Money laundering and lack of due diligence: The Swiss Federal Tribunal decides in ATF 142 IV 207

money laundering swiss law

21 Dec 2017 Money laundering and lack of due diligence: The Swiss Federal Tribunal decides in ATF 142 IV 207

A bank was charged for having violated the Article 305bis of the Swiss Criminal Code (“SCC”) (in connection with the Article 102 (2) SCC) and was subsequently subject to a search of its premises. During the course of the proceedings conducted by the Federal Prosecutor’s Office, an internal bank document which sets out the various compliance operations performed in the case in question, was seized and placed under seal.

 

The Swiss Federal Tribunal, on appeal, has since then lifted the seals and made the document available to the Federal Prosecutor’s Office, and this notwithstanding the right of the bank not to incriminate itself. This right is in fact limited: as soon as the bank is required to draw up and keep documents, such as a directive, manual or a memorandum, in accordance with the legal requirements of administrative law, their access by certain authorities must be possible[1].

 

This newsletter raises the question of the scope of the prohibition of self-incrimination in connection with the search and sealing of documents.

 

1. Background

 

The criminal investigation was opened on 25 May 2012 on the basis of a criminal complaint filed by Bruno-Manser-Fonds, the public non-profit association.

 

On 29 August 2012, the Federal Prosecutor’s Office opened a criminal investigation against Bank A. AG (“The Bank”) and against unknown. The allegation against the Bank was based on Articles 305bis and 102 (2) SCC. The Bank was suspected of failing to take all the necessary organisational measures to prevent the payment by one of its clients of sums intended to bribe a senior Malaysian state official.

 

Following the Bank’s refusal to release certain documents related to this case, the Federal Prosecutor’s Office proceeded with a search. On this occasion, the Federal Prosecutor’s Office secured a memorandum that the Bank had prepared pursuant to the requirements of FINMA. At the Bank’s request, the documents were sealed. The request for the lifting of the seals of the Federal Prosecutor’s Office was rejected by the Compulsory Measures Court on the grounds that the right to silence principle would be violated. The Federal Prosecutor’s Office appealed to the Federal Tribunal in order to obtain the lifting of the memorandum seals.

 

The seized Bank’s “Memorandum” of 9 July 2012, whose unsealing was requested by the Federal Prosecutor’s Office, is then relevant to the investigation, as seen below.

 

The “Memorandum” was an internal report that structures and summarises the various bank documents that underlie the alleged suspected money laundering case. The documents in question cover the relevant (case-related) Bank forms, e-mail and internal audit reports, as well as minutes of in-house private meetings[1]. The aforementioned Bank records and their structured summary in the sealed Memorandum provide information on the actions of the Bank’s organs and employees in identifying the bank client(s) and in determining the beneficial owners of assets[2].

 

The “Memorandum” also documents the special clarifications required by law, such as unusual or high-risk transactions or business relationships, in particular business relations with foreign “politically exposed persons” and persons close to them, or evidence of the criminal background of assets and financial transactions[3].

 

The Memorandum provides information on the statutory organisational measures that the Bank has to take to prevent money laundering (and terrorist financing[4]).

 

2. Duties upon banks

 

a. Applicable law

 

All financial intermediaries, including banks, must provide evidence of the transactions made and of the investigations required by the Anti-Money Laundering Act of 10 October 1997 (“AMLA”) in such a way that competent third parties can obtain a reliable judgement of the transactions and business relationships[1] as well as compliance with the provisions of the Art. 7 (1) AMLA.

 

As a consequence, banks must retain evidence so that they can also comply with any requests for information and seizure of the law enforcement authorities within a reasonable period of time[2]. This documentation and retention obligation with regard to any criminal investigations extends to “all necessary documents”[3].

 

The organisational measures that the Bank must take in its area of responsibility for preventing money laundering (and terrorist financing) must be documented, in particular in the context of sufficient training of employees and relevant controls of suspicious transactions[4].

 

The Bank must also prove that its branches (or financial or insurance group companies) comply with the statutory compliance regulations abroad. The Bank must globally record, limit and monitor its legal and reputational risks associated with money laundering (and terrorist financing)[5].

 

b. Decision

 

In the case in question, the Bank claimed that the sealed “Memorandum” was ineligible for investigating the case.[1] The Federal Prosecutor’s Office claimed that there was a threat of serious loss of evidence in this regard, which could endanger the truth. The Prosecutor argued that if the report was remained sealed, it would inevitably have to be secured, sighted, confiscated and then extensively evaluated (subsidiary) in the context of separate and very extensive searches[2].

