1MDB, Petrobras, Uzkebistan, FIFA – a slew of scandals seem to indicate Swiss efforts to combat money-laundering are foundering. The country and its banks need an update, argues Katharina Bart in an essay for finews.first.

finews.first is a forum for renowned authors specialized on economic and financial topics. The texts are published in both German and English. The publishers of finews.com are responsible for the selection.

Virtually no one wants to talk about criminal money in Switzerland, but Jho Low and 1MDB, the former Uzbek dictator’s daughter, or even Swiss-based FIFA aren’t going away.

Ask anybody in banking or government about the headline-grabbing series of graft and money-laundering cases in recent months. Inevitably, the answer is that they illustrate the sturdiness of Switzerland’s «Abwehrdispositiv» – the word widely used in politics and the military to describe a defense plan.

But clearly, the plan has gone awry.

«Switzerland's art galleries, luxury boutiques and realtors are helpers»

Switzerland has just scraped by in review schemes three times in recent years, as recently as last December’s country exam through the FATF, an international money-laundering monitoring group.

 The biggest scare came five years ago: Switzerland was nearly booted from the Egmont Group, an international anti-laundering cooperation, for being – wait for it – uncooperative. Ham-fisted lawmakers rushed legislation through parliament to avert the worst.

Meanwhile, unsurprisingly, Swiss banks are still being pulled up for rinsing hundreds of millions clean. The luxury goods, real estate, and art markets have been helpers to this – one need only look at Geneva and Zurich's tony boutiques to see who is splashing out in eye-popping sums of cash.

«Singapore and U.K. close ranks, while Switzerland dithers»

What’s gone wrong? Simply, Bern and Switzerland’s banks haven’t kept pace while other offshore centers have beefed up.

Stung by the 1MDB scandal, Singapore drew its criminal and regulatory arms closer together earlier this year, while the U.K. has set up a joint effort between government, private sector and police called JMLIT.

Meanwhile in Switzerland, a roughly 15-person money-laundering team in Bern – dubbed MROS – is largely isolated from other agencies. This means Switzerland is simply ill-equipped to cope with challenges like corruption money, not to mention Italy's 'Ndrangheta mafia or terror financing either.

While Finma head Mark Branson has talked tough on money-laundering, this is a recent development. The Swiss regulator doesn’t have anyone in top management devoted solely to helping banks fight money-laundering, for example.

«Fissure between regulator and prosecutors»

The good news is that MROS, which works as the interface between banks and regulators, is doing good work and are respected by both sides. The problem is the fissure between supervisors and prosecutors, who don’t always have the same aim.

While Finma’s foremost goal is investor protection, prosecutors want to notch up big wins in court – especially true since the ambitious enforcer Michael Lauber took over as attorney general in 2012.

This underscores another key problem for MROS, led by lawyer and former banker Stiliano Ordolli: it has advanced to one of the most powerful agencies since its inception 20 years ago, but it is sandwiched between politics and interests, with little voice of its own.

What to do? Independent of its set-up, MROS urgently needs to join the 21st century. Bern insiders report that the agency is still working with methods like fax and paperwork – unthinkable in the age of the paperless workspace and as fintech prepares to roil the banking industry.

«Hold money-laundering team accountable and equip it as agency lead»

Resources are another problem: this summer, Switzerland's government slipped plans to beef up MROS into a raft of anti-terror measures that are set to be debated by parliament. The sleight of hand shows how much of a political hot potato money-laundering is in Switzerland.

The agency has amassed considerable power, and it should held accountable just as Finma can be in the court system, for example. And crucially, the money-laundering team needs the authority to coordinate or even lead with other agencies like central intelligence, Finma, and the attorney general. 

This means lawmakers would have to lift it out of its wallflower existence in Switzerland’s police arm, which is likely to have the pleasant side effect of encouraging banks to cooperate more freely.

«Money-launderers aren't on the street threatening your kids on their way to school»

Sound simple? Forget it. This is Switzerland, where countless politicians have a vested interest in the finance industry – the powerful faction of lawyers in parliament for example.

There is no political capital in tackling an issue that is neither seen nor heard on the ground with voters. As one enforcer puts it, «No one tells their children‚ 'watch out for those bad money-launderers on your way to school!'»

Corrupt money or funds linked to terrorism, organized crime and other wrong-doing will always look for a haven like Switzerland. Without an update, the country and its banks will stumble from one Brazilian «Operacio Lava Jato»-like case to another, its reputation in tatters.

Katharina Bart is a senior contributor for finews.ch and finews.com. She also writes for our Asian partner site, finews.asia. She is a dual Swiss-American citizen with more than 15 years experience as a journalist, most recently as chief correspondent for Thomson Reuters in Zurich. Prior to that, she wrote for Dow Jones Newswires and The Wall Street Journal from 2003 to 2011.

After studies in journalism and communications at Grand Valley State University in Michigan and the University of Fribourg in Switzerland, Katharina worked for Zurich Financial Services (ZFS), Rieter and Friedli Corporate Finance.

Previous contributions: Rudi Bogni, Peter Kurer, Oliver Berger, Rolf Banz, Dieter Ruloff, Samuel Gerber, Werner Vogt, Walter Wittmann, Alfred Mettler, Peter Hody, Robert Holzach, Craig Murray, David Zollinger, Arthur Bolliger, Beat Kappeler, Chris Rowe, Stefan Gerlach, Marc Lussy, Nuno Fernandes, Beat Wittmann, Richard Egger, Maurice Pedergnana, Marco Bargel, Steve Hanke, Andreas Britt, Urs Schoettli, Ursula Finsterwald, Stefan Kreuzkamp, Katharina Bart, Oliver Bussmann, Michael Benz, Peter Hody, Albert Steck, Andreas Britt, Martin Dahinden, Thomas Fedier, Alfred Mettler, Brigitte Strebel, Peter Hody, Mirjam Staub-Bisang, Adriano B. Lucatelli, Nicolas Roth, Thorsten Polleit, Kim Iskyan, Stephen Dover, Denise Kenyon-Rouvinez, Christian Dreyer, Peter Kurer, Kinan Khadam-Al-Jame, Robert Hemmi, Claude Baumann, Anton Affentranger, Yves Mirabaud, Katharina Bart, Frédéric Papp, Hans-Martin Kraus, Gerard Guerdat, Didier Saint-Georges, Mario Bassi, Stephen Thariyan, Dan Steinbock, Rino Borini, Bert Flossbach, Michael Hasenstab, Guido Schilling, Werner E. Rutsch, Dorte Bech Vizard, and Adriano Lucatelli.