On August 30 2023, the Swiss Federal Council published a preliminary draft of a proposed Federal Act on the Transparency of Legal Entities (the Proposal) and invited the public to submit comments. The Proposal aims at implementing recommendations by the Financial Action Task Force and the Global Forum on the transparency of Swiss legal entities to comply with international standards.
This article provides an overview of one element of the Proposal: the increased identification requirements for legal entities and the respective federal register to be created.
Present situation
Swiss law requires certain shareholders of limited companies and limited liability companies to disclose their beneficial owner(s) to the company. In turn, the company must maintain a register of those beneficial owners. Failure by shareholders to disclose bars them from exercising their shareholder rights and may result in a fine. This regime would be replaced under the Proposal.
New regime
Beneficial owners are all natural persons who ultimately control a legal entity by:
Directly or indirectly, alone or with a third party, holding at least 25% of the capital or voting rights in the legal entity; or
Exercising control by other means.
If neither of the above criteria is fulfilled, the most senior corporate officer of the relevant legal entity shall be deemed to be the beneficial owner.
As regards obligations, the Proposal distinguishes between the legal entities, their shareholders, and their beneficial owners:
Legal entities must identify their beneficial owners, including their name, date of birth, citizenship, address, and any information necessary on the nature and scope of their control. They must review the information and keep it up to date, by obtaining documentation that must be accessible from Switzerland.
Shareholders must disclose the information on the beneficial owner(s) that the legal entity must collect and any subsequent changes thereto. Disclosure must occur within a month after the relevant stake has been acquired or control has been obtained in another way. Upon request, the shareholders must provide information and evidence necessary to verify the identity or capacity of the benefial owner.
Beneficial owners must disclose their beneficial ownership and any subsequent changes of the information provided in this respect within a month to the direct shareholders of the legal entity (if they hold a direct participation in them) or to the legal entity directly (if the chain of control has more levels or they exert control in another way). Also, they and third parties within the chain of control must provide the necessary information and evidence.
Additionally, fiduciary relationships of board members, management, or shareholders must also be disclosed. Some of these relationships will also have to be registered in the publicly accessible register of commerce.
These obligations apply to certain Swiss legal entities, including:
Limited companies;
Limited liability companies;
Investment companies with variable capital;
Investment companies with fixed capital;
Associations; and
Foundations.
They also apply to foreign entities with sufficient connections to Switzerland (particularly those that own real estate in Switzerland) and trustees who have their domicile or seat in Switzerland or who administer Swiss trusts. Certain exceptions will apply; namely, in connection with listed companies.
Furthermore, a new federal register of beneficial owners shall be created to document the beneficial owners' identities and the nature and scope of their control. The necessary information must be provided by the legal entities. The register will be maintained by the Federal Department of Justice and Police.
Among others, criminal prosecutors, the Money Laundering Reporting Office Switzerland and self-regulatory organisations, tax authorities, and Swiss intelligence agencies, but also other authorities and land registries, may access the register. Access will also be granted to financial intermediaries and lawyers with obligations under Swiss anti-money laundering regulation. Notably, financial intermediaries and authorities will have to notify the register if they identify discrepancies between the information reflected in the register and their own information under certain conditions.
Violations of some of the disclosure obligations may lead to criminal fines of up to CHF 500,000 in the case of intent or CHF 150,000 in the case of negligence. Furthermore, repeated or severe violations of the duty to inform the register may ultimately result in the dissolution of the respective company.
Next steps
The public consultation ended on November 29 2023. The Federal Council will now review the submitted comments. It is expected that the Federal Council will prepare and introduce draft legislation to the Swiss parliament in 2024.
It remains to be seen to what extent the Proposal will be amended, but it is to be expected that overall disclosure requirements will increase compared to the present situation. According to government estimates, 500,000 legal entities will be subject to this new regime.
Even with several exemptions (which are yet to be clarified), the Federal Council's expectation of an average administrative workload of 20 minutes per company (in the first year) seems questionable at best.