 

The lower court (upheld on appeal) held that, in light of the proportionality and effectiveness of evidence, such an approach would be neither in the interest of the Bank nor in the public interest in an efficient criminal investigation and truth-finding. The lower court therefore held that the sealed memorandum was relevant to the investigation. [3]

 

The court (upheld on appeal to the Federal Tribunal) determined that banking secrecy principles did also not allow the Bank to prevent unsealing and searching of the memorandum[4]. It therefore remained open as to whether an affected bank could itself rely on bank-client secrecy.

 

The Bank claimed banking secrecy as an obstacle to unsealing. Neither the accused bank nor its organs and employees could rely in this case on banking secrecy as an obstacle to unsealing[5]. They are neither civil servants nor members of an authority. In addition, the bank itself would be accused anyway and the investigation would also be directed against their (in part not yet personally known) responsible bodies and employees.

 

3. Seizure procedure

 

a. Applicable law

 

The criminal provisions relating to financial intermediaries in this regard serve to ensure the security and reputation of the Swiss financial centre and the interest of the Swiss economy and the public (especially by internationally active banks) against money laundering and corruption by high officials[1].

 

Objects and assets of an accused person or a third party may be confiscated (or provisionally secured) if they are likely to be used as evidence[2].

 

However, there are certain records and objects that may not be unsealed and confiscated for the purposes of Article 264 (1) of the Criminal Procedure Code (“CrimPC”), including:

 

  • documents used in communication between the accused and his/her defence (Article 261(1)(a) CrimPC);
  • personal records and correspondence belonging to the accused, if their interest in protecting his/her privacy outweighs the interest in prosecution (Article 261(1)(b) CrimPC);
  • items and documents used in communications between the accused and persons who may refuse to testify in accordance with Articles 170-173 CrimPC and who are not accused of an offence relating to the same case (Article 261(1)(c) CrimPC); and
  • items and documents used in communications between another person and their lawyer, provided the lawyer is entitled to represent clients before Swiss courts in accordance with the federal Lawyers Act of 23 June 2003 and is not accused an offence relating to the same case. (Article 261(1)(d) CrimPC).

 

b. Decision

 

In addition to the relevance of the investigation, it should be further examined from the point of view of proportionality as to whether the significance of the examined offence justifies the unsealing[3]. The evidence in the current case was being collected to investigate a serious, international corruption and money laundering incident.

 

In the present case, the Bank (on the basis of its protection from self-incrimination) refused to issue the document in question. As a result, the Federal Prosecutor’s Office forcibly secured the evidence by means of a search and seizure[4].

 

The internal bank documents in question as well as their structured summary in the Memorandum were relevant for the investigation. In addition, they were by law subject to the obligation of the Bank to document and keep records and give access to the criminal authorities.

 

4. Protection against self-incrimination

 

a. Applicable law

 

The issue of whether legitimate secrecy interests of the private respondent (or third party) would be in conflict with the unsealing process needed to be determined. In particular, the protection against self-incrimination was considered. The accused Bank and the lower court initially took the position that in the present case the Federal Prosecutor’s Office had brought in or ensured a document from FINMA’s separate banking supervisory administrative procedure[5].

 

As a general note, an accused is protected from self-incrimination[6]. In particular, he/she has the right to refuse to testify and to cooperate in criminal proceedings[7]. However, they must comply with compulsory statutory measures, such as securing evidence, ensuring that persons attend the proceedings and guaranteeing the execution of the final judgment[8].

 

Unlawful compulsory measures (mesures de contrainte), use of force, threats, promises, deception and means which may impair a person’s ability to think or to free will are prohibited in the taking of evidence[9]. Evidence taken in such a way is subject to an absolute prohibition of use[10]. Also, evidence collected by criminal authorities in a criminal manner or in violation of relevant regulations may not be used unless their use is essential for the investigation of serious crimes[11].

 

The so-called punitive self-incrimination privilege is also expressly enshrined in constitutional law: a person “charged with a criminal offence must not be compelled to testify against themselves as a witness or to plead guilty”[12].

 

According to the case law of the Federal Tribunal[13], which is in accordance with the European Court of Human Rights (Art. 6 para. 1 ECHR)[14], accused persons benefit in criminal proceedings from an unwritten right of silence and a right not to contribute to their own conviction.

 

On the other hand, it is permissible to use evidence that has already been obtained further to statutory compulsory measures (even against the will of the accused person) put in place before criminal proceedings are opened[15]. This applies in particular to evidence which is seized during a house search (Article 113 (1) sentence 3 and (2) in conjunction with Article 265 (4) of the CrimPC) in supervisory administrative proceedings and applies in particular if there is an administrative duty on the addressee to create, store and make evidence available to the competent authorities.

