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Newsflash: Tightening of the Swiss FATF Transparency Rules in force as of 1.11.2019

01.11.2019

After Switzerland, due to international pressure, had introduced on 1 July 2015 increased transparency rules for corporations (obligation to notify bearer shareholders and ultimate beneficial owners), a massive tightening of these special provisions has come into force on 1 November 2019. Despite the revision, there are still significant ambiguities with regard to the practical implementation of the law.

1. What are the key changes?

1.1 Abolition of Bearer Shares
Bearer shares will in future only be permitted in Switzerland if the corporation has equity securities listed on a stock exchange or if the bearer shares are structured as intermediated securities. To adapt to this drastic change in the law, namely by converting the existing bearer shares into registered shares, stock corporations with bearer shares benefit from a transitional period until April 30, 2021. Compliance with this deadline is strongly recommended.

1.2 Criminal Sanctions
Under the new law, the intentional breach of the obligation to report the ultimate beneficial owners can now be sanctioned with a fine. The same applies to the improper keeping of the share register or of the register of ultimate beneficial owners, respectively. The latter also constitutes a deficiency in the organization of the company, which can ultimately lead to the drastic measure of the dissolution and liquidation of the defaulting company ex officio.


2. Only Punctual Clarification of Open Questions
 
2.1 Who must report?
Under the new law, whoever, alone or acting in concert with third parties, acquires shares in a Swiss company and thereby reaches or exceeds the threshold of 25% of the capital and/or voting rights, is still obliged to report the natural persons on whose behalf it is ultimately acting (so-called ultimate beneficial owners).

2.2 What applies to Listed Corporations?
If a so-qualified shareholder generally subject to the reporting obligation is a corporation whose participation rights are listed on a stock exchange, which is controlled by or controls such a corporation, it must report to the company this fact, as well as the name and registered office of the corporation in question, but not the possible ultimate beneficial owners.

2.3 Who is to be reported as an ultimate beneficial owner?
As of yet, there has been no clear legal requirement as to the criteria according to which the ultimate beneficial owners are to be determined, namely in multi-level participation structures. The new law now declares the concept of control as used in the accounting law for the determination of the duty to establish consolidated accounts (Art. 963 para. 2 Swiss Code of Obligations) to be applied to this question by analogy. If the qualified shareholder is a legal entity or a partnership, it must report as its ultimate beneficial owner any natural person who:
1.    directly or indirectly holds the majority of the votes in the supreme body of the qualified shareholder;
2.    direct or indirectly has the right to appoint or remove the majority of the members of the supreme management or administrative body of the qualified shareholder; or
3.    is able to otherwise exercise a controlling influence on the qualified shareholder (e.g. based on the articles of association, a shareholders' agreement or based on its position in the company).

2.4 What if there are no ultimate beneficial owners?
If there is no natural person being the ultimate beneficial owner, the qualified shareholder must report this fact to the company (so-called negative notification). This seems to clarify that in this case there is no need for a purported substitute notification of the leading member of the highest management or administrative body.

2.5 What if the ultimate beneficial owners cannot be identified?
It remains unclear, however, whether this applies equally if ultimate beneficial owners exist but are not known to the reporting shareholder or if they cannot be identified by it despite careful (reasonable) investigation. In view of the drastic sanctions, a so-called substitute notification of the leading member of the supreme management or administrative body of the reporting legal entity or of the highest controlling legal entity, respectively, is advisable in these cases until such time as a binding judicial decision has been taken on this issue.

2.6 How to deal with multi-level participation structures?
Even though there is still no clear legal specification as to how the ultimate beneficial owners in multi-level participation structures are to be determined, it can be assumed that the controlling natural persons are to be appointed in accordance with the outlined criteria at the level of that top-tier parent company, which has a controlling position within the meaning of Art. 963 para. 2 Swiss Code of Obligations, at every level of shareholding above the qualified shareholder.


3. Conclusion

Following the entry into force of the tightened FATF rules, there will be an increased duty of care for both the reporting shareholders and corporate bodies responsible for keeping the share register and the register of ultimate beneficial owners, respectively. It is unfortunate (and regrettable from a rule of law standpoint) that though the new provisions are still incomplete and unclear on key issues, they nevertheless expose the addressees of the law to the risk of criminal sanctions.

 

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