Presentation
Swiss Companies can be established for trading, property investment (for domestic real estate a permit must be obtained), investment holding, management and consultancy services, financial transactions, corporate holdings and any other activity that is not prohibited by Swiss law.
The memorandum of the company must be specific and should give details of the company's objectives. It should be noted that, in accordance with Swiss law, the majority of board members must be Swiss citizens residing in Switzerland.
Private Limited Company by Shares
Societe Anonyme (SA)
Aktiengesellschaft (AG)
This type of limited company must have a minimum authorised share capital of CHF 100'000.- of which all of it has to be issued and fully paid up.
However, it is possible to limit the payment to 20 % of the share capital, but at least CHF 50'000.- (art. 632 CO). The minimum per value is CHF 10.- per share (art. 622 al. 4 CO).
Upon incorporation a capital duty of 1 % of the capital is payable to the authorities (art. 8 al. 1 LT (LF sur le Droit de Timbre).
The company must have at least three shareholders although these can be nominees. This is important for the begining of the company, but after the creation and the registration, it is possible to have only one shareholders. There must be at least one director who should be a Swiss citizen residing in Switzerland. Additional directors can be appointed. However, a majority of Swiss directors must be maintained at all times.
The company is obliged to maintain financial accounts and an annual independent audit is a statutory requirement. Directors' and shareholders' meetings should be held in Switzerland.
A withholding tax of 35% is levied on the distribution of dividends although this tax can be recovered if the payee of the dividends resides in Switzerland or if a tax treaty allows such a recovery.
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Public Limited Company
Public Limited Company (Aktiengesellschaft - AG)
This type of company is similar to the private (Aktiengesellschaft - AG) in its contribution but is able to offer its shares for public subscription after obtaining approval from the Swiss authorities. The rules and regulations imposed are governed by stock exchange and Swiss authorities.
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Private Limited Company - without shares
Societe a responsabilite limitee (Sarl)
Gesellschaft mit beschrankter Haftung (GmbH)
This type of company is similar to the private limited company by shares (Aktiengesellschaft - AG) but does not have shares; instead the owners' equity participation is registered in the commercial register.
Nominees can be used if anonimity is required.
Special Features:
Some cantons provide low taxation which are of interest to foreign investors.
Due to the economic situation, some cantons offer incentives for manufacturing companies in providing plant infrastructure, favourable loans and reduced levels of taxation.
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Summary
The attractions of Switzerland can be summarised as:-
- A long history of social, political economic stability
- A well-known domestic banking system with international business relations
- Exemption from exchange controls
- Very well developed, high technology economic and commercial infrastructure
- Nominee services are available on a fiduciary basis
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The attractions of Switzerland can be summarised as:-
- A long history of social, political economic stability
- A well-known domestic banking system with international business relations
- Exemption from exchange controls
- Very well developed, high technology economic and commercial infrastructure
- Nominee services are available on a fiduciary basis
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The Implementation of the Swiss Money Laundering Act of 1997:
The Swiss Money Laundering Control Authority:
Financial Intermediaries' Due Diligence Obligations
In economic terms, money laundering is the most important phenomenon associated with organised crime. In some countries, organised criminals operating internationally have gained positions of such power that they can shake the structures of democratically elected governments and manipulate political decision-making processes. National laws alone are no longer sufficient to counter such abuses effectively. Only close international co-operation between all those concerned can tackle organised crime where it hurts: in its profitability. Crime no longer pays where enjoyment of its fruits can be prevented.
The Financial Action Task Force (FATF) is an international organisation against money laundering. Its members include the main European countries, the USA, Canada, Australia, Hong Kong, Singapore, Japan and others. As an FATF member, Switzerland has pledged itself to comply with and implement the FATF recommendations to counter money laundering. The new Federal Act to Combat Money Laundering in the Financial Sector of 10 October 1997 (MLA) stems from this obligation. It supplements the standards of the Swiss Penal Code, notably Sections 305a and 305b, and extends the due diligence obligations in financial transactions, long applicable to the banking sector, to financial intermediaries not already subject to special legislation.
The Swiss Federal Government passed the MLA by decision of 16 March 1998 and it became law on 1 April 1998 after an interval for a referendum which elapsed unused.
The adoption of the MLA brings Switzerland's measures against money laundering entirely into line with the corresponding EU Directive dating back to 1991 and the 40 FATF recommendations.
As a typical framework law, the MLA goes no further than establishing the main points of personal scope, due diligence obligations and the supervision of those affected by it. It adopts the concept of self-regulation by the organisations of financial intermediaries. Its cornerstones are as follows:
Indirect monitoring of professionally active financial intermediaries by self-regulating bodies (SRBs) in private law or, alternatively, direct supervision by a federal authority (for reasons of professional secrecy, membership of a SRB is a compulsory requirement for solicitors and notaries);
Personal and objective conditions for the granting of professional practice licences to financial intermediaries directly subject to the Money Laundering Control Authority (MLCA);
Due diligence in financial transactions (identification and documentation obligations);
Obligations to report and to block transactions on justified suspicion of money laundering (since these are not actual due diligence obligations, this essay deals with them only in brief).
