In early May 2014, a new decision from the Swiss Supreme Court shocked the legal and compliance community. In the Swiss Supreme Court’s view, one can commit money laundering without knowledge about the predicate offence. This raises questions as to due diligence standards to be followed in AML compliance for background checks, third party screenings etc., but also relating to the threshold for the duty to file a suspicious transaction report.
In the underlying case (matter no. 6B_627/2012), the defendant had met a friend accompanied by a woman unknown to the defendant. The woman gave the defendant EUR 15,000 and asked him to change it into another currency in three equal chunks of EUR 5,000 with three different banks. The money originated from drug dealing, which the defendant was unaware of. He did as requested and was convicted for money laundering. The Supreme Court held that the defendant’s lack of knowledge of the predicate offence did not spare him from being convicted. All that mattered was the unusualness of the transaction. Whenever one comes across a transaction that deviates significantly from the daily normal repertoire, one must conduct background checks, the court found. Failing to do so and simply proceeding with the transaction would amount to wilful blindness in the view of the court: wilful blindness about an unspecified predicate offence and hence money laundering.
This is a significant shift of the Supreme Court’s interpretation of the law, and has consequences on when a bank, or other regulated financial institution, has to file a suspicious transaction report with the financial intelligence unit. So far, it has been the Supreme Court’s understanding that while the money launderer’s knowledge of the predicate offence need not be too detailed, at least the perception that “something really bad” must have happened was required (the so-called awareness of a predicate offence through “parallel assessment in the layman’s view” test). This had repercussions on the regulated sector’s AML reporting routines. Banks (and other regulated financial institutions) so far only reported suspicious transactions if as a consequence of background checks, some indication of “something bad having happened” came to light. Conversely, it was the general understanding in the financial industry that where background checks did not reveal anything specifically (potentially) criminal but the transaction continued to seem “strange”, reporting was not required. Now, with the new Supreme Court precedent in mind, financial intermediaries are likely to consider AML reporting even in cases with just unexplained transactional anomalies but no specific indication of criminal wrongdoing. For the gist of the new Supreme Court decision is that ultimately, all that matters is unexplained unusualness of a transaction. Banks and other regulated businesses are well advised to re-evaluate their AML reporting standards in the wake of the new Supreme Court case law.
In addition, the new Supreme Court decision may have repercussions on other areas of compliance. For instance, where in anti-corruption compliance third party due diligence is required, the new decision may lead to more stringent practices when it comes to declining cooperation with a third party, or with regard to risk categorisation of third parties, thereby re-shuffling the applicable risk classes towards broader use of enhanced due diligence standards / so-called “increased risk” due diligence. Here too, reassessing whether existing third party due diligence standards still hold up would be a sensible idea.
Finally, it remains to be observed that the Supreme Court decision under review is legally questionable. It effectively sets aside the unequivocal legal requirements of (i) a predicate offence, (ii) relevant knowledge or taking into account on the part of the defendant, and (iii) relevant proof by the prosecution. The Supreme Court case law in question ultimately results in the creation of some sort of “crime without conduct”, which for obvious reasons is a no-go. However, the decision at hand represents the continuation of an ever-increasing tendency on the part of the Supreme Court to step up stringency in interpreting criminal laws and setting relevant standards, while simultaneously lowering the standards of proof required on the part of the prosecution. In consequence, it seems unlikely that the Supreme Court may return to its earlier practice in due course.