big read why corruption war should extend to money laundering swiss envoy - BIG READ: Why corruption war should extend to money laundering – Swiss envoy

I don’t know about you, but speaking for myself, I really like James Bond movies.

In the golden days of this iconic “super spy”, there was no James Bond movie without a scene where the bad guy, menacingly scheming to destroy the United Kingdom or even the whole planet, pressured the government of Her Majesty the Queen to wire a huge amount of money to a secret numbered account in a Swiss bank.

For years, this picture defined the Swiss financial centre in the eyes of many, as a safe haven for assets not only of licit origin — the epitome of secrecy in banking.

Those days are gone. Today, Swiss banks want to attract exclusively money of licit origins. And furthermore, these funds have to be declared by the bank client to the tax authorities of his or her country of origin.

The Swiss banking industry has radically changed over the last 10 years.

A short history of Swiss banking secrecy

The introduction of the Swiss banking secrecy dates back to 1934 and is based on a cultural and fundamental principle of the relationship between the State and Swiss citizens: the protection of the private sphere.

In this sense, it defines the bank-client confidentiality, which can only be lifted with the consent of the client himself. [For Swiss citizens, the banking secrecy still lives on today.]

It was then immediately after the Second World War, when governments of Switzerland’s neighbouring countries and their financial systems were not yet independent or efficient, that Switzerland turned into a so-called offshore financial centre, managing wealth from all over the world.

1880644 - BIG READ: Why corruption war should extend to money laundering – Swiss envoy

Amb Ralf Heckner

Switzerland’s banking laws remained liberal after the War. The governments of Europe and America did not mind, as these liberal laws were considered to be normal and legitimate at the time. On the contrary, there were reports from Swiss Embassies in those countries that indicated that members of those governments had a certain interest in Switzerland as a safe haven.

What were the reasons for this?

Well, during the Cold War, Western Europe lived under the shadow of an imminent Soviet threat and feared the rise of communism within its own borders. Europe had an interest in a neutral Switzerland with its reliable and functioning institutions and financial centre.

Also, the Swiss financial centre provided a good amount of the necessary liquidity for the reconstruction and economic development of post-Second World War Europe.

Fighting money laundering 

But nothing lasts forever. The international environment started to change in the 1980s and ’90s. It was at that time that it became apparent that Switzerland’s financial institutions had been misused to launder illicit assets.

As a reaction to this, and in accordance with international developments, the Swiss Parliament passed a tough anti-money laundering act in 1998.

Anti-money laundering regulations now require clients of Swiss banks and financial intermediaries to be identified; the economic beneficiaries determined (who does this money really belong to?); and the sources of assets ascertained (how was this money gained?).

The message was clear: the Swiss financial centre should not be used for money of illicit origin anymore!

Two years ago, the Financial Action Task Force (FATF) evaluated Switzerland’s efforts to combat money laundering and terrorist financing. In the evaluation, Switzerland received good marks and achieved an above-average result compared to those countries already reviewed.

Prevention and restitution: Blocking and returning assets illegally acquired by dictators

In the spring of 1986, the decades-long dictatorship of the Philippine President Ferdinand Marcos came to an end. Hundreds of millions of dollars were found in Marcos-associated accounts in Swiss banks, funds that Marcos had plundered from the Philippines’ state coffers.

The Swiss Federal Council ordered a freeze on the Marcos assets. This was unprecedented. No other government had previously taken this step of preventively freezing assets even before the country in question had officially demanded their return.

Since then, Switzerland has continued developing its practices in handling looted assets and is a global trailblazer in this regard.

The Swiss government’s approach is based on two pillars: prevention and restitution. In order to counter the abuse of its financial system by corrupt leaders, Switzerland has established special rules for how to deal with politically exposed persons (PEPs).

PEPs include heads of state and government, senior politicians, high-ranking officials (even myself!), senior executives of state-owned corporations, as well as the families and business associates of such persons.

Business relations with these clients are not prohibited; and indeed it is far from true that all PEPs are corrupt. But the Swiss banks must treat them as clients with elevated risk and serve them with special care and due diligence.

