Switzerland’s property sector must close money-laundering loopholes and be more tightly controlled, asset recovery specialists warn.
According to the Swiss government, real estate is not used systematically for money laundering but a “risk of abuse” exists.
“The real estate business in Switzerland must become subject to anti-money laundering legislation,” asset recovery expert Mark Pieth told swissinfo.ch.
According to Pieth, who is chairman of the board of the Basel Institute on Governance, the 2008 financial crisis caused a fundamental shift in investment strategies.
“A lot more money is being invested in real estate which previously would have probably ended up in shares,” he explained.
Pieth said considerable flows of uncontrolled funds were finding their way into Switzerland.
“There are always cases with Russians backing high-profile projects, whether it be buying hotels or major real estate infrastructure,” he added.
When a Swiss resident deposits over SFr10,000 ($10,929) in their bank account, they must provide details on where the money comes from. But similar checks are not required when large sums of cash are used to buy property.
This encourages money laundering and the impact of this loophole is significant, said Pieth.
“Switzerland remains a hub for illegal money, property prices are put under massive pressure and it exacerbates the already tense housing market,” he commented.
The introduction of the new Swiss banking ‘clean money’ strategy could mean more dirty money will end up in property, suggested Pieth.
It is high time that real estate agents are reminded of their responsibilities, said the Swiss lawyer.
Together with independent legal professionals and notaries – as well as banks and insurance firms – they should become subject to Swiss anti-money laundering law, which has not been the case up to now, he argued.
Real estate money laundering was one of the main topics discussed at a conference on asset recovery on April 12 organised by Zurich University’s Europa Institute.
“In Switzerland, property trading should come under anti-money laundering legislation as a preventive measure and to increase awareness within the sector itself,” Michael Kilchling, a researcher at the Max-Planck-Institute and lecturer at Freiburg University, told swissinfo.ch.
“European Union member states follow an international standard – the EU’s Third Money Laundering Directive – that ensures money laundering controls of the real estate sector.”
Kilchling agreed with Pieth that Swiss real estate had attracted an increased flow of wealthy investors since 2008.
“Exorbitant amounts of money are not uncommon in this sector as well as speculation,” he said.
“Money laundering is a criminal offence that is constantly evolving and looking for new opportunities,” said Kichling.
“Following the financial crash many investors, including money-launderers, realised that they had lost money on the markets while property remained a safe investment.”
But he was more cautious as to whether inflows of illegal money have ratcheted up property prices.
“As soon as a bank is involved it has to make inquiries about the origins of the funds,” he said.
But Swiss real estate agents, legal professionals and notaries should certainly be bound by the same laws as those in the EU, he noted.
When the Swiss government last tried to include real estate in money-laundering legislation, they were prevented by powerful property lobbies. Now that the question is again on the table, the Swiss Real Estate Association (SVIT) is once more on the defensive.
“We already have enough instruments to combat money laundering. And we reject the notion that the real estate sector should be subject to general suspicions,” SVIT director Tayfun Celiker told the consumer magazine Beobachter.
For Kilchling it is obvious: “If you look at Germany, each sector where controls are carried out protest out of principle and based on their own interests. In Germany we had the same debate a few years ago when notaries became subject to money-laundering directives. Their lobbies protested quite vehemently but without success.
“In Germany we are clearly under pressure from Brussels as the EU money-laundering directive has to be implemented.”