1

English is not an official language of the Swiss Confederation. This translation is provided for information purposes only and has no legal force.

10.039

Dispatch concerning the Federal Act on the Restitution of Assets of Politically Exposed Persons obtained by Unlawful Means (Restitution of Illicit Assets Act, RIAA) of 28 April 2010

Presidents of the Councils, Ladies and Gentlemen,

With this Federal Council Dispatch, we submit to you a draft text of the Federal Act on the Restitution of Assets of Politically Exposed Persons obtained by Unlawful Means, with our recommendation for adoption.

In addition, we ask you to file the following parliamentary request:

2007 P 07. 3459 Entraide judiciaire avec les « Etats défaillants » (N 05.10.2007)

2007 P 07. 3459 Rechtshilfe im Falle von „failing states“ (N 05.10.2007) [Mutual assistance in cases of failing states]

Yours sincerely,

28 April 2010 On behalf of the Swiss Federal Council:

The President of the Swiss Confederation, Doris Leuthard The Chancellor, Corina Casanova

2

Summary

The unlawful assets of “politically exposed persons”(PEPs) creates a problem for the Swiss financial centre, at the national level, and a problem for development, at the international organisation level. It concerns Switzerland in particular if such funds disappear from the country where they have been misappropriated and re-surface in international financial centres, such as Switzerland. Since the end of the 1980s, following several high-profile cases (Marcos, Abacha, Montesinos), Switzerland has responded with a proactive policy of returning unlaw-fully obtained assets of PEPs to their rightful owner. Through this policy Switzer-land has taken a leading role in the field of restitution. Specifically, it has developed a system based on two pillars: prevention and mutual assistance. The first, preven-tion, has been strengthened through links with the banking sector; in this context the Federal Act on Combating Money Laundering is one of the main instruments. The second pillar is based on the Federal Act on International Mutual Assistance in Criminal Matters which authorises cooperation with other states for the purpose of seizing unlawfully obtained assets and returning them to their rightful owner. Over-all this system has produced good results. In the past 15 years, it has enabled Swit-zerland to return almost 1.7 billion Swiss francs to the countries of origin – much more than any other financial centre. Nevertheless, the growing phenomenon of so-called “failing states” has shown up the limits of the system, in particular in the Mobutu and Duvalier cases. The draft law therefore comes into existence as a result of difficulties encountered by the Swiss authorities in returning assets frozen in Switzerland to such states following the failure of the process of international mutual assistance to produce a satisfac-tory result. The aim of the law is to prevent such situations from recurring and to resolve cases of assets that have been frozen on the orders of the Federal Council, on the basis of Art. 184 para. 3 of the Federal Constitution, and which theoretically could still be outstanding when the new law comes into force, which will probably be the case with the Duvalier assets. The draft law provides for a subsidiary solution to the Federal Act on International Mutual Assistance in Criminal Matters. In contrast to criminal law, it makes the distinction between the conduct of PEPs and the unlawful origin of their assets. In this way it provides for a different approach to the criminal prosecution of the PEP concerned and enables the forfeiture of assets that have clearly been obtained by unlawful means without the need for a criminal conviction against the PEP in ques-tion. To resolve cases of illicit assets of PEPs deposited in Switzerland, the draft law comprises the three instruments of freezing, forfeiture and restitution in situations when the state of origin of the assets in question is unable to conduct a criminal procedure that meets the requirements of Swiss law on international mutual assis-tance. To do this the draft law provides for a procedure before the Federal Adminis-trative Court in which this law is applied to the case in question, thereby ensuring that the rights of the PEPs concerned are respected. The subsequent judgement, against which an appeal can be submitted before the Federal Supreme Court follow-ing approval by a judge, permits if necessary the forfeiture of assets of unlawful origin which have been frozen pending their restitution to their state of origin by means of a transparent procedure.

3

Table of contents Summary

1 Presentation of the object 4 1.1 Introduction 4 1.2 Developments at the international level and Switzerland's position 5 1.3 Current legal framework 7 1.4 Limits to the current legal framework 8 1.5 Object and purpose of an amendment to the current legal framework 9 1.6 Comparison of laws 11 1.7 The draft law submitted for consultation 12

1.7.1 Purpose and object 13 1.7.2 Applicability 14 1.7.3 Presumption of unlawful origin and forfeiture 15 1.7.4 Statute of limitations 16

1.8 Parliamentary requests 17 1.9 Result of the consultation 17

2 Commentary 19 2.1 The structure of the Act 19 2.2 Commentary on the individual provisions of the Act 19

3 Implications 34 3.1 For the Swiss Confederation 34 3.2 For the cantons 34

4 Links with the legislative planning 34 5 Legal aspects 34

5.1 Constitutionality 34 5.2 Compatibility and coherence of the Act in respect of Switzerland's

international obligations 36 5.2.1 European Convention on Human Rights 36 5.2.2 United Nations Convention Against Corruption (UNCAC) 37

5.3 Relation with European law 38 5.4 Form of the act to be adopted 38

Appendix 1 39 Appendix 2 42 Appendix 3 44

4

1 Presentation of the object 1.1 Introduction

At the time of the fall of Ferdinand Marcos in 1986, the Federal Council made it clear that it attached the greatest political importance to combating abuse of Switzer-land's financial centre. In this sense, the Marcos affair cleared the way for the freez-ing of assets in the Duvalier (2002) and Mobutu (2003) affairs. It was also one of the reasons that the Federal Act on International Mutual Assistance in Criminal Matters (MAA)1 was revised with the aim of simplifying and accelerating mutual assistance proceedings and upholding the reputation of Switzerland's financial industry.

Efforts to safeguard the reputation of Switzerland's financial centre were not limited to mutual assistance alone. In collaboration with the banks and the Federal Banking Commission (now FINMA), a system was created that strengthened the prevention, identification, freezing and restitution of assets acquired by unlawful means. The Money Laundering Act (MLA) is an important element of this system. It protects Switzerland's financial centre by prohibiting the inflow of assets obtained unlaw-fully. In addition, it places the banks under greater responsibility in situations where they have dealings with politically exposed persons (PEPs). Finally, the Act permits the necessary criminal proceedings to be instigated in the event that it is violated. Should assets obtained unlawfully by PEPs enter Switzerland despite all of these precautions, they may be frozen by means of an application for mutual mutual assistance or by order of a public prosecutor or an investigating magistrate on the basis of the corresponding provisions of criminal law.

However, a legally binding ruling in Switzerland and as a rule in the plundered country is required before the assets in question can be forfeited, thereby paving the way for restitution. This is proving difficult in an increasing number of countries in which state structures are failing – known as "failing states"2. According to the World Bank, "failing states" refers to countries that are confronted with particularly serious developmental problems. These include a lack of institutional capacities, poor governance, political instability, frequent outbreaks of violence and the legacy of serious conflict in the past3. Faced with such challenges, these states often fail to conduct mutual assistance proceedings owing not only to a lack of capacity but also in some cases to a lack of political will. It is morally reprehensible that, in such cases, it is precisely the PEPs who benefit from the poor state of the country's judi-cial system, having themselves contributed to or even orchestrated its decay.

1 SR 351.1

2 In 2001 the World Bank classified 17 countries as "failing states"; by 2007, this figure had already risen to 33. In these countries, malnutrition is 50% higher than the average, infant mortality is 20% higher, and the percentage of children completing basic schooling is less than 18%. These countries therefore have the least chance of attaining the Millennium Development Goals. For countries which have just emerged from conflict, the difficulty of combating poverty is as great as the danger that hostilities will flare up again. According to World Bank estimates, there is a danger that conflict will break out again in 40% of these countries within the following decade. http://go.worldbank.org/D9DZGGZL60

3 http://go.worldbank.org/VP1X5HK6I0

5

If mutual assistance proceedings prove unsuccessful under such circumstances, then Switzerland must lift the freeze on assets even if they are of criminal origin. This was the case in the Mobutu affair. This can cause considerable damage to Switzer-land's financial centre and to how our country is perceived abroad, as foreign media coverage regularly shows. Switzerland is seen less as a country which combats corruption and impunity, but rather as one which favours dictators or their heirs. By accepting the Gutzwiller Postulate, the Federal Council expressed its desire to con-tinue improving the system that has been developed since 1986 and to implement fully its wish to establish, subject to strict conditions, a facility in law to seize unlawfully obtained assets held by PEPs with a view to ensuring that they are ulti-mately returned to the country of origin in a transparent process.

1.2 Developments at the international level and Switzer-land's position

According to World Bank estimates, corruption among holders of public office accounts for the misappropriation of between 20 and 40 billion US dollars each year. This corresponds to 20-40% of annual global development aid4. For this reason, for some years now there has been a greater and more concerted effort to return assets and to combat impunity and corruption

The Organisation for Economic Cooperation and Development (OECD) takes the view that "corruption directly hinders donor organisations and recipient countries in achieving their common aims and, specifically, the Millennium Development Goals"5. The Group of States Against Corruption (GRECO) is a commission estab-lished by the Council of Europe on 1 May 1999. Its remit is to enable members to combat corruption more effectively. To this end, GRECO evaluates the extent to which member states comply with the legal norms laid down by the Council of Europe. It uses mutual evaluation and peer pressure to achieve its aims. The United Nations Office on Drugs and Crime (UNODC) is responsible for the monitoring and implementation of the United Nations Convention Against Corruption6 (UNCAC), which entered into force in 2005. The International Association of Anti-Corruption Authorities (IAACA) provides a platform for specialist practitioners to share experi-ences in combating corruption and to discuss methods and experiences concerning the restitution of assets. At the end of 2007, the World Bank and UNODC joined forces to launch the Stolen Asset Recovery (StAR) initiative7, which provides devel-oping countries with technological and legal support to facilitate the recovery assets of criminal origin. The importance of recovering assets is thus gaining in importance at the international level from both the financial and development policy perspec-tives.

4 Stolen Asset Recovery (StAR) Initiative: Challenges, Opportunities, and Action Plan, The International Bank for Reconstruction and Development / The World Bank, Washington, 2007; http://siteresources.worldbank.org/NEWS/Resources/Star-rep-full.pdf

5 L'OCDE lutte contre la corruption, OECD publications, Paris, August 2006, http://www.oecd.org/dataoecd/36/50/37418926.pdf

6 Switzerland ratified the Convention on 24 September 2009; cf. section 5.5.2.

7 http://www.unodc.org/unodc/en/press/releases/2007-09-17.html

6

Switzerland already has almost twenty years of practical experience in the restitution of assets that have been acquired by unlawful means. In the past two decades it has returned more than 1.7 billion Swiss francs in assets of criminal origin. It is also a leader in terms of expertise in this area. However, to maintain this leadership role it must continue to develop its set of legal instruments. In this way, it has committed itself to the global application of the rules and principles of mutual mutual assistance and to ensuring that stolen public assets are returned to the people in the country of origin concerned – even if that state is no longer capable of fulfilling the remit incumbent upon it.

