BANKING SECTOR

INTERNATIONAL BANKING: Guide to Swiss bank accounts and Ukrainian clients

Farewell to bank secrecy and full inviolability of deposits in Switzerland

INTERNATIONAL BANKING: Guide to Swiss bank accounts and Ukrainian clients
About the authors: Denys Bugay is a Partner of VB PARTNERS (Ukraine). Kateryna Turcanu is a Counselor of VB PARTNERS (Switzerland)
Denys Bugay and Kateryna Turcanu
Saturday, 10 March 2018 15:20

Swiss bank accounts: reasons for account blocks and possible responses

Switzerland is one of the largest financial centers in the world. A combination of reliable legislation to ensure the stability of the banking system, banking secrecy at the state level, and high levels of banking services continue to attract investors from all over the world. However, in recent years, this famously “quiet harbor” for global finance has shown signs of shedding its aura of absolute secrecy and inviolability.

Due to the toughening requirements of legislation addressing money laundering and corruption, control over customer transactions has strengthened while requirements to provide information about the sources of income have increased. In this new regulatory environment, refusals to open new accounts and the blocking of funds in existing accounts are both becoming more frequent. This applies not only to people considered politically exposed persons (PEP), but also to ordinary investors including respectable business figures and senior managers from Ukraine.

In this article, we will consider who can block accounts and why. We will explore how the blockage procedure operates in Switzerland, what an account blockage means for the owner of the funds, and how to unblock an account and renew access to your funds.

 

Block via Bank or Swiss Prosecutor’s Office

In many cases, compliance departments of banks initiate account blocks. Reasons include suspicious monetary transactions, lack of supporting documents, or failure to cooperate with the bank in providing sufficient information on the source of funds. Accounts can also be subject to blocks based on publicly available information implicating the account holder in illegal activities in his or her homeland. In more and more cases, account holders do not receive prior notice from the bank before blockage. 

The Swiss Financial Regulator (FINMA) has introduced specialized IT programs to identify and uncover suspicious transactions. Banks receive a daily list of so-called “anxious” operations for investigation. When suspicion focuses on a specific client, the bank may block the relevant account. Furthermore, all banks are required to file suspicious activity reports with Switzerland’s specialized Money Laundering Office (MROS). MROS analyzes suspicious activity reports in connection with money laundering and takes decisions on extending seizures or unblocking funds.

In order to unblock an account, it is sometimes sufficient to provide explanations and Banks receive a daily list of so-called “anxious” operations for investigation. When suspicion focuses on a specific client, the bank may block the relevant account. Furthermore, all banks are required to file suspicious activity reports with Switzerland’s specialized Money Laundering Office (MROS). MROS analyzes suspicious activity reports in connection with money laundering and takes decisions on extending seizures or unblocking funds.

In order to unblock an account, it is sometimes sufficient to provide explanations and produce the respective documents. The bank will usually provide the client with a list of questions and required documents. In cases assessed as involving serious suspicions, MROS forwards the case to the relevant law enforcement agencies for follow–up actions. The Swiss Prosecutor’s Office then initiates an investigation and, if the case involves a Ukrainian account holder, notifies the Prosecutor’s Office of Ukraine.  In such cases, account blocks can last for years before clarifying the circumstances involved and reaching the point of final court decisions.

 

Block via the Ukrainian Authorities

There are also cases of accounts blocked at the request of the Swiss Prosecutor’s Office within the framework of international legal mutual assistance. In order for this to happen, the Ukrainian law enforcement authorities must first initiate a criminal case and acquire information about funds deposited by a potential suspect (or related persons) to an account held with a Swiss bank. They may receive this information either during the course of their investigation or directly from their colleagues in other jurisdictions. It is worth noting that the second of these two routes is becoming more and more popular. Ukraine’s law enforcement authorities have recently established close and productive ties with foreign jurisdictions. Their European colleagues are happy to share information (sometimes at their own initiative) received from banks in the process of financial monitoring.

The second step sees the relevant law enforcement authority, namely the General Prosecutor’s Office or the National Anti-Corruption Bureau of Ukraine (NABU), send an inquiry to the Swiss Federal Department of Justice with a request to take provisional measures to block funds temporarily. In order for the Swiss authorities to consider any inquiry, the Ukrainian authorities must clearly indicate exactly which account should be subject to measures.

Once this step is complete, the Swiss Justice Department notifies the Swiss Prosecutor’s Office about the inquiry, which takes a decision to block the account temporarily. The legal basis for mutual assistance in criminal matters is as follows:

• European Convention on Mutual Assistance in Criminal Matters ETS No. 030.

• Second Additional Protocol to the European Convention on Mutual Assistance in Criminal Matters ETS No. 182.

• Convention on the Laundering, Search, Seizure and Confiscation of the Proceeds from Crime ETS No. 141.

• Federal Act On International Mutual Assistance in Criminal Matters (hereinafter - the “Mutual Assistance Act”).

• Swiss Criminal Procedure Code.

