The Swiss parliament passed into law last December the Act on the implementation of the Financial Action Task Force's Recommendations (FATF Implementation Act). The Act aims to align Swiss law with international standards against money laundering and the financing of terrorism. In a nutshell, this legislation introduces several important changes, including characterising tax fraud as a new predicate offence, an expanded definition of PEPs (politically exposed persons) including Swiss politicians, leaders and officials of international and sports organisations (such as FIFA, the International Olympic Committee, or the International Cycling Union) and an expanded obligation for financial intermediaries to identify the beneficial owners of their customers by looking at operational companies and not only private investment vehicles.
The FATF Implementation Act also amends general corporate law to introduce reporting obligations for shareholders of non-listed Swiss companies limited by shares, and to match obligations for such companies to maintain registers and retain documents supporting entries. These changes affect to a lesser extent listed companies as well as limited liability companies and cooperatives. These new rules will enter into force on July 1 2015, whereas the bulk of the FATF Implementation Act are scheduled to enter into force on January 1 2016.
Swiss companies can either issue registered shares or bearer shares. Prior to the FATF Implementation Act, holders of non-listed bearer shares were not subject to reporting or disclosure obligations and could remain anonymous. All that was needed to exercise rights to vote or to collect dividends was to present their shares or other evidence of their ownership. Moreover, Swiss law provided disclosure duties for substantial shareholders only for listed companies.
The FATF Implementation Act changes this by amending the Code of Obligations to introduce obligations to report the acquisition of bearer shares in non-listed Swiss companies within a month of the acquisition. This filing must be supported with an official identification document, an excerpt from the registry of commerce or a comparable document. Moreover, any change of name and address will also need to be reported within the same deadline. In parallel, shareholders of all non-listed companies as well as limited liability companies will be required under the Code of Obligations as amended by the FATF Implementation Act to report the beneficial owners of substantial shareholdings of more than 25% of the voting rights, regardless whether they issued bearer or registered shares. This obligation must also be complied with within a month from the acquisition. As a transitional rule, holders of bearer shares – but not registered shareholders – are required to report their shareholding and, if they reach the 25%-threshold, beneficial owners by December 31 2015.
This reporting obligation lies with the shareholder. The shareholder is required implicitly to identify its beneficial owner. Notably, the Code of Obligation defines a beneficial owner as the physical person for whom the shareholder acts. While the legislative materials suggest that where no such person exists (as for example with a charity) this fact should be recorded, it is uncertain how this obligation applies to listed companies. Under anti-money laundering regulations, it is not necessary to identify the beneficial owner of listed companies and their affiliates. It is therefore uncertain whether courts will apply the letter of the law or, consistently with anti-money laundering rules, exempt listed companies and their affiliates from identifying their beneficial owners, since transparency is ensured through disclosure duties provided under securities regulations.
Shareholders are cautioned to comply with these rules. Breaches of reporting obligations will be sanctioned by the suspension of voting rights and the forfeiture of financial rights, including rights to dividends. If a shareholder remediates the breach, it is reinstated in its rights going forward, but will not receive the rights it forfeited.
The flip-side of these obligations is the requirement for non-listed Swiss companies to maintain a register of holders of bearer shares and beneficial owners of substantial shareholdings, and retain documentation supporting the entries. This document-retention obligation also applies to the share ledger recording the owners of listed and non-listed registered shares as well as to limited liability companies and cooperatives. In view of facilitating law enforcement efforts, these registers and records must be accessible in Switzerland at any time. To ensure the effectiveness of this rule, at least one person with signature authority will need to be a Swiss resident and have access to both registers.
Companies may avoid the duty to maintain a register for bearer shares and beneficial owners and retain supporting records – but not the obligation to maintain a share ledger for registered shares – by delegating this responsibility to a financial intermediary under the Anti-Money Laundering Act. Alternatively, they may disapply these obligations by issuing shares as intermediated securities with a Swiss depository.