After the revelations of the Panama Papers, some experts are calling for due diligence rules to be tightened. Consulting lawyers are now being targeted by regulators and the political establishment. In an essay for finews.first, David Zollinger asks what we should make of these developments.


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In the past ten years a reassessment has taken place in public perception. While the legality of an activity (were the laws observed?) used to be the only yardstick, nowadays legitimacy (if no laws have been breached, is the behavior acceptable?) has become much more important.

The new focus on legitimacy above legality is particularly pronounced in politics – the British Prime Minister David Cameron is faced with calls for his resignation, although he has not yet been accused of any illegal activity.

The consequence of this shift is that it is no longer the legal framework alone that sets the standard, but overriding ethics. This approach is not essentially wrong, but it shows that legal regulation is now only of relative significance.

The Panama Papers have also shown that the question of how a given regulation is implemented is at least as central as the regulation itself. What use are clear guidelines relating to politically exposed persons (PEPs) when everything is ultimately based on the self-declaration of the person involved, and some financial intermediaries generously accept the boxes ticked on the paper for them?

«Now the consulting lawyers are being targeted by the political establishment»

To be clear: The problem with PEPs is by no means a problem of recognition, but the question about the source of their wealth. If anyone is wondering where the implementation emergency is, this is where to look. My experience (as a public prosecutor, senior bank employee and as an advisor) has shown that employees of financial intermediaries usually know very well which boxes have to be ticked where on the form.

They also know what is expected of them with regard to a client profile. But what neither they nor often their superiors know, is how to ask the client the questions that are really relevant, and how to react when they don’t get the answers they actually need.

That seems to me to be the underlying problem, and not the obligation to add three extra forms to the client’s dossier. Needless to say, not even the strictest regulation can reach those who deliberately turn a blind eye.

It doesn’t change anything either if the supervisory body asks financial intermediaries to submit more money laundering reports. Whoever wants to dodge responsibility can just notify the authorities of cases which should really be subject to internal clarification first. And whoever wants to remain as inconspicuous as possible, sends no notifications.

Now the consulting lawyers are being targeted by the political establishment. In the area of asset management, there have been calls for anyone who has even helped create the structure, even if he or she has no access to the funds under management, to be treated as a financial intermediary.

«Basically all those involved already know now what they should or should not do»

The merits of that approach are debatable but such norms are not totally unknown. In the United Kingdom, for example, lawyers and tax advisors under certain circumstances are obliged to alert the authorities to suspected money laundering when their clients’ funds are untaxed or seem to have come from criminal sources.

Level-headed action is required here. Firstly, because regulations of this kind in Switzerland would cause more dramatic upheaval than would appear at first glance. Attorney-client privilege and possibly also auditor confidentiality would have to be newly defined. And the impact on client behavior would be completely unpredictable.

Basically all those involved already know now what they should or should not do. If they in their professional capacity don’t observe their legal responsibilities, then even the strongest regulation won’t be effective.

It is often argued that sanctions should be increased. That logic raises questions. Firstly, it has long been known in criminology that it is not the severity of the potential punishment that deters people from criminal acts, but the perceived likelihood of getting caught!

«Can there be a harsher punishment than that?»

The fact is that financial intermediaries (mostly bank employees) are continually being prosecuted for money laundering activities or for breaches of due diligence, with the result that their careers are ruined. Can there be a harsher punishment than that?

Secondly the question comes up whether the chances of being caught can be increased. And unfortunately there is no easy answer to this. If you don’t want a totalitarian surveillance society, you have to ultimately rely on the goodwill of the people subject to the laws.

Furthermore, investigations in big banks show that the classic Know-Your-Customer model (knowing who the customer actually is and where his or her money comes from) is what uncovers the most wrongdoing, and not transaction surveillance or the checking of names in data banks.

Which brings the problem back to the people on the frontline and their superiors. Because when the people in contact with clients don’t take their duties seriously enough, even the best and most consistent regulation is of no use.

«The emphasis has to be on the responsibility of the individuals involved in handling the business»

Therefore, the question of which direction regulation should take is not easy, at least for experts. More standards would not automatically lead to the desired outcome. The emphasis has to be on the responsibility of the individuals involved in handling the business.

It would be conceivable to expand lawyers’ fiduciary activities in the area of financial intermediaries to include structuring advice, although this would have to be very precisely carried out, if we don’t want to throw out the baby with the bathwater. And an increased shifting of competence to the prosecution authorities would make sense, if the goal is to have tangible results as quickly as possible.


David Zollinger specializes in commercial criminal law, money laundering and corruption, and international legal assistance in criminal as well as due diligence cases involving financial intermediaries. Until 2007 he was responsible for legal assistance and money laundering at the Zurich public prosecutor’s office. Afterwards, he was a member of the executive management at Wegelin private bank.

In 2013 he founded the consultancy company Phos4house, which specializes in corporate security, crisis management and investigation. Zollinger has also been a member of the supervisory authority of the Federal Prosecutor since 2011, and legal advisor at Tethong Blatter since 2015.