Two new authorities have been created at federal level to implement, enforce and control the provisions of the MLA:
The MLCA, directly answerable to the Director of the Federal Finance Administration and responsible for the legal task of monitoring the non-banking financial sector; and
The Money Laundering Reporting Office, based at the Federal Office for Police Affairs, responsible for checking the validity of incoming reports received from financial intermediaries in accordance with the newly introduced reporting obligation.
The following comments aim to explain the system of self-regulation to you and to outline the newly introduced due diligence obligations.
Following the successful outcome of self-regulation of the Swiss Stock Exchange under the Swiss Stock Exchange Act, the MLA likewise assigns legal supervisory tasks of monitoring and control to professional associations, the SRBs. The freedom of association enshrined in the Swiss Constitution allows financial intermediaries the option either of joining the SRB of their choice or subordinating themselves to the direct supervision of the MLCA.
The general clause in the MLA, section 2 paragraph 3, defines financial intermediaries as natural or legal persons (e.g. corporations) who professionally, i.e. against an economic benefit of any kind, accept, keep or help to invest or transfer assets belonging to third parties. This definition corresponds to that of section 305b of the Swiss Penal Code. In using the term "professionally," the MLA makes no distinction between main and secondary activities.
Asset managers, money brokers, bureaux de change, foreign exchange and banknote dealers, solicitors, notaries and trustees especially, but also the Swiss Post and the Swiss Federal Railways are subject to supervision under the MLA. Thus an innovation of the MLA is to define anyone who professionally manages assets belonging to third parties as a financial intermediary, who is thereby automatically subject to the licensing obligation. The MLA does not, however, cover pure investment consulting services. An exemption applies to persons who provide their services exclusively to financial intermediaries who are in turn subject to special legal supervision, such as banks, securities dealers and insurances. Such exemption also applies to persons who provide their services to foreign financial intermediaries, provided the latter are subject to equivalent supervision abroad.
The aim and approach of the MLA is to avoid direct supervision by the MLCA wherever possible and to give preference to self-regulation. This means financial intermediaries are subject to inspection by an authority closely acquainted with the sector's specific problems. It is reflected especially in the actual form of the due diligence requirements in transactions with clients.
The following timetable has been set for the implementation of supervision under the MLA:
Professional associations wishing to assume SRB status were to submit the appropriate application for recognition to the MLCA by March 31, 1999, with their articles of association, their draft regulations providing for implementation of self-regulation, and other documents. Potential new SRBs can still apply later (there is no restriction on the number of SRBs) but they are unlikely to be ready (i.e. recognised) for the financial intermediaries to join in time by April 1, 2000.
Financial intermediaries now have until March 31, 2000 to join a SRB recognised by the MLCA.
Anyone who has not joined a SRB by April 1, 2000, i.e. two years after entry into force of the MLA, will be subject to direct supervision by the MLCA and - if he or she wishes to continue to practise as a financial intermediary - will have to apply beforehand to the MLCA for a professional practice licence to be issued.
A special provision applies to solicitors and notaries who offer their clients financial services in addition to their staple work of legal representation. To take account of the requirements of professional secrecy, solicitors and notaries are required to join an SRB. If a solicitor or notary fails to join an SRB, he or she will be banned from continuing to offer financial services from April 1, 2000.
The MLCA's primary tasks can be summarised as follows:
To guarantee that all financial intermediaries being professionally active in Switzerland are either subject to special legal supervision, or are SRB members or under the direct control of the MLCA.
To guarantee that the self-regulation aimed at by the MLA takes effect efficiently.
Thus the MLCA has only a subsidiary function vis-à-vis the SRBs, i.e. its direct involvement is only required if it becomes clear that an SRB is not meeting its legal obligations or the obligations incumbent upon it under its own regulations.
Accordingly, the MLCA's obligations vis-à-vis the SRB can be summarised as follows. The MLCA is to:
Recognise an SRB or withdraw such recognition from it;
Approve the SRB's regulations and amendments thereto;
Exercise supervision over the SRB; and
Inspect implementation of the Regulations by the SRB.
If the MLCA refuses or revokes recognition of an SRB, the financial intermediary members of that SRB come under the direct supervision of the MLCA unless, within two months, they join a new SRB recognised by the MLCA. An exemption again applies to solicitors and notaries, who are required to join another organisation within two months or, failing this, to cease offering all financial services.
