Frozen Bank Account & Frozen Assets

“Discover: Practical Insider-Analysis on Facts & Figures with Real Life Case Studies”

According to the last annual report by the Money Laundering Reporting Office of Switzerland (MROS) published in April 2017, 2,909 suspicious activity reports concerning suspected money laundering were lodged with the authority in the reporting year 2016. Each single one of these 2,909 reports caused at least one bank account to be frozen due to suspicious activity. But in the cast majority of cases, the report causes dozens of bank accounts to be frozen under an account freeze order. The freezing of a single isolated account is the exception rather than the rule. But there are also other types of frozen assets in addition to bank accounts, such as registering a caveat on the title of a property, which makes it impossible to sell the property to a bona fide buyer.

These record-breaking 2,909 suspicious activity reports leave no doubt that the fight against money laundering is yielding results, that it is picking up efficiency and that the authorities are relentless in its pursuit. The number of reports is expected to rise even further, adding to the exponential increase in the number of accounts affected by an account freezing order.

This record number of reports has resulted in accounts worth CHF 5,320,801,413 being locked down during the reporting year. Of all these cases, a mere 47.3% were referred to the Swiss public prosecutor for further action, while 34.5% were not referred for prosecution and 18.2% are pending with the reporting office.

Overview: Official Statistics for 2016 published by the Money Laundering Reporting Office Switzerland (MROS)
Frozen Assets /Frozen Bank Account Overview Reporting Office Statistics 2016

The graph shows that approx. 50% of reports concerned activities that were entirely within the law. It follows that in these approx. 50% of cases, the bank accounts of innocent regular bank clients were frozen. It is also a fact that only a fraction of the 47.3% of transactions referred to the prosecutor will end in a guilty verdict.

Enzo Caputo - Swiss Banking Lawyer“Every astute international business person must expect his or her accounts to be frozen and to be cut off from the financial resources needed to cover the basic living expenses. In more than 50% of account freezing orders, those suffering the consequences are respectable bank clients rather than criminals. Banks frequently freeze accounts without even informing the account holder of the action taken.”

Swiss law requires the predicate offence for money laundering to constitute a crime. Offences or misdemeanours do not give rise to the criminal act of money laundering. Under Swiss law, an unlawful act is classified as either a crime, an offence or a misdemeanour.

Frozen Assets / Frozen Bank Account Number of reports lodgedDefinition of a crime:
Crimes are all serious unlawful acts punishable by imprisonment for more than 3 years.

Definition of an offence:
Offences are punishable by imprisonment of up to 3 years.

Definition of misdemeanour:
The maximum term of imprisonment for a misdemeanour is only 3 months.

The predicate offences for money laundering must necessarily constitute a crime.
The following unlawful acts are examples of crimes:

  1. Fraud
  2. Corruption
  3. Theft
  4. Extortion
  5. Kidnapping

This catalogue of predicate offences is getting longer by the day. The FATF is increasing its pressure on Switzerland with each new year. The Financial Action Task Force on Money Laundering (FATF) is an international organisation based at the OECD in Paris.

Bank Account Frozen for No Reason

The FATF pressured Switzerland (some may say Switzerland was coerced) to amend its catalogue of predicate offences with very specific unlawful acts that are usually confined to special legislation, such as the Swiss Food Act, the Swiss Chemicals Act and the Swiss Therapeutic Products Act. The FATF required Switzerland to classify these acts as crimes. The catalogue of predicate offences is getting longer every year. It has become very difficult to comprehend in its full scope, even for lawyers specialised on money laundering law. Uncertainties in the proper application of the law are inevitable.

Frozen Assets / Frozen Bank Account Case Law 2016

Investigation terminated:
The Swiss Money Laundering Reporting Office (MROS) terminates its investigation because the suspected money laundering could not be confirmed.

Proceedings rejected:
The MROS refers the case to the public prosecutor’s office. The prosecutor decides not to file charges and terminates the case.

Proceedings suspended:
The public prosecutor’s office orders a preliminary suspension of the proceedings.

Judgements:
The public prosecutor’s office files charges in court

Money laundering:
Conviction for money laundering

Money laundering + predicate offence:
Conviction for money laundering and the predicate offence

Predicate offence only:
Conviction only for the predicate offence (example: corruption, fraud, extortion, etc.)