In accordance with Art. 18 of the Mutual Assistance Act that forms part of the legal basis for this process, Switzerland may take provisional measures to safequard threatened legal interests if it receives an express request from another state. These measures can include temporarily blocking funds or seizing property located in Switzerland to ensure their security until the exact circumstances of their status are clarified in the country that made the request.

Consequently, in order to block an account temporarily, the Swiss Prosecutor’s Office needs to receive a request from the Ukrainian authorities and have reliable information relating to the bank account. 

The Swiss Prosecutor’s Office then sends the respective inquiry to the bank and issues, upon the bank’s confirmation of the account’s existence, an appropriate order to the bank to block it. For the bank, this means that it is not entitled to conduct any financial transactions relating to the account, including allowing the owners to withdraw or transfer money from the account. The Swiss Prosecutor’s Office also notifies the Ukrainian Prosecutor’s Office about their decision and gives the Ukrainian side the opportunity to provide a more detailed explanatory official request. It is possible to contest a Swiss Prosecutor’s Office decision on temporary blockage within 10 days in the Federal Criminal Court of Switzerland.

There are no legal requirements as to the term of a temporary account blockage. The Swiss Prosecutor’s Office may set the term at its own discretion. However, in respect to Ukraine and other CIS countries, temporary account blockages usually last for 90 days. If the Ukrainian Prosecutor’s Office does not provide an explanatory official request within this period, the account will be unblocked and the owner will regain access to funds.

Upon receiving an official request, the Swiss Prosecutor’s Office can decide to extend the account blockage. The Mutual Assistance Act does not specify what exactly constitutes an official request from another state. Most often in cases related to Ukrainian account holders, such a request reflects a decision reached by a Ukrainian court to arrest the property featured in the case. However, the Swiss Prosecutor’s Office requires that official requests contain evidence of the link between illegal activities and the funds held in the account. Due to this requirement, the existence of a criminal procedure or a court decision is not sufficient grounds for final blockage. The request must also contain evidence that the money transferred to the blocked account is the result of illegal activity.

 

Revoke of seizure: challenging Swiss Prosecutor’s Office decisions

As mentioned above, a temporary account blockage usually lasts 90 days.  However, this term may be longer or shorter. It is at this stage that it is important to challenge its legitimacy in the Swiss Prosecutor’s Office. It is worth mentioning that the Swiss Prosecutor’s Office does not consider the merits of the case. Its task is legal assistance, within the framework of the Mutual Assistance Act. 

Although the Swiss prosecutors proceed from the presumption of conscientiousness on the part of Ukraine’s law enforcement authorities, they are ready to take into account and consider evidence that contradicts the allegations of the Ukrainian Prosecutor’s Office. It is possible to challenge the legitimacy of actions taken by the Ukrainian authorities by providing evidence of violations of national procedural legislation, demonstrating the legality of the seized funds, or offering evidence of the bias of the Ukrainian bodies. This is why the most effective approach usually involves a legal team consisting of Ukrainian lawyers involved in litigation in Ukraine and a lawyer residing in Switzerland. This Swiss-based lawyer can then use a power of attorney issued by the client to represent the client’s interests in the Swiss Prosecutor’s Office.

If the Swiss Prosecutor’s Office decides to extend the account blockage, there is still an opportunity to challenge this decision within 30 days in the Federal Criminal Court of Switzerland. In order to do so, the client will need to get a Swiss lawyer. This process is quite a long process and entails significant costs. Alternatively, you may seek a positive decision on the case in Ukraine by either seeking the removal of arrest on the property involved via an investigating judge, or by seeking reconsideration of the case on its own merits and a withdrawal of charges.

 

Key Recommendations

If your bank asks questions of you when your account is not subject to any blocks and they have not yet transferred information to MROS, you should not avoid communication but rather demonstrate maximum openness. This could include explaining the sources of your funds while providing all the necessary documentation and clarifying any transactions. At this stage, it is already advisable to contact competent experts in the field of Swiss Banking Law who could negotiate with the bank on your behalf.

If you receive notice of a funds blockage based on an order issued by the Swiss Prosecutor’s Office, you should urgently contact lawyers. They may then acquire information on the reasons and grounds for this decision. The Swiss Prosecutor’s Office is open to procedural cooperation and, as a rule, there are no difficulties in such a situation.

 

Swiss Bank Account Blocks at a Glance:

1. Blocks on a Ukrainian client’s Swiss bank account can occur due to the initiative of the bank, the law enforcement bodies of Switzerland, or a request from Ukraine.

2. The Swiss Prosecutor’s Office may block an account at the request of the Ukrainian authorities (General Prosecutor’s Office or NABU) within the framework of mutual legal assistance agreements in criminal matters. This procedure has undergone simplification and been reduced to the exchange of letters.

3. Temporary blockage usually lasts 90 days. Removing an account blockage is possible by challenging the actions of the Ukrainian authorities in the Swiss Prosecutor’s Office and demonstrating an absence of links between the funds in the account and any illegal activities for which the customer is under suspicion.

4. Removal of permanent account blockage requires complex legal procedures including challenging the decision in the Federal Criminal Court of Switzerland or the withdrawal of charges or removal of property seizure in Ukraine.

 

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