Conscious of this need, Switzerland has already taken several steps at the interna-tional level. For example, it played a leading role in developing the UNCAC, in particular as chair of the editorial committee that drew up Art. 57 on the return of assets. Switzerland is pursuing this commitment because it wants to help the Con-vention become an effective instrument in the fight against corruption. Switzerland is also involved in other multilateral fora such as the International Association of Anti-Corruption Authorities (IAACA). In addition, it offers financial support and cooperates with the StAR initiative. Furthermore, it supports the International Centre for Asset Recovery (ICAR) which was set up by the University of Basel in 2006 and is dedicated to improving capacities in the legal systems of developing countries through training magistrates and investigators in procedures concerning the return of assets. In the same way as specific events such as the Lausanne8 meet-ings, these international initiatives and fora offer Switzerland the opportunity to express and demonstrate its commitment.

In this way Switzerland's policy on combating economic crime by PEPs has been enhanced and improved over the past twenty years. They now form a coherent system that comprises the following five components:

I. Preventing corruption

Swiss foreign and development policies attach great importance to combating cor-ruption in states with which Switzerland collaborates. For example, specific meas-ures are implemented in the context of "good governance" programmes9. All coop-eration agreements contain clauses about combating corruption. II. Identification of clients and the origin of assets

The strict rules of anti-money laundering legislation oblige Swiss banks and all other providers of financial services to identify not only their contracting partners but also the beneficial owners of the assets concerned ("know your customer" rule). In addi-tion to these obligations, the Money Laundering Act provides for particular manda-

8 Since 2001, the FDFA has organised regular meetings in Lausanne of international experts in the recovery of assets of PEPs obtained by unlawful means. 9 For example, the SDC (Swiss Agency for Development and Cooperation) supports Mozambique with decentralisation and democratisation as well as NGOs and the promotion of decentralised governmental structures and instruments for participative planning. For further activities, please consult: http://www.deza.admin.ch/en/Home/Countries/Eastern_and_Central_Africa/Madagascar

7

tory enquiries in dealings with PEPs. Swiss banks are regarded as having a major role to play in combating illegal assets. To this end, since 1977 they have been applying their own strict due diligence requirements. III. Reporting and freezing Banks and other financial intermediaries are obliged to report all suspicious transac-tions to the Money Laundering Reporting Office (MLRO). In such cases, accounts which are the subject of reasonable grounds for suspicion are immediately frozen for five days so that the matter can be examined and the disappearance of the assets can be prevented. Swiss banking secrecy offers no protection against prosecution for criminal acts either in its domestic law or in the context of international mutual assistance proceedings. Additional measures prevent the withdrawal of assets before foreign authorities have the opportunity to submit a formal mutual assistance re-quest. IV. Mutual assistance If a state submits a request for mutual assistance that fulfils the requirements of the Federal Act on International Mutual Assistance in Criminal Matters (MAA), Swit-zerland provides the requesting state with information on suspicious accounts that may be used as evidence in criminal and court proceedings. V. Restitution of assets Together with the states concerned, Switzerland seeks ways and means of returning the assets to their rightful owners. Switzerland is nonetheless concerned that the assets in question are not simply recycled into criminal activities. If the unlawful origin of the assets is evident, Switzerland may even return the assets without any legally enforceable forfeiture order from the state concerned, as in the Abacha affair10.

By virtue of these legal instruments, Switzerland has returned assets worth CHF 1.7 billion to their countries of origin over the past twenty years – far more than any other financial centre. Restitution by means of innovative and pragmatic approaches of the Marcos, Abacha and Montesinos assets as well as those involved in the An-gola, Kazakhstan and Mexico cases illustrates clearly that the present legal frame-work permits the forfeiture of practically all illicit assets of PEPs11 frozen in the context of mutual assistance proceedings. However, the Mobutu and Duvalier affairs bring to light the limits of current legislation.

1.3 Current legal framework

Domestically, Switzerland ensures the progressive development of its legal frame-work specifically so that suitable solutions can be found for cases involving the

10 Cf Swiss Federal Supreme Court Decision (ATF/BGE) 131 II 169. 11 Appendix 1 offers an overview of the most recent restitution proceedings.

8

restitution of financial assets. The following four legal instruments may be applied to resolving such cases:

The Federal Act on International Mutual Assistance in Criminal Matters (MAA) entered into force on 1 January 1983. The Act was subsequently revised in the wake of a number of high-profile mutual assistance proceedings, such as the Marcos affair, which were generally thought to have taken too long. The revision, which entered into force on 1 February 1997, was designed primarily to shorten the mutual assistance process. However, it also laid down clear rules on the handover of assets, and was also intended to permit the voluntary provision of information.

The Federal Act on Combating Money Laundering (MLA)12, which entered into force on 1 April 1998, obliges financial intermediaries to identify possible illegal assets and report them to the Money Laundering Reporting Office of Switzerland (MLRO) with the Federal Office of Police (Fedpol). The MLA was designed spe-cifically to protect Switzerland's financial centre by preventing the inflow of unlaw-ful assets.

It was not the primary purpose of the new Federal Constitution (Const.)13, which entered into force on 1 January 2000, to resolve problems in connection with the restitution of assets. Art. 184 para. 3 Const. (Art. 102 para. 8 of the old Federal Constitution) nonetheless provides the following: "Where safeguarding the interests of the country so require, the Federal Council may issue ordinances and rulings. Ordinances must be of limited duration." The Federal Council has made use of this authority on several occasions to freeze assets belonging to PEPs. For example, it decided to freeze the accounts of the former Philippine president, Marcos, in 1986, the former president of Zaire, Mobutu, in 1997, and the former president of Haiti, Duvalier, in 2002.

The Swiss Criminal Code (PC)14 contains general provisions on the forfeiture of assets that have been obtained as a result of criminal acts (Art. 70 ff. PC). These provisions are applicable to legal proceedings in progress in Switzerland, for exam-ple, in cases of money laundering or membership of a criminal organisation (Art. 305bis and 260ter PC). In the former case, they permit the forfeiture of unlawfully acquired assets of PEPs if the assets in question can be demonstrated to be of crimi-nal origin, and in the latter case, if evidence can be presented that the person in question is part of a criminal organisation or has supported such an organisation, even though Art. 72 PC provides for the reversal of the burden of proof in certain cases. It must be remembered here that domestic legal proceedings in both cases are dependent upon the mutual assistance that the foreign state can provide in obtaining sufficient evidence. Yet it is precisely countries in which state structures are failing that are unable to provide this assistance.

1.4 Limits to the current legal framework

Swiss legislation has enabled the resolution of a large number of cases concerning the freezing and restitution of unlawfully obtained assets held by PEPs. This is

12 SR 955.0 13 SR 101 14 SR 311.0

9

illustrated by the Marcos, Abacha and Montesinos cases, as well as by those con-cerning Angola and Kazakhstan. All of these cases could be resolved thanks to a pragmatic, free-thinking approach. Other cases have nonetheless shown clearly that current regulations on mutual assistance are not always sufficient. This is because some countries with failing state structures are unable to conduct judicial proceed-ings against the PEPs concerned. The reason for this is often that the judicial system has been weakened significantly by years of political instability or dictatorship, or that the previous head of state and their associates still exert an influence in the country. More specifically this means that despite the evident criminal origin of assets in such cases, Switzerland would be forced to lift the freeze because criminal origin had not been established by a judicial ruling. This would certainly harm the image of Switzerland and its financial centre abroad.

The Duvalier and Mobutu affairs are perfect examples to show the limits of the current rules (cf. Appendices 2 and 3). Furthermore, it should be stated that, in connection with successfully resolved cases, a system of monitoring was set up for which there was no clear legal foundation. Monitoring the restitution of assets is nonetheless crucial for at least three reasons. The first is that it ensures that the money does not become recycled into activities involving unlawful assets. The second is that monitoring strengthens Switzerland's financial centre and boosts its credibility. The third is that it helps to ensure that the money benefits the local population via development aid programmes with a particular emphasis on health and education.

Furthermore, current law does not enable the shortcomings of failing states to be remedied. It would therefore seem sensible to establish rules in administrative law for cases involving assets frozen in Switzerland which have evidently been acquired unlawfully, but which cannot be returned via international mutual assistance chan-nels because the poor functioning of the judicial system in the country concerned renders it impossible to conduct a mutual assistance procedure that would fulfil the standards and conditions of the MAA.

1.5 Object and purpose of an amendment to the current legal framework

The questions of the appropriate timing and possibility of amending existing legal provisions were examined before drafting work began on the new specific law.

The main cause of the problems encountered with the restitution of forfeited assets following a request for mutual assistance against PEPs or their associates is the inability of the requesting state and its criminal prosecution authorities to provide Switzerland with the evidence it needs and to issue the necessary judicial rulings. Mutual assistance as provided for by the MAA rests on a partnership between the requested and the requesting state. If this condition is not met, as is the case with failing states, this law cannot function. Amendments to MAA would therefore not solve the problem.

The question of the restitution of assets cannot and should not be resolved within the framework of the MLA since it is primarily designed as an instrument of prevention and protection for the Swiss financial centre, while also dependent on the vagaries of

10

mutual assistance with failing states. For these reasons, it would not be appropriate to amend this law which is not the ideal instrument for introducing a regulation on the forfeiture and restitution of assets, and even less, for provisions on monitoring.

Two PC provisions, in particular, were examined: the provision on money launder-ing (Art. 305bis PC) and the provision on criminal organisations (Art 260ter PC). Specifically, the criminal offence of money laundering presupposes that a link be established between the money that is frozen in Switzerland and the prior offence committed abroad. However, to establish such a link the Swiss criminal prosecution authorities depend on evidence from the foreign state and consequently on function-ing authorities of the latter. This provision could therefore not resolve complex mutual assistance cases involving failing states with judicial systems that no longer work. By contrast, Art. 260ter PC on criminal organisations, in conjunction with Art. 72 PC, provides an opportunity to reverse the burden of proof. Under this provi-sion, in the case of assets held by a person who is part of a criminal organisation or who has supported such an organisation, it is presumed until proven otherwise that the organisation holds powers of disposal over those assets and on the basis of this that these assets may be forfeited. However, the criminal prosecution authority must demonstrate that the person in question had previously committed an offence (mem-bership of or support for a criminal organisation), as the Federal Supreme Court explained in its judgement on the Abacha assets15. Given that the gathering of suffi-cient evidence requires at least some degree of cooperation from the plundered state and that this causes problems with failing states, it would seem inappropriate to extend the application of Art. 260ter PC systematically to corrupt foreign regimes with the exclusive intention of facilitating the forfeiture of assets located in Switzer-land. In addition, from the political and diplomatic perspectives, not all PEPs whose assets are frozen in Switzerland can be indiscriminately deemed to be members of criminal organisations.