Acquittal:
The defendant is acquitted of the predicate offence and money laundering

The precise reasons for meeting the criteria that qualify for the unlawful act described in the catalogue of predicate offences and that may result in accounts being frozen is not readily recognisable. Many affected bank clients initially can’t think of any good reason for their account being frozen. The hard facts only surface much later in the process.

Why would they freeze a Bank Account?

Illustration & key – Reports due to information received

Frozen Assets / Frozen Bank Account-Reports due to information received

Category Description
Unclear business background The business background of a transaction is unclear; the customer refuses or is unable to give a plausible explanation.
Information of the Swiss Public Prosecutor The Swiss Public Prosecutor commences proceedings against a person associated with the counterparty of the financial intermediary.
Media A person involved in the financial transaction is known to the financial intermediary from media reports relating to unlawful activities. This category also includes information of the financial intermediaries from compliance databases operated by external service providers, who compile the information available in the media.
Information third parties / information group Financial intermediaries receive potentially problematic information about customers from external sources or another person within the group structure.
Transaction monitoring The financial intermediary monitoring the financial transactions of its customers becomes suspicious due to unusual account transactions.
Cash transactions The intermediary’s suspicions are based on unusual cash transactions.
Others The criteria of cheque transactions, forgeries, critical countries, change, securities transactions, smurfing, life insurance policies, cashless spot transactions, fiduciary transactions, loan transactions, precious metals, MROS-info and others fall under this category.

Frozen Assets Examples with Real Life Case Studies

China Belt Import Story

The case of an importer of China-made leather goods
One of my clients was in the business of importing leather goods from China for resale in Switzerland. Among the goods were leather belts. They were treated with a special chemical expressly designated as a controlled substance by the Swiss Chemicals Act and prohibited for use in clothing, with the unlawful act qualifying as a crime. Traces of this illegal chemical were then coincidentally detected by customs officers at Zurich Airport. The result of their random sampling was only the beginning of a long night mare and the demise of an entire business venture.

Frozen Bank Account Letter
Criminal proceedings were initiated immediately, with the prosecutor’s first official act being an order to freeze all accounts with all banks. The bank client was not even notified. By issuing a frozen bank account letter, he ordered the banks to not disclose his action to the bank client under any circumstances, unless there is a risk of collusion. My customer had absolutely no idea what was going on. He was left completely puzzled and bewildered. He had no idea if and with which chemical substances his leather belts had been treated.

What does a Frozen Bank Account mean?
His funds from other business transactions have been “blended” with the proceeds from the sale of the leather belts. The prosecutor qualified all funds controlled by the belt trader as contaminated funds. Banking law professionals who deal with money laundering in their daily practice use the term “contaminated funds” on a daily basis.

Definition: Contaminated funds
Contamination comes from the Latin word “contaminant”. A contamination is described as polluting, soiling or bringing something into contact with foreign substances. We know it as a medical term referring to easily transmissible diseases as contaminating diseases.
Clean funds have come into contact with funds attributed to criminal origins. The entire funds are therefore classified as contaminated funds.

Can a Bank freeze my Account without notice?
The belt importer has acted in good faith when collecting the proceeds from selling his leather belts. But he not only contaminated his private bank account, he has also brought much trouble for his many other, completely innocent business partners. The situation quickly escalated to catastrophic dimensions. He found himself unable to pay wages to his employees. Jobs were lost. The legal proceedings took year after year. Inadequate documentation of cash flows and the lacking cooperation of his business partners in China culminated in a financial trainwreck. He had to close shop only a few weeks later. There was nothing he could do other than depositing his accounts with the presiding judge and file for insolvency. Nobody shed a tear for his fate.

Enzo Caputo - Swiss Banking Lawyer“When it comes to account freezes, the authorities have been overshooting the target for a long time. Completely innocent bank clients are indicted out of the blue, bringing a legal nightmare upon them. Criminals roam free.“

How long can a bank account be frozen for?
In my legal practice, I am frequently surprised by the exorbitant duration of these kinds of proceedings. Some accounts remain frozen for many months or even years. Nobody cares whether people are losing their jobs over it, whether private schools, dentists, landlords, lawyers, etc. are no longer being paid and whether the family of the unlucky person will have to apply to social services for assistance. The belt trader couldn’t pay me because he was locked out of his accounts. Would he have paid me, I would have had to refuse his money because they are contaminated funds. My client was lucky enough to have a brother, who advanced the lawyer’s fees.