In principle any association is entitled to recognition as an SRB if it meets the legal requirements and has enough members to take on the associated tasks without conflicts of interest. The following exemptions apply:
An association must guarantee that the legal obligations will be permanently observed. It must also ensure that the financial intermediaries who join carry out their legal due diligence obligations. This calls for efficient controlling and an effective system of sanctions. However, the best guarantee of countering money laundering effectively is still sound training of financial intermediaries and open communication between SRBs, their members and the MLCA. In addition to controlling, SRBs have to concentrate their efforts in this area. Eight such SRBs have been recognised to date.
The MLA lists due diligence requirements in relations with clients. It is up to the SRB to specify these obligations in its regulations, taking account of the needs and the particular economic circumstances of its financial intermediary members.
As stated, the MLA is a framework law. It describes the duties imposed upon financial intermediaries in suitably reserved and general terms. The text of the MLA defines the following five due diligence requirements in relations with clients:
Identification of the contracting party;
Establishment of the economic beneficiary;
Corroboration of the identification;
A special duty of clarification;
A duty to provide documentation.
To guarantee a minimum standard in all areas of financial services, SRBs have to set roughly equivalent requirements. However, they may go further in their requirements of financial intermediary members and require them to meet certain additional criteria. These might, for example, include demonstration of particular technical knowledge or prior membership of a professional association.
As for the business of investment management, these duties are already dealt with in detail in the Swiss Bankers Association's Code of Conduct with regard to the Exercise of Due Diligence. The banks have done much preliminary work and have constructed a correspondingly effective defensive mechanism. So it makes little sense for the professional associations to reinvent the wheel in this connection, though adaptations specific to the profession will become necessary.
There is still a serious need for action in the areas of the trusteeship and consulting services, where organisational structures are set up for clients, in other words where corporations are founded or trusts or foundations are set up in the name or for the account of clients, and where the financial intermediary also acts as a management advisor or even takes over the management directly.
Alongside such material regulations, SRBs must ensure, through appropriate controlling and measures, that the financial intermediaries obey the regulations of the SRB they have joined. They may do so, for instance, by annual inspections carried out by external experts on their behalf, or by requiring their financial intermediary members to provide the SRB with a thorough annual report.
SRBs are free as regards the sanctions they wish to impose for infringements of their regulations. In any case these are sanctions under private law, i.e. contractual penalties. The MLCA has no powers of intervention in the associations' internal control processes, nor can it be called in if disputes arise between the SRB and its members.
As its toughest sanction, a SRB may expel a financial intermediary. In practice, this means the expelled financial intermediary automatically comes under the direct supervision of the MLCA and must obtain an appropriate professional licence, without which he or she cannot practise.
Generally the regulations issued by an SRB, which must be approved by the MLCA, must specify the duties of care of member intermediaries. Moreover, the conditions of membership and expulsion of a financial intermediary and the nature and method of inspection of members' performance of their duties must be established. In addition, the SRB must compile a list of members, rejected applicants and expelled financial intermediaries, and hand it over to the MLCA. Updates to this listing are to be passed to the MLCA automatically.
Broader provisions will apply to financial intermediaries who do not join a SRB. In relation to financial intermediaries under the MLCA's direct supervision, the MLCA takes over the following tasks which would otherwise be the responsibility of an SRB:
Specifying due diligence requirements and establishing criteria for their fulfilment;
Supervision of compliance with due diligence requirements;
Implementation of on-site inspections by the MLCA itself or auditors appointed by it (the costs to be borne by those concerned); and
Imposition of sanctions.
The MLCA has issued an Order stating the due diligence requirements for financial intermediaries directly subject to it. In this order, it could not allow any concessions or exceptions for specific professions.
In performing its tasks, the MLCA will limit itself to indirect supervision of SRBs and inspection, using external auditors, of the financial intermediaries directly subordinated to it. It will exercise its supervisory activity primarily by checking the documents it requests from those subject to it and will keep a register of all financial intermediaries and SRBs active in Switzerland.
The MLCA will regularly carry out spot checks of SRBs and directly subordinate financial intermediaries.
Close and open co-operation between the MLCA and the SRBs concerned is the only guarantee of effective self-regulation. Maintaining and cultivating constructive dialogue between the MLCA and those concerned – as has already been going on since February 1, 1998 – is deemed meaningful and necessary.
The MLA contains various implementation provisions including punishment for negligent disregard of legal provisions. Thus, for example, anyone who has not joined an SRB and who is working as a financial intermediary without the appropriate professional licence from the MLCA as per the MLA, section 2 paragraph 3, or who infringes the duty to report can be fined up to the sum of CHF 200,000. Fines up to CHF 50,000 can be imposed for disregarding an order of the MLCA. Certainly the hardest-hitting and most painful measure to restore proper conditions is for the MLCA to order the liquidation of a financial intermediary's company, followed by deletion from the Commercial Register (including publication of such deletion). Thus black sheep will simply have the platform for their activities and the basis of their existence removed. This will effectively protect Switzerland's reputation as a financial centre.
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For more information
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