The introduction of a new criminal offence which would make even the growth of assets (unlawful enrichment) punishable under the law – as is the case in some Latin American countries16 and in the UNCAC17 – would breach fundamental principles of Swiss law. Specifically, these are the presumption of innocence and the principle of investigation, which mean that the criminal prosecution authorities must prove all facts that might be punishable. Any such norm would also have to be applicable to all public servants and authorities in Switzerland and abroad, and would bring with it far-reaching obligations with regard to information on financial circumstances. Such a criminal offence would therefore imply that every PEP is under general suspicion. Furthermore, an amendment to the Swiss Criminal Code affecting only one category of foreign national (politically exposed persons and their associates), who are generally resident outside Switzerland, would be difficult to countenance with regard to the scope of persons to which the Code applies. Under these circum-stances, an amendment to the Swiss Criminal Code is not an appropriate means to achieve the desired end.

15 cf. footnote 8, specifically deliberation 9.1

16 cf. Art. IX of the Inter-American Convention Against Corruption. 17 cf. Art. 20 of the UNCAC. Unlawful enrichment is deemed to be a significant increase in the assets of a public official that cannot plausibly be explained in relation to their lawful income. Art. 20 therefore provides for a reversal of the burden of proof: where there is a significant increase in their assets, the public official must demonstrates that this derives from lawful activities.

11

It is not the primary objective of the Constitution to resolve problems connected with mutual assistance in criminal matters. Art. 184 para. 3 Const. permits the Fed-eral Council to issue ordinances and rulings if warranted by national interests. How-ever, this provision was intended for exceptional situations only and thus does not provide a long-term basis for resolving unsuccessful mutual assistance cases. Fur-thermore, there seems little sense in amending the article or including another provi-sion in the Constitution to make the forfeiture of frozen assets permissible if mutual assistance proceedings prove impossible.

1.6 Comparison of laws

Switzerland is not the only country to experience such problems with PEPs. Of the neighbouring countries, only Austria and Liechtenstein have provisions in their penal codes that permit the forfeiture of assets that originate from criminal acts committed abroad over which the Austrian and Liechtenstein courts respectively have no jurisdiction. With the exception of tax offences, the relevant provisions of Liechtenstein law correspond to Austrian legislation in this regard18. Art. 20b para. 2 (Invalidity) of the Liechtenstein Swiss Criminal Code (LCC) states:

"Assets that originate from a punishable act are to be declared invalid if the act from which they derive is also punishable according to the laws of the state in which it was committed, but which is not subject to the Liechtenstein Swiss Criminal Code pursuant to §§ 62 to 65, and which does not constitute a tax offence".

According to the LCC, therefore, assets that originate from a punishable offence under Liechtenstein and foreign law must be forfeited even if the state of Liechten-stein does not have the power to prosecute, regardless of the nature of the offence that has been committed. This article also stipulates that alleged offences that justify forfeiture, i.e. the criminal origin of the assets concerned (in the sense of para. 2), must be proven by the criminal prosecution authorities. This nonetheless requires evidence to be provided by the state on whose territory the offence was committed – the place in which the assets that are to be forfeited originated. In other words, in this case as in the others mentioned above, the gathering of evidence relies on the cooperation of the requesting or injured state. The territorial and personal disassocia-tion provided for under Liechtenstein law means that the provisions on evidence mentioned above cannot simply be ignored. The authorities are permitted only to seize assets, but not to commence domestic proceedings against a specific person if the foreign state is not itself able to reach a judgement.

Swiss authorities are permitted independently to order the forfeiture of assets only if they have the power to do so under Arts 3 – 7 of the Swiss Criminal Code, or under a special standard19 . They may not do so simply because they are there for the seizing20. Unlike Liechtenstein law, Swiss law thus does not permit assets to be forfeited unilaterally. It would be possible to incorporate such a provision into law,

18 Art. 20 of the Austrian Penal Code contains general principles on the forfeiture of unlawful gains. In particular, para. 4 provides for natural and legal persons who are the beneficiaries of unlawful enrichment owing to a criminal offence committed by another party to be sentenced to pay a fine equalling the said enrichment. 19 Federal Act on Narcotics and Psychotropic Substances of 3 October 1951 (Narcotics Act, NA) SR 812.121 20 Swiss Federal Supreme Court decision (ATF/BGE) 128 IV 145, deliberation 2c

12

but this would not solve the main problem that confronts both the Liechtenstein and Swiss legal systems – specifically the issue of sufficient evidence of the unlawful origin of the assets in question. Furthermore, compared with Liechtenstein (and Austria), Swiss law already offers more options for handing over assets that origi-nate from acts that are outside Swiss jurisdiction. This is particularly true in the case of forfeited assets that are to be handed over to the requesting state to be confiscated or returned to their rightful owners in that state (Art. 74a MAA). The handover is usually made on the basis of a legally enforceable ruling from the requesting state. In exceptional cases, it may also be made if the origin of the forfeited assets is deemed in all probability to be unlawful.

This means that, were Switzerland to adopt a provision similar to that of Art. 20b para. 2 LPC, this type of forfeiture would take precedence over the rule on restitu-tion described above (handover of assets to the state). This would not be in the interests of either Switzerland's international standing or the country that has suf-fered the loss. In addition, unilateral forfeiture under criminal law would not provide for the opportunity to resolve the practical problems that arise in the gathering of evidence from failing states. For all of these reasons, there seems little sense in extending criminal law in Switzerland by a provision that follows the Austrian and Liechtenstein model.

Non conviction-based forfeiture was also examined. In common law countries, this is also known as civil forfeiture. As the name suggests, these proceedings in rem permit the forfeiture of assets without any final and legally enforceable judgement (in personam). Such proceedings generally provide for a reduction in or even the reversal of the burden of proof placed on the criminal prosecution authorities. To date, only a few jurisdictions have such civil forfeiture proceedings, but there is a growing trend towards autonomous legislation that permits the return of assets obtained unlawfully21. This practice does not, however, solve the problem of mutual mutual assistance arrangements with failing states because, in the majority of cases, civil forfeiture proceedings require the cooperation of the country from which the assets originate – cooperation which that country is not able to provide. In addition, such proceedings under civil law fall exclusively within the jurisdiction of the courts, which prevents the Federal Council exercising its constitutional sovereignty over foreign policy. Furthermore, a provision in law that permits such forfeiture in Switzerland would be no substitute to the freezing of assets imposed in the context of mutual assistance measures which can be lifted as soon as MAA proceedings have been concluded. Neither would it fall to such a provision to govern the details of restitution.

1.7 The draft law submitted for consultation

Although applicable law is being improved continually, it is unable to remedy the shortcomings of countries whose state structures fail when it comes to international mutual assistance in criminal matters. Mutual assistance is rooted in a partnership with the requesting state. Moreover, current laws are unsuited to amendments that would rectify the situation and comparative law does not offer satisfactory solutions.

21 Examples include South Africa, Antigua and Barbuda, Australia, some Canadian provinces, the United States, Ireland, Italy, the United Kingdom and Slovenia.

13

What is needed is therefore a specific new regulation that provides a formal founda-tion in law to govern all aspects of the problem, i.e. the freezing, forfeiture and restitution of assets. Furthermore, given the efficiency of the existing system, it is likely that there will be a very limited number of cases to which this law can be applied. This new regulation is nonetheless needed to complete the system currently in place for the specific case of mutual assistance involving “failing states”.

1.7.1 Purpose and object

The aim of the draft law is to fill a gap in the existing body of law to counter the assets of PEPs obtained by unlawful means. It aims to assist the weakest states in their efforts to recuperate money that belongs to them in situations where, without this law, their efforts would not succeed. This approach facilitates efforts to preserve the integrity of the Swiss financial centre and to protect it against the influx of money of illegal origin.

Hence the object of the draft law is the freezing, forfeiture and restitution of assets of unlawful origin of PEPs when the procedure based on mutual assistance cannot succeed for reasons concerning the failing structures of the requesting state. The draft law constitutes a subsidiary solution to the Federal Act on International Mutual Assistance in Criminal Matters and is not intended to initiate a parallel instrument. In contrast to penal law, the draft law makes the distinction between the conduct of PEPs and the unlawful origin of their assets. It provides for a different channel to that for the criminal prosecution of the PEP concerned which makes possible the forfeiture of assets which have clearly been obtained by unlawful means without the need to convict the PEP of a crime. It is primarily up to the judicial authorities of the state of origin of the assets to conduct a criminal procedure against the PEP and, if necessary, to convict him or her. It is for this reason that the draft law distinguishes between PEPs and their assets.

It is intended to:

§ provide a formal foundation in law for the Federal Council's practice with regard to the freezing of assets so that it need no longer invoke Art. 184, para. 3 Const.;

§ prevent the return of unlawful assets of PEPs to the holders of the ac-counts in question that are temporarily blocked in the framework of mu-tual assistance proceedings owing to the failure of the requesting country's state structures;

§ create a formal legal foundation and guidelines for the restitution of assets that have been forfeited for the benefit of the country of origin. Swiss law does not contain any provisions in this regard. All of the cases resolved so far have involved ad-hoc solutions for the return of the assets in question.

These three processes follow on from each other from the point at which the interna-tional request for mutual assistance proves unsuccessful :

14

Federal Council

Decision

FREEZE Appeal Fed. Admin.

Court Appeal

Fed.

Supreme Court

FDFA Action Fed. Admin

Court Judgement

FORFEIT-

URE

Appeal Fed. Supreme

Court

Federal Council

Negotiations Country of origin

Judgement

RESTITUTION

Monitoring by Switzer-

land

1.7.2 Applicability

In essence, the draft law does not provide for any new activities or powers on the part of the Swiss authorities. These authorities have already frozen, forfeited and returned several hundred million francs for the benefit of the country of origin as part of mutual assistance proceedings in the past. However, the draft law does ex-tend the applicability of these measures to cases in which mutual assistance proceed-ings have proven unsuccessful owing to the failure of state structures in requesting countries.

