Anonymous investments in foreign real estate markets have become a popular way to launder money and evade taxes. Opaque offshore structures now control a substantial share of high-end real estate in many major cities across the world. While the international sharing of financial data has made it harder to hide assets in offshore accounts, overseas property remains an easy target for illicit actors due to a lack of equivalent cross-border reporting. The city that has come to symbolize this problem is London—sometimes derisively referred to as “Londongrad” due to the extent to which Russian oligarchs own many of the city’s luxury homes.

Many might be surprised to learn that Switzerland, despite its longstanding reputation as a haven for illicit financial funds, has no major problem with money laundering in real estate. This is all the more surprising given that the Swiss property market would seem to be an exceptionally attractive target for dirty money in a number of ways. Swiss law affords extensive anonymity to individuals behind the corporate veil and does not require any licensing in the real estate sector. Furthermore, unlike many other countries, Switzerland still does not subject real estate agents, lawyers, or notaries – the key actors in property acquisition – to its anti-money laundering laws, as long as the property transaction in question does not involve a payment of more than the equivalent of about $110,000 in cash. At the same time, real estate prices in Switzerland are high and have risen dramatically in recent decades, especially in the cities and tourist areas. Illicit actors, who already roam financial centers such as Zurich, should thus have an easy time parking their assets in Swiss real estate. So why is there no “Zurichgrad”?

A key reason might be that Switzerland, in contrast to the UK and other major European financial and commercial centers, has deliberately pursued a protectionist policy when it comes to real estate. After the Second World War, foreign purchases of Swiss real estate increased so much that the country began to seal off its property market from the rest of the world in the 1960s. While greatly liberalized since then, Swiss federal law still prohibits non-resident foreign nationals from acquiring residential property in Switzerland; this prohibition also applies to companies domiciled or controlled from abroad. Limited numbers of vacation homes can be purchased, but only 1,500 such units are released nationwide each year. Land purchases must be authorized by the competent authorities unless the law is manifestly inapplicable. Most notably, the approval process includes a review of corporate ownership and in some instances presumes foreign control. Evasion of the authorization requirement is punishable by up to three years in prison, and transactions without necessary authorization can be nullified later. 

Although these protectionist measures were not originally intended to combat the flow of illicit finance into the real estate sector, they appear to have had that effect. The number of money laundering cases in the Swiss real estate sector is relatively low. While the number of undetected cases is difficult to estimate, suspicious practices that have been reported in the news media are concentrated in those areas that are exempt from the protectionist rules. Recent examples that have gained national attention include a construction project in the Andermatt ski resort, which has been granted a special exemption by the federal government, and commercial property in Geneva, which does not fall under the scope of the legislation.

By contrast, immigrant investor schemes in other countries have facilitated the cross-border flow of illicit financial assets. Pursuing different variations of such schemes, the UK and other countries have deliberately sought to attract foreign investment and foreign ownership of residential property. For nearly three decades up to 2022, the British government ran a program that granted residency to anyone who invested a significant amount of money in the country; the program seemed targeted at wealthy people from former Soviet republics. Indeed, in the late 2000s, the mayor of London declared that he wanted “Russian companies to regard London as their natural base in Europe.”

Protectionism may therefore be a key variable in explaining the different trajectories of London and Zurich, and the Swiss experience suggests that protectionist measures in real estate can be an effective anti-money laundering tool. To be sure, property ownership and transfer restrictions are an imprecise instrument for corruption prevention, and sometimes the costs may outweigh the benefits. But for many countries, provinces, and cities, protectionism in real estate may be a viable fallback option when more targeted interventions, such as property or investor registration, are ineffective or unfeasible. New Zealand and Canada have recently started experimenting with similar restrictions, and there is an increasing interest in such measures across the US. The absence of “Zurichgrad” holds lessons for these and other countries contemplating to adopt protectionist policy in real estate. At any rate, it shows there is value in carefully considering the impact of such policies on money laundering prevention.