Ideally, any funds from corrupt leaders should be kept from entering the Swiss financial centre. If they nevertheless slip through the net of preventive measures, they should be quickly identified, preventively frozen and, if confirmed to be of criminal and corrupt origin, returned to the people of the country of origin.

This system has proven effective. Switzerland has returned some $2 billion (Sh200 billion) to the countries from which such funds had been plundered — more than any other financial centre or government worldwide.

Restitution of stolen assets is a difficult and long process with many hurdles. States that have been experiencing corrupt leadership often face difficulties in conducting a proper mutual legal assistance process. Sometimes, the political will to pursue corrupt elites is missing.

It’s important to note that under the system of mutual legal assistance, Switzerland can block suspicious funds and provide information about their owners. In other words, banking secrecy is lifted during criminal proceedings.

Making corruption illegal and fighting tax evasion

Switzerland’s approach is a continuous effort to fight corruption and tax evasion. Today, Swiss banks and financial intermediaries are only allowed to accept money from foreign clients that has been declared in their home countries.

The long and sometimes rocky road towards a Swiss financial centre freed from assets of illicit and non-taxed origin has paid off. Like in the FATF context mentioned above, Switzerland also received two years ago an overall rating of “largely compliant” from the Global Forum on Transparency and Exchange of Information for Tax Purposes.

This positive rating again reflects the progress made in recent years. Last but not least, Switzerland has introduced the global standard for the automatic exchange of financial account information and has fulfilled its first exchanges in September 2018.

And where does this leave Kenya?

Today, Kenya, as the leading financial hub of the Eastern Africa region, is facing a similar challenge to the one Switzerland faced in the past.

A few months ago, a video entitled “The Profiteers” went viral in Kenya. It is about illegal smuggling of wood from South Sudan to Uganda and Kenya.

In the video, alleged South Sudanese warlords and their families are seen living a comfortable life of luxury in Nairobi, while the people of South Sudan are continuously subjected to violence and millions have to flee from their homes.

It’s now up to African countries like Kenya to ensure that their financial centres and real estate markets are not to any extent used for money laundering.

Kenya, just like Switzerland some decades ago, should not be misused as a safe haven for the people and the money involved in waging civil war in South Sudan, or anywhere else for that matter.

Fortunately, important steps have already been taken. The governor of the Central Bank of Kenya, Dr Patrick Njoroge, is actively working on implementing the existing anti-money laundering regulations.

President Uhuru Kenyatta has made it perfectly clear that the fight against corruption constitutes a priority and would be part of his legacy.

When on an official visit to Kenya last year, Swiss Confederation President Alain Berset met with Uhuru, and they both underscored the importance of cooperation in the fight against corruption.

Berset noted that, “Switzerland and Kenya enjoy a close and productive cooperation in the area of fighting corruption. Switzerland has successfully returned illegal assets to a number of countries in the past. We have a history and a policy of freezing and returning stolen assets, and we need partners like Kenya to do this. It is also through partnership that an agreement can be reached on how best to return these assets, in a way that benefits the people of the country.”

During President Berset’s visit, Switzerland and Kenya signed the Framework Agreement for the Return of Assets from Crime and Corruption to Kenya.

FRACCK provides for the mechanism through which blocked assets may be returned. And very importantly, it stipulates that the funds will be returned to the Kenyan people.

FRACCK marks a significant milestone in the relations between our two nations because it will allow Switzerland to return financial assets that have been blocked, once the judicial proceedings come to an end in Kenya.

Switzerland has been providing mutual legal assistance in the Anglo-Leasing corruption case and has blocked funds related to it (approximately $2 million (Sh200 million)).

After the signing of FRACCK, what is needed is a verdict by the Kenyan courts that would allow Switzerland to return the blocked assets to the Kenyan people.

Dr Ralf Heckner, Ambassador of Switzerland to Kenya, Burundi, Rwanda, Somalia and Uganda. His comment above comes as The Bomas of Kenya hosts the National Conference on Anti-Corruption from today to tomorrow.

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