In the context of mutual assistance proceedings the failure of a country's state struc-tures also causes serious problems when Switzerland is the requesting state. This is particularly so in cases of money laundering and corruption. The proposed law deliberately does not address such matters. First and foremost, it is essential that the new legislation must avoid the situation where Switzerland acts without restriction in place of the criminal prosecution authorities of third countries, which are, and should remain, responsible for combating corruption and impunity. A request for mutual assistance that is addressed to Switzerland is evidence of the political will of the requesting state to act and to collaborate. No such request would, or will, exist if Switzerland were to be the requesting rather than the requested state.

The power to order assets to be frozen continues to lie with the Federal Council without the need to invoke Art. 184 para. 3 of the Constitution. Just as with this article, it is left to the Federal Council's discretion to decide whether or not it is politically opportune to instigate forfeiture proceedings to safeguard the interests of Switzerland's financial centre. In doing so, the Council will, as it does today, weigh up the various interests concerned, including considerations of bilateral relations, the possibility of restoring the rule of law in the requesting country, as well as the atten-dant economic issues and security aspects.

The powers provided for in Art. 184 para. 3 of the Constitution remain in place for cases that do not fall under the new law. Experience has shown that in emergency situations the Federal Council has needed to be able to impose a temporary freeze on

15

assets before a formal request for mutual assistance has been received. This facility is intended to prevent these assets being withdrawn from Switzerland at short notice, as well as to ensure the proper conduct of proceedings22.

1.7.3 Presumption of unlawful origin and forfeiture

Under the new law, the state may freeze and then seize certain assets held by PEPs or their associates. The confiscation of assets held by PEPs or their associates is a relatively new form of forfeiture. This issue must be looked at in the context of the protection of Switzerland's financial centre and the interests of the affected countries concerned.

The new law is intended to permit the forfeiture of such assets of unlawful origin instead of allowing them to be claimed by current owners because of the failure of mutual assistance proceedings. For example, in order to seize a million Swiss francs that a former head of state, who is known to be corrupt, has deposited in Switzer-land, mutual assistance proceedings must be instigated and conducted leading to a judgement that confirms the assets' unlawful origin. However, mutual assistance proceedings involving countries in which state structures are failing are often more likely to end in a negative decision than in the desired ruling. Based on this outcome, the freeze is lifted in favour of the current owner – in this case the notoriously cor-rupt former head of state. This is unsatisfactory in every respect and, furthermore, damages the reputation of Switzerland's financial centre.

With this type of situation in mind, the draft law proposes a solution that would permit the forfeiture of assets without Switzerland having to provide proof of their illicit origin. Under the new legislation, forfeiture would be justified if the current owner to these assets were unable to prove that the assets were, in all probability, of lawful origin. This concept rests on the assumption that assets over which a notori-ously corrupt PEP or their associates hold powers of disposal are, in all probability, just as unlawful in origin as the assets belonging to a member of a criminal organisa-tion23.

From the technical legal perspective, this constitutes a presumption of unlawful origin that is subject to certain conditions and provisos. It is not the only exception to the "innocent until proven guilty" principle in Swiss law, as Art. 72 PC and Art. 87 para. 2 of the Federal Asylum Act24 show. Defamation (Art. 173 PC) is another case in which it is no longer necessary to prove that the statements of the defendant are untrue. Nowadays, the defendant themselves must prove that their statements were, indeed, true. The proposed regulations display the greatest similarity to the presumption of ownership on the grounds of possession, which is laid down in Art. 930 of the Swiss Civil Code25. This provision, which is rooted in the principle of action in good faith codified in Art. 2 of the Civil Code, states that the possessor of moveable property is presumed to be its rightful owner. According to Federal Su-

22 In the Marcos (1986) and Mobutu (1997) cases, assets held in Switzerland had to be frozen in emergency proceedings to prevent their disappearance before Switzerland had received a legal assistance request. 23 On this subject, see Swiss Federal Supreme Court decision (ATF/BGE) 131 II 169, pronounced in the Abacha case. 24 SR 142.31 25 SR 210

16

preme Court precedent, however, this presumption of ownership cannot be claimed if possession is "ambiguous"26. Possession is deemed "ambiguous" if the circum-stances of acquisition or the exercise of authority over the property are unclear, or if there are doubts about the legal validity of the identity documents used to gain possession. In such cases, the possessor must prove that they have acquired the thing in a lawful manner.

The draft law seeks to establish a similar solution. Where it is established on the basis of a prior request for mutual assistance that a PEP is corrupt and their assets have grown at an unusual rate, then it is at least justified to suspect that this person has acquired the frozen assets unlawfully. The issue then turns on the question as to the extent to which the assets have been contaminated by the PEP concerned owing to their previous suspicious conduct. Under such circumstances, it would appear reasonable to oblige the person concerned to prove such suspicions groundless.

The person concerned can prevent the assets being frozen by disproving the pre-sumption, i.e. by proving the lawful origin of the assets. If the person concerned succeeds in presenting a convincing case for their lawful enrichment, the presump-tion ceases to apply. The object of Art. 2 is not only the handling of assets in the possession of PEPs (para. 1) but also in the possession of their associates (para. 2), i.e. natural and legal persons in some way connected to them.

1.7.4 Statute of limitations A frequent problem in connection with the assets of PEPs is that of the statute of limitations, since the persons concerned are not generally in power for long (see Appendices 2 and 3). In the Duvalier case, the Federal Criminal Court declared that the statute of limitations provisions of the MAA, under which assets belonging to deposed dictators may be returned, were too restrictive: "The length of proceedings and the difficulties of establishing proof can constitute insurmountable obstacles. It is therefore up to legislators to make the corrections and simplifications necessary to take the peculiarities of these proceedings into account"27.

The forfeiture provided for in the legislation being tabled here is an administrative measure based on the unlawfulness of the assets in question at the time of their acquisition (see Art. 6 para. 1 b: "Unlawful origin"). This situation of illegality endures independently of the question of whether the person who has unlawfully acquired the assets has been punished for their acts or not. The problem in failing states is often to be seen in the fact that it is precisely the PEPs themselves who cause the collapse of the judicial system in their own country, a situation that pre-vents the state from conducting a criminal prosecution. If in such a case a PEP cannot be punished in a criminal procedure due to the failure of the judicial authori-ties, which frequently the PEP in question has caused, the least that can be done is to prevent them from benefiting from their ill-gotten gains. Since such action of forfei-

26 Unpublished Federal Supreme Court decision (ATF/BGE) of 16 September 2008, 5A_279/2008/ frs: "Possession is deemed to be ambiguous if the circumstances of acquisition or the exercise of effective control is unclear or can be explained in different ways (ATF/BGE 71 II 255), or if the circumstances under which the possessor has gained effective control remain concealed and there are doubts about the legality of the identity that was used to gain possession (ATF/BGE 76 II 344). The possessor invoking the presumption of ownership must provide a suitable explanation of the origin of their ownership (decision 5P.391/2006 of 18 December 2006, deliberation 6)." 27 ATF/BGE 1C_374/2009 of 12 January 2010, deliberation 7

17

ture provided for in the new law does not constitute a sanction under criminal law, it makes no difference whether the unlawful action committed at the time the assets were acquired is still punishable at the time they were forfeited. As such, whether or not criminal charges are statute-barred does not affect the unlawful origin of the assets concerned (see Art. 5 para. 3). As a result, they may be forfeited despite the statute of limitations having come into effect.

1.8 Parliamentary requests In the summer of 2007, when the extension of the freeze on the assets of Jean-Claude Duvalier and his associates was the subject of considerable press coverage, three interpellations for information28 and one postulate29 were submitted, all three on closely related issues. All four requests were accepted by the Federal Council. The Gutzwiller Postulate called upon the Federal Council to produce a report on how Switzerland's procedures for the handover of forfeited assets are to be governed if the state that is being granted mutual assistance is not able to act in accordance with constitutional principles and fundamental human rights. On 12 September 2007, the Federal Council proposed that the Postulate be accepted and that a legal foundation be drawn up that might, where appropriate, complement existing law. In view of the development of the law on the restitution of unlawfully obtained assets, the Federal Council proposes that the Postulate be filed.

1.9 Result of the consultation

On 24 February 2010, the Federal Council decided to submit for consultation the preliminary draft of the Federal Act on the Restitution of Assets of Politically Ex-posed Persons obtained by Unlawful Means (RAA).

The preliminary draft created considerable interest, and 50 interested organisations took part in the consultation process. The large majority of them welcomed the intended goal and the line adopted in the preliminary draft. The need and urgency of such a law have been stressed in several position statements, and many of the par-ticipants in the consultation process have explicitly welcomed its application to the Duvalier case. In contrast, one political party and an organisation (SVP, Centre Patronal) reject such a law on principle. Concerning the concrete shape of the law, divergent opinions were expressed. The especially controversial points were the following:

Although various participants in the consultation procedure welcomed the subsidiar-ity of the envisaged procedure to that of mutual assistance, others considered the field of application of the preliminary draft too narrow and advocated widening its

28 07.3336, Berberat Didier, Duvalier assets: Closing loopholes in Swiss law; 07.3324, Gysin Remo: Freezing of Duvalier assets in Switzerland; 07.3499, Marty Dick: Forfeiture of assets of politically exposed persons; the Duvalier case

29 07.3459, Gutzwiller Felix: Mutual assistance in the case of "failing states".

18

applicability to cases where the state of origin is either unable or willing to make a request for international mutual assistance. Several participants expressed the wish for greater involvement of civil society, the victims, as well as NGOs involved in the proposed procedure. Some participants criticised the condition of the preliminary draft which stipulated that the Federal Council would only be able to decide on a question of freezing assets in situations where the defence of Switzerland’s interests so demand. They considered that in the case of such an event, the primary concern was the interests of the people of the state of origin of the assets. By contrast, other participants favoured this condition.

Opinions diverged on the question of the maximum period allowed for freezing assets. While some of the participants in the consultation considered the period too short and demanded a period of up to ten years, others considered that the five years foreseen was too long and that a period of three years was long enough. The pro-posal of an amicable agreement was rejected by several participants in the consulta-tion because it would have led to a situation where only a part of the frozen assets would be returned to the people of the country of origin of the assets. Nevertheless, other voices welcomed this possibility for reasons of efficiency. Concerning the presumption of unlawful origin, a large proportion of the participants explicitly expressed approval while a limited number expressed scepticism or even opposed it.

