The PRC exchange control-related compliance duties of Swiss banks towards PRC residents’ deposits

Author:John Liebeskind
Position:Meyerlustenberger Lachenal, Geneva, Switzerland
Pages:62-75
SUMMARY

Purpose This paper aims to discuss the compliance duties of Swiss banks toward the Chinese exchange control in case of PRC residents’ deposits. Design/methodology/approach The paper matches the Swiss regulatory framework and practice in matter of banks diligence with that of the PRC exchange control and tentatively identifies the consequences resulting thereof for Swiss banks. ... (see full summary)

 
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The PRC exchange control-related
compliance duties of Swiss banks
towards PRC residentsdeposits
John Liebeskind
Meyerlustenberger Lachenal, Geneva, Switzerland
Abstract
Purpose This paper aims to discuss the complianceduties of Swiss banks toward the Chinese exchange
controlin case of PRC residentsdeposits.
Design/methodology/approach The paper matches the Swissregulatory framework and practice in
matter of banks diligence with that of the PRC exchange controland tentatively identies the consequences
resultingthereof for Swiss banks.
Findings The paper nds that exchange control does fall within the scope of the Diligence Code. It
suggests that banks should broadlyinterpret the related provisions. While in case of infringement, Chinese
penalties can still be rated as a remote and moderate threat, they might strengthen. Meanwhile, the Swiss
ones, underthe Code, are serious.
Research limitations/implications The paper does not cover other forms of overseas investment
from China, namely, commercial investment. Besides, there is no related jurisprudenceor practice as of yet;
therefore,the ndings of the paper need to be tested.
Practical implications The paper suggests that the compliance ofcers of Swiss banks should
familiarizethemselves with the specicities of the PRC exchange controlto anticipate the related risks.
Originality/value Sino-Swiss compliance and bilateral assistance in nancial matters are still
uncharteredwaters. Because the Greater China market is of growing signicancefor Swiss banks, they might
welcome earlyguidance to avoid repeating their mistakeswith the USA and the EU.
Keywords China, Switzerland, Compliance, Bank deposits, Diligence duties, Exchange control
Paper type Research paper
China maintains a strict exchange control regime,in particular, for outbound investment. It
has recently intensied its crackdown on capital ight. The matter cannot not quite be
dismissed as theoretical as cumulated gures up to the trillions of Chinese yuan
representing a two-digitportion of the Chinese currency reserves are mentioned.
This article discussesthe compliance duties of Swiss banks toward the Chinese exchange
control in case of PRC residents deposits.
Specically, this paper assesses the compliance duties Swiss banks and nancial
intermediaries may have, under Swiss law, toward the PRC FOREX[1], i.e. specically,
under the four core legal and regulatory basis that are the Diligence Code, the Money
Laundering Ordinance of the Swiss Financial Markets Surveillance Authority (FINMA)
(the OBA-FINMA)[2],Art. 305bis and ter of the Swiss Criminal Code, and the Federal Law
on Combating Money Launderingand Terrorist Financing (LBA)[3][4].
1. The Diligence Code
The Diligence Code is an auto-regulatory instrument whose primary purpose is to regulate
the opening of bank accounts to theeffect of identifying its holder, its economic beneciary
JMLC
22,1
62
Journalof Money Laundering
Control
Vol.22 No. 1, 2019
pp. 62-75
© Emerald Publishing Limited
1368-5201
DOI 10.1108/JMLC-11-2017-0064
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/1368-5201.htm

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