In response to abuses of the corporate form by corrupt actors and other criminals, an increasing number of countries have been requiring companies and other legal entities to provide information on their “beneficial owners” (that is, the real human beings who own or control the entity) and compiling that information in centralized registries. Additionally, more governments are also requiring professionals in designated high-risk areas (not just finance) to verify the identity of clients behind the corporate veil and the risks of doing business with them.

Switzerland is lagging well behind this global movement towards more corporate transparency. Although Switzerland has done a lot recently to shake off its historic reputation as a haven for illicit funds, Swiss law still makes it too easy for bad actors to hide behind corporate constructs. Switzerland currently only requires a fraction of its domestic corporations to keep internal lists of their largest shareholders. Even this limited information – which focuses on legal ownership only and therefore does not necessarily reflect actual control over a company – need not to be verified, and the information can be difficult for Swiss authorities to access. Just this past year, Switzerland adopted rules requiring Swiss professionals who manage corporate cash flows, such as bankers and asset managers, to verify the identity of clients behind corporate constructs, but other professionals can continue to do business without any such obligations.

But this might be about to change.

In August 2023, the Swiss federal government presented a long-awaited Draft Law on the Transparency of Legal Entities. If enacted, the law would create a centralized national beneficial ownership registry that covers not only all profit-orientated (non-listed) Swiss legal entities, but also foreign entities if they have a branch, any part of their administration, or any real estate in Switzerland. Following OECD standards, the proposed register would provide various mechanisms to collect beneficial ownership information, and would make that information available to competent government authorities and to Swiss professionals who are required to verify the identity of their clients. Additionally, the draft would extend the scope of current Know Your Customer (KYC) rules from financial advisors to other professionals involved in setting up and operating anonymous corporate networks (such as lawyers, real estate agents, and accountants). These KYC duties include verifying the identity of beneficial owners of the legal entities being served and verifying the purpose of the transaction for which these professionals are offering their services; the KYC duties also encompass associated obligations to document actions in this context and to organize business operations accordingly. Furthermore, the draft law would obligate these service providers to report irregularities or suspicious activity to the register authority.

Some critics have asserted that the draft bill does not go far enough, pointing in particular to two limitations on the scope of the bill’s obligations. First, with respect to the beneficial ownership registry, some anticorruption advocates argue that the registry should be public, and that limiting access will make it harder for the media and other watchdogs to shine light on opaque dealings. Second, with respect to the new reporting requirements for non-financial professionals, critics object to the scope of the exemption for attorneys. This exemption, meant to protect client confidentiality, is broader than comparable exemptions in other countries. (France, for example, requires lawyers to disclose abuses to bar associations, which then decide whether to pass the information to the authorities.)

While these concerns are reasonable, neither of these two limitations should be overstated. Although the new registry would not be public, Switzerland’s freedom of information law allows individuals to obtain records if they can demonstrate a legitimate interest in those materials. Though it is admittedly unclear how this “legitimate interest” standard would apply in all cases, this provision does mean that investigative journalists and anticorruption civil society organizations would likely be able to access corporate ownership information when it is relevant to their investigations. As for the exemption of attorneys from the reporting requirements, this broadly-worded exemption may not be ideal, but it is a concession to political reality in the Federal Assembly, where the lobbying power of the organized Swiss bar has blocked anti-money laundering reforms in the past, most recently in 2019.

The draft, currently in a pre-parliamentary process that allows interested parties to submit comments, is expected to come before the Federal Assembly in early 2024. Its adoption would be a major step toward corporate transparency in Switzerland. As a key link in the global network of corporate structures, Switzerland is well positioned to contribute to the global fight against the abuse of the corporate form. The federal government expects that over half a million companies would fall under the new reporting regime. In line with the experience of other countries, the costs of running a centralized beneficial ownership registry are estimated to be relatively low. The only group facing significant costs are professionals who would newly fall under KYC requirements. The reform would strengthen Switzerland’s reputation as a financial center, help address legitimate international concerns about the current state of its patchy regulatory framework, and provide legal certainty. Switzerland can therefore not afford to fall back to the status quo. It will be up to Parliament to follow through with a timely and prudent treatment of the draft that does not lose sight of the government’s ambitious vision.