With regard to the position of the preliminary draft concerning the rights of third parties, several participants, in particular from the private sector, considered the draft law too restrictive. In particular, the restriction on in rem rights as well as the demand for a ruling by a Swiss court were criticised: the protection of third parties provided for by the preliminary draft would be inadequate. In contrast, some partici-pants in the consultation process asked for a limitation on the rights of third parties to a maximum of 20% of the assets in question. Many participants underscored the importance of a transparent and public restitution process as well as monitoring and follow-up on the subsequent use of the assets following restitution. On several occasions, proposals were made that the obligation to carry out such controls be explicitly stipulated in the law. Finally, some participants proposed that the proce-dural costs not be deducted from the forfeited assets but that they be charged to financial intermediaries.

In view of the proposed procedure, the Federal Criminal Court considered that it should be declared the competent court in view of its close links with the previous procedures of international mutual assistance. For its part, the Federal Supreme Court indicated that it had no objections concerning the procedural provisions of the preliminary draft. The Federal Supreme Court did not take a fundamental position on the preliminary draft law.

19

2 Commentary 2.1 The structure of the Act

The Act on the Restitution of Assets of Politically Exposed Persons obtained by Unlawful Means comprises six sections. The first section contains the general inten-tion (object). The second section defines the conditions under which assets may be frozen, the duration of that freeze and the possibility of an amicable settlement. The third section governs the procedure and the conditions for the forfeiture of assets, as well as third-party rights. The fourth section concerns the principle and procedure for the restitution of forfeited assets. The fifth section sets out the means of legal redress and governs cooperation between authorities. Finally, the sixth section contains the concluding provisions: amendments to current law, transitional provi-sions and entry into force.

2.2 Commentary on the individual provisions of the Act Art. 1 - Object

This provision sets out the fundamental purpose of the Act. It lays down the princi-ple that the Act is subsidiary to a request for mutual assistance in criminal matters. The Act is applied only if such a request has proven unsuccessful because state structures in the requesting state have failed and where assets held by PEPs have been frozen in Switzerland in connection with mutual assistance proceedings, as in the cases of Duvalier and Mobutu.

Art. 2 - Conditions

From the systematic perspective, this provision codifies the current practice of the Federal Council with regard to the freezing of assets, which has to date been rooted in Art. 184, para. 3 (Const.). Although the Federal Council's practice has not been called into question by the Federal Supreme Court30, the regular application of Art. 184 para. 3 Const. in the past justifies the enactment of a formal legal foundation on which to codify practice with regard to the temporary freezing of assets.

Freezing assets is seen as the first step stipulated in this Act, and is intended to prevent the assets being withdrawn from Switzerland. This measure replaces asset freezes in connection with mutual assistance proceedings that have had to be sus-pended owing to the failure of state structures in the requesting state.

The definition of "failure of state structures" used in this article draws on Art. 17 para. 3 of the Rome Statute of the International Criminal Court31. It relates exclu-sively to the situation in a state in connection with specific mutual assistance pro-ceedings with Switzerland. It is not a general political or economic value judgement

30 ATF/BGE 131 III 652; 132 I 229 (Mobutu case); Federal Administrative Court decision of 14 March 2008 (Duvalier case). 31 SR 0.312.1

20

but a specific evaluation in connection with the proceedings at hand. In other words, a review is conducted to establish, in a particular case, whether or not the requesting state is able32 to conduct criminal proceedings that would satisfy the requirements of the International Mutual Assistance Act (MAA).

Even in the most delicate situations such as the Mobutu and Duvalier cases, the Democratic Republic of Congo and the Republic of Haiti were able to submit to Switzerland a request for mutual assistance to freeze assets deposited in Switzerland. It was only after several years after the first request has been submitted that the situation of failure of state structures became manifest, in particular due to the inability of the state concerned to pronounce a final and binding judgement against the PEP concerned. Hence, the requirement that a request for mutual assistance first be submitted does not seem disproportionate or contradictory to the situation of failing state structures in the requesting state (see annexes 2 and 3). Moreover, this step is necessary to ensure that the authorities of the state in question have the genu-ine political will to request the return of the assets.

If weak state structures in the requesting state render a proper mutual assistance process impossible, the competent authority must notify the FDFA before it ceases any of the proceedings defined in this Act (see Art. 12). Should the Federal Council order assets to be frozen as a result, this freeze overlaps for a short period with that imposed in the context of mutual assistance until a final and legally enforceable decision has been made to suspend the mutual assistance proceedings. Such an overlap is necessary in practice to prevent the claimants having access to the assets, even for only a short time. Nowadays, asset transfers can be effected so quickly that an uninterrupted freeze is essential.

The term "assets" covers all property held by PEPs in Switzerland, and thus includes both tangible and intangible goods, such as bank accounts. It primarily concerns cash or easily tradable financial products that are deposited in Switzerland,33 plus the interest and other earnings on these balances since the freeze was first ordered. The Duvalier and Mobutu cases showed that such PEPs sometimes also own real estate in Switzerland, or have moveable property deposited with a bank. The definition must therefore cover all of these cases by encompassing both moveable and im-moveable property. However, the only assets to be frozen and secured under the terms of the RAA are those which have been frozen provisionally as part of the earlier international mutual assistance proceedings in criminal matters (see Art. 2 a).

The term "powers of disposal" has the same meaning as in the provisions of the Swiss Criminal Code on the forfeiture of assets held by a criminal organisation. Powers of disposal are closely related to the concept of "effective control". This is understood as the will to possess a thing under the actual circumstances at hand34. This applies, for example, to the beneficial owner in the sense of the Money Laun-dering Act (MLA), who has access in some way (e.g. by means of a power of attor-

32 The Dispatch on the Rome Statute goes into greater detail: "The statute is thus designed so that the Court is able to intervene only if the states – either deliberately or as a result of incapacity – fail to comply with this obligation to prosecute, punish or provide legal assistance". Federal Council Dispatch of 15 November 2000 (Federal Gazette 2001 391), p. 417; emphasis added by the author. 33 Portfolio management delimitations: http://www.finma.ch/archiv/gwg/d/dokumentationen/publikationen/gwg_auslegung/pdf/48738.pdf 34 Art. 72 PC and the related Dispatch, Federal Gazette 1993 III 269 309

21

ney, a trust or a front man) to a bank account that is not in their name, even if they exercise their powers of disposal only indirectly (e.g. via a company which appears to hold exclusive signatory powers, but which is contractually obliged to follow the instructions of its client). The term is intended to cover all possible links between a person and these assets. Examples include the account holder, the beneficial owner, the authorised agent or the person holding signatory powers. There are no standard international definitions of the terms "politically exposed persons" and "close associates" of politically exposed persons35. The Financial Action Task Force on Money Laundering (FATF), for example, has formulated a definition of "politically exposed person", which has been adopted by the World Bank, the International Monetary Fund and other international supervisory authori-ties36. The European Union has also produced a more detailed definition of the term37. Given the various definitions in circulation, those used in the Act have been taken from valid Swiss law for the sake of coherence, without the intention of ex-cluding the above definitions of the term. As such, the definitions of politically exposed persons and their close associates used in the draft act are drawn from FINMA Money Laundering Ordinances 1, 2 and 338. The concept of "close associ-ates" (or "entourage"), which is familiar in Swiss law, is necessary because it is the objective of the law also to cover the transfer of assets within the inner circle and extended family of a PEP, who have themselves become richer during the PEP's term of office. Furthermore, in line with the principles of the Wolfsberg Group,39 the Act does not extend to all persons who exercise or have exercised a public office, but is limited to senior public functions. These include, in particular, heads of state or government, high-ranking politicians, high-ranking members of the administra-tion, judiciary, armed forces or national political parties, as well as directors of state-owned corporations of national importance. All in all, these are persons who operate in an environment of power, politics and money. Where time is concerned, the Act applies both to PEPs in office and to those who are no longer in office, as may be inferred from the wording "exercise or have exercised". The view that PEPs con-

35 Politically exposed persons, Refining the PEP definition, White paper produced by World-Check, 2. ed, 2008; http://www.world-check.com/whitepapers/2008/?page=1 36 In its recommendations, the FATF defines a "politically exposed person" as follows: " 'Politically Exposed Persons' (PEPs) are individuals who are or have been entrusted with prominent public functions in a foreign country, for example heads of state or of government, senior politicians, senior government, judicial or military officials, senior executives of state owned corporations, important political party officials. Business relationships with family members or close associates of PEPs involve reputational risks similar to those with PEPs themselves. The definition is not intended to cover middle ranking or more junior officials in the foregoing categories." 37 Art. 3 para. 8 of the Directive 2005/60/EC of the European Parliament and of the Council of 26 October 2005 on the prevention of the use of the financial system for the purpose of money laundering and terrorist financing contains the following definition: " 'Politically exposed persons' means natural persons who are or have been entrusted with prominent public functions and immediate family members, or persons known to be close associates, of such persons." 38 SR 955.022 (Art. 1 para. 1 a), 955.032 (Art. 3) and 955.033.0 (Art. 2 d). In order to combat money laundering, these ordinances lay down due diligence obligations for financial intermediaries with respect to companies and natural persons that are "recognised as being associated with" a politically exposed person. Since the present draft Act does not provide for any such due diligence obligation, the criterion of being "recognised as" being associated with a PEP is irrelevant, and has therefore not been included in the draft. 39 The Wolfsberg Group includes the following international banks: ANB Amro N.V., Banco Santander Central Hispano S.A,, Bank of Tokyo-Mitsubishi Ltd., Barclays Bank, Citigroup, Credit Suisse Group, Deutsche Bank AG, Goldman Sachs, HSBC, J.P. Morgan Chase, Société Générale und UBS AG. Wolfsberg is the name of the place in Switzerland at which an important meeting took place where these guidelines were defined; see also Wolfsberg frequently asked questions (FAQs) on Politically Exposed Persons (PEPs), the Wolfsberg Group, 2008; http://www.wolfsberg-principles.com/pdf/PEP-FAQ-052008.pdf

22

tinue to be regarded as politically exposed persons for an unlimited period after they leave public office is in line with the recommendations in this regard of the World Bank40. If such PEPs continue to exercise an office, they often benefit from legal immunity by virtue of that office. An application for mutual assistance nonetheless implies de facto that, in commencing domestic proceedings, the state submitting the application has waived the immunity of the PEP concerned. Under public international law, which governs matters of immunity, it is for the country of origin – in general the state which has granted the PEP immunity – to decide whether or not this immunity should be maintained41. In view of the subsidiary nature of the proposed Act with regard to mutual assistance proceedings, it does not govern the question of immunity for PEPs since mutual assistance proceedings in themselves demand the prior insti-gation of domestic legal proceedings. The issue of immunity is not covered by the MAA either.

