Freezing, Forfeiture And Restitution Of Illicit Assets Of Politically Exposed Persons Abroad: New Regime Applicable As Of July 1st, 2016

Author:Dr. Andrew Garbarski and Tali Paschoud
Profession:Bar & Karrer

As the 'Arab Spring' (2011) and the Ukraine Crisis (2014) have shown, absent any appropriate legal framework, the Swiss Federal Council had no choice but to recourse to an emergency clause of the Swiss Federal Constitution to freeze the assets of the overthrown political leaders and members of their inner circle.

In order to provide the Federal Council and the other competent authorities with a formal legal basis to the deployment of Switzerland's policy in the area of the recovery of illicit assets, the Swiss Parliament has adopted the Federal Act on the Freezing and Restitution of Illicit Assets of Politically Exposed Persons Abroad ("Federal Act on Illicit Assets") on December 18, 2015.

The Federal Act on Illicit Assets will enter into force on July 1st, 2016. Its contents is of particular relevance not only for those who are directly impacted by the measures ordered by the Federal Council, but also for any person managing, dealing with or otherwise aware of assets of foreign Politically Exposed Persons ("PEPs") on Swiss soil. The purpose of this briefing is to provide an overview of the mechanics and some of the key provisions.

Freezing of Assets

There are two distinct grounds that may lead to the freezing of assets.

Freezing in View of Mutual Legal Assistance (Art. 3)

This provision codifies the practice developed by the Federal Council under the Swiss Federal Constitution. It enables the Federal Council to freeze assets in Switzerland that are either placed under the disposal power of, or beneficially owned by PEPs or their closely related persons, whether in person or via a legal entity. For consistency purposes, the notions of PEPs and closely related persons are inspired by the definitions provided by the Financial Action Task Force and the Anti-Money Laundering Act.

The aim of the preventive freezing of assets pursuant to Art. 3 is to avoid the dissipation of assets and give time for the State of origin to request mutual legal assistance, provided however that, cumulatively:

The government of the State of origin or certain of its members have lost their power or a change of the regime in place appears inexorable. It means that the Federal Council is not allowed to intervene if the government of the State of origin is corrupted, but still in place; The degree of corruption of the State of origin is notoriously high; It is likely that the relevant assets were acquired by corruption, mismanagement or other crimes; The safeguarding of...

To continue reading