Author Archives: Ivan Gunjic

Why Is There No Zurichgrad? Protectionism in Swiss Real Estate

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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”? Continue reading →

Corporate Transparency Is the Next Step in Switzerland’s Fight Against Corruption

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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.

Continue reading →

Institutionalizing People Power: How Switzerland Overcame Systemic Corruption

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How do states escape pervasive corruption? Expanding the small set of success stories, a burgeoning line of research (see here, here, here, here, or here) seeks answers to this question through the study of polities that have achieved control of corruption before Second World War. This group of so-called “early achievers” mostly consist of Western and Northern European countries as well as territories that seceded from them. One lesson that has been drawn from the study of early achievers is that the gradual depoliticization of governance is an essential step on a society’s path to becoming free from endemic corruption. Indeed, some have suggested that transitioning to a robust democracy before building a sufficiently effective and clean state is a recipe for corruption and state capture, as political parties will organize on clientalist lines and focus mainly on capturing rents. The key to combating systemic corruption, on this account, is building a strong and professional class of civil servants and judges who are insulated from politics.

The case of Switzerland, which has received little attention so far, presents a puzzle in this regard. Now a textbook example of effective (domestic) corruption control, early nineteenth century Switzerland shared many of the klepocratic governance patterns we find in low- and middle-income countries today. Long dominated by a handful of wealthy families, from the 1830s onwards Swiss state institutions fell under the sway of a group of entrepreneurs involved in the financing and organization of railway construction. These “Railway Barons” dominated Swiss politics through a web of patronage networks and used the captured institutions of the state to assert their individual interests. But by the beginning of the twentieth century, Switzerland was free from such systemic corruption. Remarkably, and contrary to conventional thinking about early achievers, Switzerland accomplished this not by limiting democracy, but by doubling down on it. Continue reading →