Four conditions must be satisfied simultaneously for a freeze on assets to be main-tained that has been imposed in connection with mutual assistance proceedings:

§ Firstly, mutual assistance proceedings concerning a PEP or one of their associates must already have been commenced, and the assets of the person concerned frozen as part of such proceedings. Such mutual assistance proceedings are proof of the willingness of the requesting state to collaborate. The subsidiarity of the proposed Act to international mutual assistance in criminal matters is also derived from this condition.

§ Secondly, the power of disposal over the assets in question must be held by a PEP or with persons associated with them. This condition restricts the Act's applicability to problematic cases of PEPs in "failing states" who es-cape punishment.

§ Thirdly, it is required that international mutual assistance proceedings in criminal matters have proven unsuccessful owing to the failure of state structures in the requesting state. This concerns cases in which the requesting state is not able to guarantee the necessary collaboration be-cause it is either unable (as in the Duvalier case) or not entirely willing to do so (as in the Mobutu case). However, it may also cover cases that can-not be accommodated in the sense of Art. 2 MLAA42 . The "failure of state structures" in the sense of the Rome Statute must be established on a case-by-case basis in concrete proceedings. In other words the ability of the state to conduct criminal proceedings that comply with the requirements of the MAA must be examined. Such an assessment is conducted on the basis

40 Politically Exposed Persons, A Policy Paper on Strengthening Preventive Measures, Th. S. Greenberg, L. Gray, D. Schantz, M. Latham, C. Gardner, The World Bank, StAR, UNODC, 2009, pp. 31-32. 41 Vienna Convention on Diplomatic Relations, Art. 32 (SR 0.191.01); International Court of Justice, ruling of 14 February 2002, arrest warrant of 11 April 2000 (Democratic Republic of the Congo vs. Belgium), p. 26 42 Art. 2 a MAA provides the following: "A request for cooperation in criminal matters will be rejected if there are grounds to assume that the proceedings in the foreign country do not comply with the European Convention of 4 November 1950 for the Protection of Human Rights and Fundamental Freedoms or the principles of procedure laid down in the International Covenant of 16 December 1966 on Civil and Political Rights".

23

of records from the mutual assistance proceedings, as well as documents issued by international organisations such as the UN or the World Bank.

§ Fourthly, there must be a need to safeguard Switzerland's interests. This condition preserves the Federal Council's foreign policy authority. It is in-tended to prevent Switzerland being manipulated by mutual assistance proceedings that could only theoretically be initiated in the requesting state and have been motivated purely by political opportunism. It allows the Federal Council to consider foreign policy interests in the sense of Art. 184 Const., as it has done in the past in the Mobutu and Duvalier cases.

Art. 3 - Duration

Under the current legislation, the Federal Council freezes assets for a specific dura-tion, but may extend the freeze before it expires. By contrast, Art. 3 of the new Act provides that the Federal Council orders the freeze only once, and that this will essentially remain in place until a ruling on the forfeiture of those assets comes into force. This provision is therefore intended to define a timeframe for this defensive measure and in this way limit it in time. It also implicitly determines that the freeze will end with the assets being forfeited on the basis of a judicial ruling.

Paragraph 2 provides for a five-year period within which forfeiture proceedings must be instituted. During this period, the FDFA is permitted to gather the evidence needed to commence such proceedings. In parallel with evidence-gathering, it may also conduct direct negotiations with the current owners to the frozen assets in order to reach an amicable settlement (see Art. 4). The five-year period begins with the entry into force of the order to freeze the assets, and thus after all available legal channels have been exhausted (see Art. 11). This five-year period represents a compromise between efforts to keep the guarantee of ownership as short as possible, and the time that is needed for certain political developments to take place, as the Duvalier case showed.

If the material conditions for the asset freeze (Art. 2) are no longer fulfilled, it is the responsibility of the Federal Council to lift the freeze before forfeiture proceedings have been instituted or a judicial ruling in those proceedings has been issued (Art. 5). This might be the case, for example, where mutual assistance proceedings are resumed. The Federal Council may order the assets to be frozen once again if the conditions of Art. 2 are fulfilled at any time in the future.

Art. 4 - Amicable settlement

In the past, whenever the Federal Council ordered assets to be frozen pursuant to Art. 184 para. 3 Const., it generally instructed the FDFA at the same time to begin negotiations.

A negotiated solution must remain a possibility because, if successful, it will shorten proceedings surrounding the forfeiture and speed up the return of the assets con-cerned. Such negotiations are tailored by the FDFA to the particular circumstances of the case, and are conducted where the current owners of the frozen assets are

24

prepared to participate in the proceedings. The formula by which the assets are to be divided between the country of origin and the current owner is negotiated on a case-by-case basis. Once an amicable settlement – approved by the Federal Council – has been reached, the asset freeze can be lifted. The assets can then be returned in accor-dance with the details of the amicable settlement, with Arts 8 to 10 applying by analogy.

Art. 5 - Procedure

It is extremely difficult to gather evidence and establish facts in mutual assistance proceedings involving failing states. As a result, most of these proceedings fail to produce a judicial ruling. Legally, this prevents assets being forfeited.

To close this loophole, in the first paragraph of Art. 5, the draft Act provides that the Federal Department of Finance may instigate proceedings before the Federal Ad-ministrative Court so that a court can order the forfeiture of the assets that have been secured. The FDF acts on the basis of a Federal Council resolution proposed in principle by the FDFA. Formal authority to represent the Confederation before the court is delegated to the FDF, since it has experience with such court proceedings and also has the necessary human resources. It nonetheless works actively together with the FDFA on proceedings connected with this Act.

As a general rule, forfeiture proceedings will be commenced after the Federal Coun-cil has ordered that assets be frozen. There is no automatic trigger mechanism, however. Proceedings are opened before the Federal Administrative Court to ensure that evidence-taking follows the proper procedures, especially with regard to proof of lawful acquisition (see Art. 6 para. 2).

The second paragraph of this provision confers power upon the Federal Administra-tive Court, as an authority of first instance43 to seize the assets that have so far only been frozen. As soon as this judicial ruling is final and legally enforceable, owner-ship rights to the assets in question are transferred to the Confederation for the purpose of restitution to the country of origin. For this to happen, three conditions must be fulfilled simultaneously: § Firstly, the assets in question must be held by a PEP or their associates.

This refers to the definitions introduced in Art. 2. The beneficial owner of these assets or the holder of a power of disposal over them must be a PEP or one of their associates. The term "power of disposal" is deliberately broad because the Act is also intended to include indirect types of disposal powers.

§ Secondly, the assets must have been acquired by unlawful means. Whether or not the assets are of "unlawful origin" depends on the circumstances of their acquisition. The fact that the assets have already been frozen in the course of mutual assistance proceedings suggests that the responsible au-thorities have sufficient indication that they may be connected with the

43 cf. Art. 44 of the Administrative Court Act, SR 173.32

25

criminal acts being investigated abroad,44 and that these suspicions had been confirmed in an examination of evidence connected with an interna-tional request for mutual assistance, or the corresponding criminal pro-ceedings at the national level. The Swiss authority handling the mutual as-sistance proceedings establishes whether or not the facts of the matter, as presented in the request for assistance, constitute a criminal offence45. Af-ter mutual assistance proceedings have already resulted in coercive action, the assets concerned cannot have their "lawfully acquired" status restored only because a certain period of time has elapsed.

§ The third condition is purely formal in nature. Assets cannot be forfeited unless they have been frozen by the Federal Council under this Act or, previously, on the basis of Art. 184 para. 3 Const. (see Art. 14).

The third paragraph states that the statute of limitations under criminal law does not present an obstacle to the institution of administrative measures. In this sense, it would therefore also be possible that the Act could be applied in conjunction with Art. 14 to a situation which began before the Act entered into force.

The fourth paragraph governs the forfeiture process, which is to be suspended if mutual assistance proceedings in the sense of Art. 3 are resumed. Should these new mutual assistance proceedings prove successful, forfeiture proceedings would be-come irrelevant and would be struck from the records.

Art. 6 - Presumption of unlawful origin

This article concerns assets that have been frozen on the basis of the new Act, over which a PEP holds powers of disposal in the sense of Art. 2 of the Act. The article determines the conditions, in the context of forfeiture proceedings, under which these assets are deemed to have been obtained unlawfully. Mutual assistance pro-ceedings with failing states involve considerable difficulties in relation to determin-ing facts, obtaining evidence and securing a final and legally binding ruling. Added to this is the increasing complexity of the financial structures that PEPs use to blur the traces of the origin of their assets and their links to them.

The Act therefore provides that, under certain conditions, the current owner to the frozen assets may be obliged to prove that, on the balance of probability, they have been acquired by lawful means. It is thus for the current owner to furnish proof that those assets have been obtained legitimately. This is a pragmatic solution that is based on the postulate that if banks are required to know their customer (know your customer rule), owners must know the origin of their assets (know your assets rule), and therefore that they must be in a position to provide evidence of their origin. This reversal of the burden of proof is nothing new in Swiss law. This type of mechanism

44 According to Art. 64 para. 1 MAA, these criminal offences must also be punishable under Swiss law as if they had been committed in Switzerland. 45 Federal Supreme Court decision of 12 January 2010 (1C_374/2009).

26

also applies to the seizure of assets belonging to asylum-seekers (Art. 87 para. 2 of the Federal Asylum Act)46.

As in the case of constitutional guarantees of ownership, basic statutory rights may be restricted if such restriction has a legal foundation, if it in the public interest, and if the principle of proportionality is upheld47.

It may be presumed that assets have been acquired unlawfully if both of the follow-ing two conditions are met:

§ The most important criterion is that the wealth of the person who has pow-ers of disposal over the assets in the sense of Art. 2 has been subject to an extraordinary increase during the PEP's period of office. This is intended to cover two cases. One is the case in which PEPs hold powers of disposal, and the other is one in which the person who holds powers of disposal is not the same person who exercised a public office, but is one of their asso-ciates. An "extraordinary increase" means that there is a significant dis-crepancy between the income from the public office and that generated by the assets concerned that cannot be explained by normal empirical patterns and the country's overall situation. A similar provision also exists in the United Nations Convention Against Corruption (UNCAC), which talks of a significant increase in the assets of a public official that he or she cannot reasonably explain in relation to his or her lawful income48. By using the wording "extraordinary increase", the new Act sets the threshold for unlawful enrichment higher than that of the UNCAC. By contrast, the wording used also applies to persons associated with a PEP. It is therefore flexible, to be examined by the court on a case-by-case basis. Concrete evidence must prove that the assets of persons who fall under Art. 2 have increased extraordinarily over the relevant period. This would be true, for example, of a minister who became a millionaire while in office, despite not previously having any such fortune. A further example would be a per-son who is associated with a PEP, whose construction or service company generated very high profits from public contracts in connection with the office in question. The extraordinary increase condition does not, how-ever, apply to assets that have grown as result of skilled portfolio man-agement on the part of the bank with which the assets are lodged.