 

b. Decision

 

The Bank argued that it had the right to refuse to testify as an accused (even in the light of the privilege of self-incrimination), because by giving evidence in such a way, it would undermine the protection afforded by the document being under seal[16].

 

In light of the above-mentioned legal provision, the argument that any possible statements or testimony rights of the organs and employees of the accused bank constituted a legal unsealing and seizure impediment was irrelevant.

 

According to the provisions of the CrimPC and although accused persons can refuse to give evidence, they (and in principle also their organs and employees) cannot be forced to give evidence or to produce evidence (punishable by punishment)[17]. However, legally enforceable measures, namely confiscation of evidence and unsealing, are put in place in order to limit the accused from hiding behind its right not to incriminate itself.

 

Even in the case of persons who could invoke official or professional secrecy[18], there would otherwise be no obstacle to unsealing if they themselves were accused in the investigated context[19].

 

In the case of legal persons who are subject to the legal provisions of the AMLA, in particular banks, the self-incrimination privilege must otherwise be differentiated and applied restrictively[20]

 

5. FINMA’s responsibilities

 

FINMA is not a criminal investigation authority within the meaning of Art. 12-14 CrimPC. In this case, the Federal Prosecutor’s Office was responsible for the criminal investigation[21]: it managed the preliminary proceedings and could order punitive measures.

 

However, it is undeniable in this case that FINMA did not carry out a bank supervisory investigation. As a precautionary measure, FINMA had limited itself to obtaining an information report from the accused Bank[22]. Nor had FINMA complied with a request by the Federal Prosecutor’s Office to provide it with the respective memorandum[23].

 

FINMA may itself carry out an audit of the supervised bank (pursuant to Art. 24-28a FINMASA[24]). It may itself carry out (cross-border) direct audits of supervised banks abroad or have them carried out by audit firms or appointed auditors in order to enforce the financial market laws[25].

 

6. Conclusion

 

The document was hence unsealed by the lower court, and such unsealing was upheld upon appeal by the Bank to the Federal Tribunal.

 

In light of the Federal Tribunal’s decision (final instance), the question of whether the Bank’s internal memorandum could even be classified under the category of “personal records and correspondence”, if “protection of the personality” was affected in this respect and whether any private business interests of the bank (or private secrets worth protecting would outweigh the interests of prosecution), were endangered did not need to be examined.

 

The lower court held (which was upheld on appeal) that neither the accused Bank nor its organs and employees were able to rely in this case on official secrecy as an obstacle to unsealing[26].

 

Our Experience

 

lecocqassociate provides a full range of financial regulatory, corporate and commercial advice in relation to the structuring and incorporation of entities.

 

This newsletter is for information purposes only. It does not constitute professional advice or an opinion. Please contact Mr. Dominique Lecocq on moc.e1524769828tacos1524769828saqco1524769828cel@l1524769828rd1524769828 for any questions.

 

Footnote references:

 

[1] C. 7.2.1 ATF 142 IV 207.

[2] Article 263 (1) (a) and (3) CrimPC.

[3] C.7.2.1 ATF 142 IV 207.

[4] C.9.5 ATF 142 IV 207.

[5] C.8 ATF 142 IV 207.

[6] C.9.2 ATF 142 IV 207.

[7] Article 113 (1) of the Criminal Procedure Code (“CrimPC”).

[8] Article 113 (1) CrimPC.

[9] Article 140 (1) CrimPC.

[10] Article 141 (1) CrimPC.

[11] Article 141 (2) CrimPC.

[12] C.7.2 ATF 142 IV 207

[13] C.8.1 ATF 142 IV 207

[14] Principle of “fair trial”

[15] C.8.3.2 ATF 142 IV 207

[16] C. 9 ATF 142 IV 207

[17] C.9.2 ATF 142 IV 207

[18] Article 170 f CrimPC

[19] Article 264 (1) (c) CrimPC

[20] Article 113 (1) CrimPC and Article 7 (2) of AMLA

[21] Art. 24 (1) (a) CrimPC with Art. 305bis CrimPC

[22] C. 7.2.1 ATF 142 IV 207

[23] As of 11 February 2011, Switzerland has already provided ancillary legal assistance to an Asian country affected by the investigated corruption affair and submitted bank documents concerning a Swiss bank account of the main suspected official (dissolved in March 2010)

[24] Federal Act on the Swiss Financial Market supervisory Authority of 22 June 2007

[25] C.8.6 ATF 142 IV 207

[26] C.12 ATF 142 IV 207