The Swiss have devised a perfect laundromat - the criminals can retain 99% of the laundered funds.

Any money launderer wishing to launder hundreds of millions or even billions through the Swiss financial system, which gets caught by authorities, can request the application of this proportional method as a legal precedent. By paying a small fee determined by the SAG, they could retain 99% of the laundered funds, legitimising and benefiting from their illicit activities.

HOW CAN THIS BE….?

The following shows how the Swiss Attorney General's Office introduced a mechanism awarding sophisticated money launderers and how the Federal Criminal Court in Bellinzona turned it into a legal precedent.

While significant progress has been made in combating money laundering in various countries, Switzerland is moving in the opposite direction.

HERMITAGE CAPITALS REPORT CRIMINAL PROCEEDS FROM A $230 MILLION FRAUD

In the summer of 2021, the Swiss Attorney General's Office (SAG) announced the closure of the Magnistky money laundering case, which was opened in response to the complaint filed by Hermitage Capitals in 2011.

The SAG confirmed the accuracy of Hermitage's analysis of the flow of illicit funds. They discovered that the criminal proceeds from a $230 million fraud

• were found in a Swiss account belonging to the then-husband of Olga Stepanova, a Russian tax official who had approved an illegal tax refund and
• the accounts of Denis Katsyv, the son of a Russian government official and owner of Prevezon Holding, who settled similar charges with the US Department of Justice in 2017 by paying $6 million.

SEIZE AND FREEZE – BUT how did they come to such a decision?

• Swiss prosecutors decided to seize CHF 4 million but released the remaining frozen CHF 16 million, raising the question of:- how did they come to such a decision?.

"PROPORTIONAL METHOD"

In this case, the SAG collected substantial evidence, allowing them to reconstruct the trajectory of illicit funds. However, the SAG decided to utilise the "proportional method" for analysing the amount of laundered funds at each level of the money laundering scheme, which has never been used like that before.

According to the SAG's logic, if $1 million enters the first level of the money laundering process, and $100,000 of this is clearly of criminal origin, while the remaining $900,000 is from an unidentified source, then every dollar that leaves this account should be treated in the same proportion. In essence, the SAG will only perceive the total amount in the account as 10% 'dirty'.

Continuing this, in the second level of the money laundering process, the criminal would then mix the $100,000 of dirty money with $900,000 with funds from an unknown origin. Under the SAG's logic, they would only consider $10,000 that left the first level as dirty, or 1% of the incoming $1 million to the second level, and the remaining $990k (99%) as clean.

The SAG ratio then applies to the funds leaving the second level. When $100k leaves the second layer of money laundering, only 1% of them or $1k, is considered dirty by SAG, and the remaining $99k is perfectly clean.

After the same approach is applied to the third level of money laundering, the original dirty $100,000 are discounted down to $100 only or 0.1% of the initial criminal funds.

25% OF THE FROZEN FUNDS SHOULD BE CONFISCATED.

The SAG's application of the "proportional" approach in the Magnitsky investigation led them to conclude that only 25% of the frozen funds should be confiscated.

Moreover, the Swiss Federal Criminal Court fully endorses the SAG's "proportional" approach.

The court

• Justifies this, stating that the proportionality solution ensures a balanced outcome that does not favour either party[1].
• Approved the SAG's calculations based on this method[2], establishing it as a legal precedent.

CONCLUSION

The proportional method introduced by the SAG has undoubtedly damaged Switzerland's reputation. However, the more concerning consequence is that it has effectively opened Pandora's box.

The analytical method employed by the SAG has little connection to reality. The use of multiple layers in money laundering schemes is intended to obscure the origin of the funds, not to make them disappear in the process of laundering like the SAG's method implies.

Now, any money launderer wishing to launder hundreds of millions or even billions through the Swiss financial system who gets caught by authorities can simply request the application of this proportional method as a legal precedent. By paying a small fee determined by the SAG, they could retain 99% of the laundered funds, legitimising and benefiting from their illicit activities.

Notes:

– All numbers provided in the example are hypothetical and used to illustrate the method employed by the SAG.

References:

[1] https://bstger2.weblaw.ch/cache?guiLanguage=de&q=BB_2021_198&id=57ac5b14-e35f-469c-b029-a35f74ac4aa6&sort-field=relevance&sort-direction=relevance

[2] https://bstger2.weblaw.ch/cache?guiLanguage=de&q=BB_2021_193&id=30e01c77-5f42-4a98-bcbc-3090cd8f4d8b&sort-field=relevance&sort-direction=relevance

Source

• https://www.amlintelligence.com/2023/08/opinion-switzerland-a-new-haven-for-money-launderers/