§ The second condition concerns the notoriously high level of corruption of the state or PEP in question during the latter's period of office. Whether or not the level of corruption is "notoriously high" is determined in a status analysis based on reports from organisations such as the World Bank or Transparency International, which conduct research work and analyses on corruption issues. Cases such as Duvalier and Mobutu have

46 SR 142.31. This article states the following: "The competent authorities may secure such assets (...) if the asylum seeker or vulnerable person without a residence permit: a. is unable to prove that the assets originate from earned income, from substitutes for such income, or from public social security benefits; b. is unable to prove the origin of the assets; or c. is able to prove the origin of the assets, but they exceed an amount set by the Federal Council. 47 cf. Die Schweizerische Bundesverfassung, commentary on the Federal Constitution, B. Ehrenzeller, P. Mastronardi, R.J. Schweizer, K. A. Vallender, Schulthess, Zurich, Basel, Genf & Dike Verlag, Lachen, 2002, ad Art. 36 Const., p. 490 ff. 48 cf. Art. 20 UNCAC

27

shown that corruption is often the result of the failure of state structures in the assets' country of origin. In the context of the present Act, it is as-sumed that corruption is widespread in the PEP's country of origin if this is confirmed by a certain number of indicators. To this end, indicators from a variety of credible sources are bundled to provide an indication of whether or not this condition is met. These indicators mainly take the form of reports from national and international organisations, local and interna-tional NGOs and other public sources such as the press or media, which are engaged in combating corruption or promoting good governance. These bundles of indicators, which provide information from a range of reliable sources, are then used to assess whether or not the condition of an acknowledged high level of corruption is fulfilled. Typical cases include those of Suharto, Mobutu and Duvalier. During their period of office, the level of corruption was recognised as high, in respect of the persons them-selves and the country as a whole (Indonesia, Congo and Haiti49). Criminal acts that are not necessarily classified as corruption under Swiss law but which constitute the improper conduct of a public office in other respects (e.g. misappropriation of funds, embezzlement or another unlawful use of funds by public officials) must also be taken into account in this evalua-tion.

The second paragraph of this provision provides that the presumption ceases to apply if it can be demonstrated that, in all probability, the assets were acquired by lawful means, "specifically by presenting suitable evidence and explaining suspi-cious transactions"50. This is also expected in the context of this Act if the owner concerned wishes to prove that the frozen assets have been obtained legitimately.

Art. 7 – Third-party rights

This provision is intended to protect the rights to the forfeited assets both of the Swiss authorities (subparagraph a) and of third parties acting in good faith (subpara-graph b). It derives directly from Art. 74a MAA, the principle of which has been adopted. This provision is intended to ensure that the claims of Swiss authorities and/or third parties acting in good faith can be satisfied before the assets are re-turned. Such claims may be asserted exclusively by third parties which were not involved in the forfeiture proceedings, and who are the holders of rights in rem, but are not persons holding powers of disposal over the assets in question, as the latter constitute a party to the proceedings.

Upholding the rights of the Swiss authorities is intended to ensure consideration of the public interests that the state may assert in relation to the assets in question. Consequently, it is not possible on the basis of this Act to order the forfeiture of assets that have already been forfeited in the course of criminal proceedings in Switzerland. Rights that a public authority has acquired in the form of the various taxes payable on real estate would also be excluded from restitution.

49 cf. Federal Criminal Court ruling of 12 August 2009, RR.2009.94, deliberation 3.2.3 50 Decision by the Appeals Chamber of the Federal Criminal Court of 26 September 2005, deliberation 4 and quoted references

28

Private individuals may prevent assets being returned only if a variety of conditions are satisfied at the same time. Firstly, the person concerned may not be an associate of the PEP, since the Act is specifically designed also to prevent transfers of assets within the inner circle or extended family of the PEP whose wealth has grown during the latter's period of political office. Secondly, the person must have acquired their rights to the assets in good faith. This concept is used in the same way as it is in criminal law. As such, the person must have acquired the property without knowl-edge of the facts that would justify its forfeiture51. Thirdly, the person must have a particular association with Switzerland, as a permanent resident or having acquired the right they are asserting in this country. This condition was also adopted from Art. 74a MAA. Finally, the claim must have been recognised as legitimate by a Swiss judicial authority.

Only rights in rem may be exempted from forfeiture52. For example, a bank might contest the forfeiture of assets to which it asserts rights because they have been lodged with it as security for a loan agreement. Similarly, a garage owner will be compensated beforehand for the costs incurred of storing vehicle subject to forfei-ture. Personal rights cannot be exempted from restitution, even where a forfeiture order exists under civil law53.

The conditions are deliberately restrictive. The protection third parties acting in good faith is certainly more limited than that provided for in Art 70 SCC or 74a para. 4c MAA. Art. 7 however conforms to the standard case law of the Federal Supreme Court and the Federal Criminal Court, according to which third parties are protected only if they enjoy a right of ownership over the assets to be forfeited or a limited right in rem (in particular a right under a pledge). In contrast, this is not the case for third parties who only enjoy personal rights governed by contract law (lease, loan, mandate, debt, fiduciary relationship, etc.) over the forfeited assets or with the beneficial owner who is only indirectly affected by the forfeiture. This limitation is applicable both in national forfeiture procedures54 and in those involv-ing international mutual assistance55.

Moreover, a balancing of interests between the entitlements of third parties acting in good faith and the objective of restitution is achieved. Experience has shown that third parties sometimes lodge dubious claims to frozen assets, for example on the basis of a foreign judgement or the random acknowledgement of a debt, which are difficult to verify. Third-party claims cannot be permitted to diminish the value of the assets, ultimately reducing it significantly to the detriment of the people in the country of origin and in this way allowing a significant proportion of the returned assets to escape the subsequent monitoring programme.

Persons who satisfy the conditions described above are deemed to be parties to the forfeiture proceedings and must be requested to participate in them (Art. 57 APA).

51 Federal Criminal Court decision of 9 July 2007, RR.2007.26, deliberation 5.3 52 ATF/BGE decision 1C_166/2009 of 3 July 2009, deliberation 2.3.4. 53 Ibid. 54 ATF/BGE 6S.298/2005 of 24 February 2006, deliberation. 4.1; Federal Criminal Court decision BB.2008.58 of 6 October 2008, deliberation 2.2 and BB.2008.6 of 14 April 2008, deliberation 2.1. 55 AFT/BGE decision 1C_166/2009 of 3 July 2009, deliberation 2.3.4; Federal Criminal Court decision RR.2009.91-92 / RP.2009.7-8 of 7 April 2009, deliberation 2.2.2 d.

29

The purpose of the forfeiture is twofold. Firstly, it aims to facilitate the restitution of assets unlawfully acquired by PEPs or their close associates in situations where the international mutual assistance procedure is unable to conclude with a freezing ruling with a view to forfeiture (Art 74a LAA) due to the situation of failing state structures in the state of origin of the assets. Secondly, the purpose of forfeiture is also to punish the unlawful acquisition of assets. The forfeiture procedure is distin-guished in this way from the decision of the Swiss Federal Supreme Court in case 132 I 229, where the Court ruled that the freeze based on Art 184 para. 3 Const. only pursued the aim of preserving Switzerland’s image abroad. Inasmuch as the assets have been acquired unlawfully, the public interest in restitution takes precedence over the interests of the creditors to obtain execution of their claim to the assets if the latter do not have an in rem right.

Art. 8 - Principle

Since the affair surrounding the Marcos assets in 1986, Switzerland has returned frozen assets to their country of origin on a number of different occasions. Examples here include the Abacha (Nigeria) and Montesinos (Peru) cases, as well as certain assets held by PEPs from Angola and Kazakhstan56. In the same way as the court proceedings, restitution took different forms in individual cases, according to the context and the expectations and possibilities of the parties concerned. In certain cases, Switzerland was involved only to the extent that the assets were held at Swiss banks. Here, either Switzerland was asked for mutual assistance by a third-party state conducting investigations into these assets (Kazakhstan), or a Swiss court conducted proceedings in Switzerland independent of any mutual assistance pro-ceedings (Angola). Switzerland's objective was to ensure that the returned assets are used to benefit the victims of corruption and embezzlement, i.e. the people in the country of origin. This approach has been used for the good of the people to finance programmes to promote health, education and good governance. One example here is the Abacha case, in which assets were returned with the support of the World Bank and Angola. Here, Switzerland was responsible only for monitoring the assets' return – a task entrusted to the SDC.

Forfeiture is ordered in the name of the Federal Government, which is then under an obligation to return the forfeited assets via joint development programmes to the people of the country of origin. These programmes are intended to improve the living conditions of the people who had previously been denied these resources. This is absolutely vital in the case of failing states, because they are generally among the poorest countries in the world. With this in mind, the state receiving the assets becomes Switzerland's partner. It does not, however, constitute a party to the forfei-ture proceedings and does not have any rights to the assets that are returned.

In view of their unlawful origin, the Federal Government is not permitted to make any gain from the amounts forfeited under the RAA. Had any such facility been made, it would also have meant that the Federal Government would have to bear any losses on the assets. However, the Federal Government is not responsible for any fluctuations in the value of the forfeited assets that occur between forfeiture (i.e. the date of the definitive forfeiture order) and restitution (i.e. the date agreed in principle

56 See Appendix 1.

30

in the treaty with the country of origin) (Art. 9). Consequently, the amount returned is that which is available on the day of restitution, regardless of any price or market changes.

Art. 9 - Procedure

Each case is individual, which means that the needs of countries of origin also differ. That is why forfeited assets are returned in the form of funding for programmes that are in the public interest (para. 1). As a general rule, these programmes will be determined jointly with the government of the state in which the assets originated. Given the symbolic importance of such cases, the programmes that are selected for implementation are frequently those which combat poverty or aim to bring an end to impunity.

Where assets have been returned in the past, the process has generally been handled and supported by Switzerland. In certain cases, assets have been returned via an international organisation, such as the World Bank, or in collaboration with another state that was involved in the mutual assistance proceedings, via the Swiss Agency for Development and Cooperation (SDC) and/or local NGOs. In all cases, the Fed-eral Council has ensured the follow-up to its decisions by entrusting overall man-agement of the process to the FDFA owing to the political dimension represented by PEP assets. The responsibilities of the Federal Council and the restitution process are not laid down in existing law, however. This provision thus aims to codify Federal Council practice and to ensure transparency in the restitution of assets in future applications of the Act.