Frozen Bank Account Lawyer
Those who do not retain a specialist lawyer (frozen bank account lawyer) to restore access to the frozen funds may frequently be left in limbo for many years until access is eventually restored. The most aggravating factor in these cases is the extreme duration of these account freezes. It can turn the richest man in the world into a penniless beggar over night.

Enzo Caputo - Swiss Banking Lawyer“Any prudent international business person should be prepared for such a worst-case scenario. He must expect his business to be disrupted by account freezes that come without any notice. In our times, it’s not only criminals whose money is frozen. Strategies to protect yourself against these scenarios are however available.“

The remainder of this article will explain how you can protect yourself in the best possible way. Learn about our proven asset protection strategies, which are based on a long history of court-tested knowledge from our daily law practice.

Enzo Caputo - Swiss Banking Lawyer“The statistics show a rapidly increase in the number of account that are frozen from one day to the next without notice. The more stringent anti-money laundering laws, flanked by a questionable and rather exotic catalogue of predicate offences, have resulted in close to 3,000 suspicious activity reports and tens of thousands of frozen accounts.”

The small country of Switzerland had to bow to the extreme pressure exerted by the FATF and changed its criminal code by sanctioning rather unspectacular circumstances as serious crimes for the purpose of including them in the catalogue of predicate offences and thereby qualify them for the offence of money laundering.

In Switzerland, it used to be entirely normal for international companies to pay bribes to government officials in foreign countries. These bribes facilitated certain approval procedures and secured other types of benefits.

It was also fully legal to declare the bribes as deductible items on Swiss tax returns. Under pressure of the FAFT (Financial Action Task Force), Switzerland was forced to amend its national laws and to qualify the corruption of foreign government officials as a crime, from one day to the next. The FAFT wanted this particular offence to be included in the catalogue of predicate offences, come what may (see list). The FATF and the OECD pressured Switzerland to fight the corruption of foreign government officials with a much more stringent money laundering law, introduced without notice and implemented from one day to the next.

Enzo Caputo - Swiss Banking Lawyer“Corruption and fraud are now the most frequent predicate offences for money laundering. The legal sensibilities have changed drastically. What was lawful yesterday has become a crime by the next morning.”

The most frequent predicate offences (excerpt from the catalogue of predicate offences):

  • Fraud
  • Bribery
  • Money laundering
  • Embezzlement
  • Fraudulent abuse of an IT system
  • Criminal organization
  • Narcotics offences
  • Unfaithful business management
  • Document forgery
  • Other Property offences
  • Theft
  • Terrorism
  • Share price manipulation
  • Human trafficking and sexual offences
  • Benefit and tax fraud
  • Abuse of office
  • Insider trading
  • Arms trade
  • Extortion
  • Tax offences
  • Bankruptcy and debt enforcement crimes
  • Battery
  • Counterfeit goods
  • Robbery
  • Human trafficking
  • Product piracy
  • Counterfeit money
  • Lack of due diligence in financial transactions

As an astute international business person, you should be familiar with making arrangements for the future to keep your company on a success trajectory.

How to unfreeze a bank account and how to protect yourself making it impossible to freeze your bank account

The Madrid Police Raid

A Spaniard with fully taxed funds from predicate offences that are already time-barred

Investigators raided and searched the home of one of my clients in Madrid. The Spanish prosecutor had no solid evidence to show, but didn’t hesitate to make outrageous assertions. My client had previously made a voluntary self-disclosure, which meant that the funds sitting in his Swiss bank account were fully declared and legalised. This is why he was spared being arrested. His two bank accounts with a bank in Zurich, Switzerland, opened by his wife in the name of an offshore company in the Bahamas, were however frozen by Swiss authorities on the same day his home in Spain was searched.

Here again, the bank was asked not to inform the customer. The funds had already been in Switzerland for more than 10 years. In my professional judgement as a specialist lawyer, the criminal offences in Spain were already time-barred under the statute of limitation. How this order was justified remains a mystery to me until this day.

A fax from Madrid to Bern was followed by a second fax from the Federal Prosecutor’s Office in Bern to both banks. That’s all that was needed to get the accounts frozen. Again, the funds in Switzerland were fully declared and legalised by way of a previous voluntary self-disclosure. A petition to release 20,000 Euro so the children’s occupational school in Spain could be paid was flat-out refused without even stating reasons. This clearly shows how merciless the authorities can take action in cases like this. Many affected account holders ask what this could possibly have to do with serving justice.

