assets deposited or the background of larger incoming payments.
“In some instances, clarifications were carried out solely with a view to the bank’s own reputation, with little consideration being given to the risk of money laundering,” the FINMA report said.
It said of a total of 29 bank relationships with risky political figures it examined, only 22 were identified as such.
It said one bank’s internal definition of a politically exposed person was too narrow, while three banks did not carry out a wide enough search when checking the identity of a potential client.
Finally, FINMA said in two cases there were indications that banks might have deliberately treated client relationships as not high risk, even though they had been identified as such.