The Casino Software Programmer

The case of a software programmer for casinos in Curacao

The importer of leather belts in the example above did in fact breach the Swiss Chemicals Act. Another one of my clients also had all of his accounts frozen – without having done anything wrong at all. He was completely innocent. He had to ask his father-in-law for money to pay for my legal services. But instead of helping him out, his father-in-law turned to criminalising him.

Enzo Caputo - Swiss Banking Lawyer“Relatives, colleagues and friends frequently turn their backs on the victim and cut off all contact.”

What happens if your Bank Account is frozen?
My client was programming software for slot machines that were installed in casinos in Curacao. He had around 20 student employees writing software code for him in Vilnius, Lithuania. He made money by selling or leasing his slot machine software, mainly to licensed casino operators. A casino in Curacao in the Netherlands Antilles instructed several payments of between USD 80,000 and 240,000 to be transferred to his bank accounts in Switzerland. Another casino operator from the Netherlands, who coincidentally used the same company name as the casino in Curacao, was at that time involved in a high-profile criminal case in the Netherlands.

Why would a bank freeze a bank account?
The newspaper reported about the criminal case and made several mentions of the name of the casino. The bank discovered the news article and immediately lodged a suspicious activity report with the Money Laundering Reporting Office (MROS). That single newspaper report resulted in all of his accounts being frozen. All banks have to use software in their efforts to combat money laundering. The most successful software is called “World-Check”.

How do you unfreeze a bank account?
After a couple of weeks, an official request for international legal assistance was received from the Netherlands. By then, he was no longer able to pay his programmers in Vilnius. Virtually all of his programmers abandoned ship. I was ultimately able to convince the Swiss prosecutor handling the case that the casino in Curacao had absolutely nothing to do with the casino in the Netherlands. But he informed me that the investigation is the responsibility of the Dutch authorities, not the ones in Switzerland.

Switzerland was merely performing its obligations under the request for international legal assistance. He stated that he was not authorised to interfere in criminal proceedings conducted in a foreign country. I then contacted the Dutch authorities directly in an effort to help my client out of this jinxed situation. The account was only unfrozen after we had collected comprehensive company documents and other documents showing the owners of the casino in the Caribbean and presented them to the authorities in Switzerland and the Netherlands. Finally they realised that the two casinos were totally unrelated and that my client was completely innocent. My client suffered enormous damage and was left to his own devices in stemming the financial consequences.

When I liaised with the bank to raise the issue of compensation for the unsubstantiated report, my request was turned down immediately with the bank claiming that it was my client’s own fault that the proceedings were opened in the first place. Whenever the issue of compensation is raised, banks will immediately close their eyes and ears. I would have liked to advance the claim for compensation, but my client wanted nothing to do with it. He was relieved that access to his account had been restored. Anything more would have wrecked havoc on his nerves.

Enzo Caputo - Swiss Banking Lawyer“A comprehensive liability waiver for banks was only introduced to the Swiss Money Laundering Act a few years ago. Banks are not liable for suspicious activity reports that turn out to be unsubstantiated. The legislator wanted to create a risk-free scenario so the banks would collect as many suspicious activity reports as they can. This means: The customer always loses and the number of reports is growing exponentially. There will be a dramatic rise in the number of frozen accounts.”

What needs to be done to ensure access to sufficient liquid funds in the worst-case scenario?

You need safe-harbour accounts in a safe country abroad. The neighbouring countries are out of the question because international legal assistance between neighbouring countries is becoming ever more efficient. Opening an account in the name of an offshore company is also futile as the details about the beneficial owners that effectively control the company are quickly transmitted across the border. This is a seamless process in our times. The system of automatic exchange of information between countries ensures that the tax authorities are informed automatically.

You need to select a country that is not under any influence of the OECD.As alternative, you can open a safety box with an institution out of the banking system. We have had positive experiences with banks located in certain countries outside of Europe.

Enzo Caputo - Swiss Banking LawyerI appreciate your understanding that this is not the best place to disclose the names of those jurisdictions that we are using to develop asset protection strategies for our clients. Asset protection strategies that work as they are supposed to do when a worst case scenario unfolds.

Call my office now if you need your funds to be released from the claws of our overzealous justice system. If you prefer not to be exposed to the scenarios described in this article, contact me today to learn more about international asset protection that really works.

You can call me on my direct line: +41 44 212 44 05
or send an email to [email protected]

It’s never too early, but often too late.
Be rich, stay rich.

Enzo Caputo Attorney