Where the process itself is concerned, programmes of public interest as per para. 1 are selected in accordance with the principle laid down in Art. 8. The precise details may be set out in an agreement, although this is not an essential condition for restitu-tion (para. 2). If the country of origin of the assets consents to such an agreement, the agreement will contain the points that are necessary for the programmes of public interest that have been adopted to be conducted by Switzerland and the coun-try of origin. The points that are to be included are listed in para. 3 a-d. The Federal Council is responsible for concluding any such agreement on the details of restitu-tion (para. 4).

A democratically elected government in the country of origin is not an essential condition for the restitution of forfeited assets. Consequently, in each individual case a way must be found that guarantees that the people of the country of origin will genuinely benefit from the return of the assets, as provided for in Art. 8. Depending on the case, assets may be returned directly to their country of origin, provided that the state provides the corresponding guarantees. If no agreement can be reached and the country of origin is unable to make certain minimum guarantees, the Federal Council also has the option of returning the assets via the SDC or other national or international organisations (para. 5). As a final resort, or in the case of a serious conflict, the assets that are to be returned may be used to reduce the country of origin's debts due to other international bodies, or for humanitarian aid purposes. Here, the Act provides that both international organisations such as the World Bank or regional development banks, and local non-governmental organisations may be brought in for this purpose. This is intended to cover the full range of possible

31

partners who are able to guarantee the transparent and efficient return of the assets. In line with current practice, the Federal Council may instruct the FDFA or another Federal Department to supervise the restitution process in such cases.

The Federal Act on the Division of Forfeited Assets57 is not applicable. Its scope of application (Art. 2) does not extend to the present context.

Art. 10 - Procedural costs

This article draws on Art. 57 para. 4 UNCAC and stipulates that the requested state may deduct "reasonable expenses" as compensation for its efforts during the restitu-tion process. The dispatch on this Convention went into further detail on this point: " 'Reasonable expenses' is to be understood to mean the costs and expenditure that have arisen; in no way does it refer to costs of intermediaries or other unspecified costs"58. The costs that may be deducted correspond to the additional expenditure incurred by the Federal Administration in such cases. The deduction is intended to compensate the Federal Government or the cantons for this additional expenditure and for any additional costs, where appropriate. In the past, processing such cases has indeed resulted in extraordinary costs for the Confederation.

For example, the Confederation has been dealing with the Duvalier case since 1986, and the Mobutu case took from 1997 to 2009 to resolve. With this in mind, and in the light of the aforementioned article of the UNCAC, a maximum percentage of 2.5% of the forfeited assets has been set to cover such "reasonable expenses". The amount that is actually received will vary from case to case and, where at all possi-ble, be determined together with the state concerned on the basis of time and cost, as well as the amount of the assets. This is not an automatic deduction. If a sum is actually deducted, it is credited to the Swiss Confederation (to federal coffers or to the cantons).

The Federal Council will decide whether or not the deduction of a maximum of 2.5% of the forfeited assets is appropriate in a given case (para. 2). It will base its decision, once again, specifically on the sums involved, and on political considera-tions.

Art. 11 - Appeal

In view of the constitutional guarantee of legal recourse (Art. 29a Const.), Art. 11 of the draft Act, in conjunction with the change to Art. 33 b of the Administrative Court Act, ensures that an asset freeze order issued by the Federal Council may be challenged before the Federal Administrative Court. This constitutes an exception to the principle laid down in Art. 189 para. 4 (first clause) of the Federal Constitution, according to which there may be no appeal against acts of the Federal Council. This exception is justified in that freezing assets creates a considerable restriction on the guarantee of ownership (Art. 26 Const.). Furthermore, legal precedent in the past has

57 SR 312.14 58 Dispatch of the Federal Council of 21 September 2007 (Federal Gazette 2007 6931), p. 6988.

32

already admitted challenges to asset freezes ordered by the Federal Council pursuant to Art. 184 para. 3 Const.59.

An appeal before the Federal Administrative Court generally has a suspensive effect (Art. 55 para. 1 of the Federal Administrative Procedure Act, APA). Since an appeal in this context would concern the freezing of assets, however, suspension would run counter to the objective of the proceedings because the assets in question could then be withdrawn from Switzerland while appeal proceedings were ongoing. That is why Art. 11, para. 2 withdraws the suspensive effect of any appeal against the Fed-eral Council's asset freeze order.

By excluding the objection raised on the grounds of unreasonableness, Art. 11 para. 3 derogates from Art. 49 c APA. Art. 2 d of the draft Act grants the Federal Council considerable powers of discretion. Were the Federal Council to overstep or abuse these powers, however, action could be taken against it on the grounds of a breach of federal law (Art. 49 a APA).

Under the terms of the Federal Supreme Court Act (SCA), an appeal ruling by the Federal Administrative Court may be challenged before the Federal Supreme Court. It is usual practice in the Swiss judicial system to provide for a dual level of appeal for the person under the jurisdiction of the court. An appeal before the Federal Supreme Court would not have a suspensive effect either (Art. 103 para. 1 SCA).

As in the case of a decision concerning a matter of public law, the ruling of the Federal Administrative Court on the petition for forfeiture (see Art. 5 of the draft Act) may be challenged before the Federal Supreme Court (Art. 82 a SCA).

Art. 12 – Cooperation between authorities

This provision is intended to ensure that the Federal Office of Justice (FoJ), as the Office responsible for mutual assistance, informs the FDFA (Directorate of Public International Law) in good time of cases in which proceedings involving a politi-cally exposed person might result in a negative outcome owing to a failure to coop-erate on the part of the requesting state. Under the terms of the present Act, the federal or cantonal authorities responsible for submitting the application for mutual assistance must pass their files to the FDFA or FDF should either so request. The FDFA therefore has sufficient time to brief the Federal Council on the case and to propose to it that the assets in question be frozen under the terms of this Act, before the freeze imposed as part of the mutual assistance proceedings is lifted on the grounds that such proceedings have been completed.

Art. 13 - Amendments to current law

From the systematic perspective, the Act requires amendments to be made to two existing enactments.

59 ATF/BGE 132 I 229; Federal Administrative Court decision in clause C-7589/2007 of 14 March 2008

33

§ The Federal Act of 17 June 2005 on the Federal Administrative Court60 gains a new point 3 in Art. 33 b (Lower courts). This permits ap-peals under the present Act against asset freeze orders issued by the Fed-eral Council. Also new: Art. 35 ACA provides that the Federal Adminis-trative Court will have the power to rule on petitions for the forfeiture of assets pursuant to the RAA. Finally, Art. 44 would gain a new para. 3. This provision closes a loophole in existing law, which does not govern procedural costs for legal action before the Federal Administrative Court.

§ Art. 44 of the Federal Act of 11 April 1889 on Debt Collection and Bankruptcy, DCBA61 (Realisation of forfeited items) is to be amended so that the forfeiture of items under the RAA will also comply with the provi-sions of this Act. This amendment to the law creates a preferential right for the state when executing a forfeiture order and permits any claims against the forfeited assets on the basis of the DCBA to be rejected. This solution draws on existing Swiss law in the cases of forfeiture orders un-der Arts. 70 and 72 PC, and of mutual assistance proceedings under Art. 74a MAA62. This solution prevents any creditors who were unable to par-ticipate in the forfeiture proceedings under Art. 7b of this Act being able subsequently to prevent the execution of the forfeiture order on the basis of the DCBA.

Art. 14 - Transitional provisions

The draft law was triggered by difficulties that the Federal Council faced whenever international mutual assistance proceedings in criminal matters failed owing to the failure of state structures63. Art. 2 gives a formal basis in federal law to the practice of the Federal Council on the freezing of assets, which until now has been based on Art. 184 para. 3 Const.. The object of the present Act is therefore to conclude cases of forfeiture ordered by the Federal Council based on Art. 184 para. 3, Const. which could theoretically still be pending at the time the new law enters into force. Art. 14 thus provides that the new Act will also apply to assets that have already been frozen by the Federal Council at the time the Act enters into effect.

In such cases, the condition laid down in Art. 2 a would not apply because the tem-porary freeze on the assets in question was not imposed as part of international mutual assistance proceedings in criminal matters.

Art. 14 para. 2 provides for a one-year period in which forfeiture proceedings in the sense of Art. 5 ff must be instigated after the Act enters into force. If no such pro-ceedings are commenced, the freeze must be lifted under Art. 15 para. 1, Const.

60 SR 173.32 61 SR 281.1 62 ATF/BGE 133 IV 215, deliberation 2 63 cf. footnote 15

34

Art. 15 - Referendum and commencement This provision is binding pursuant to Art. 141 para. 1 a of the Federal Constitution (Optional referendum). 3 Implications 3.1 For the Swiss Confederation

The Act will not result in any additional expenditure for the Swiss Confederation. Instituting forfeiture proceedings will nonetheless incur additional expenses for the FDFA. Under Art. 10 of the Act, procedural costs may be deducted from the for-feited assets and credited to federal coffers before they are returned. This therefore constitutes revenue for the Confederation.

3.2 For the cantons

The Act will not result in any additional expenditure for the cantons, which are affected by only two of its articles. Art. 10 provides that they may be compensated for procedural costs. In addition, under Art. 12 para. 2, they must provide the FDFA and the FDF with all of the information it requires to enforce this Act. 4 Links with the legislative planning

The Federal Act on the Restitution of Assets Obtained by Unlawful Means origi-nated from a parliamentary request. Consequently, it is not mentioned in the legisla-tive planning for the 2008-2011 period. 5 Legal aspects 5.1 Constitutionality

Foreign affairs fall within the authority of the Confederation (Art. 54 para. 1 Const.). The purpose of the Federal Act on the Restitution of Assets Obtained By Unlawful Means is the return of assets by means of financing programmes of public interest in the state in which the politically exposed person held office. It is also intended to prevent relations between Switzerland and the PEP's country of origin becoming strained by the release of money that had been frozen as part of mutual assistance proceedings that proved unsuccessful owing to the failure of state structures in the country of origin. The Act therefore pursues a foreign policy objective. The Confed-eration has the authority to legislate in this area on the strength of its responsibility for international relations.

Article 26 of the Federal Constitution provides for a guarantee of ownership. This provision guarantees the specific ownership rights of the individual and protects them legally from state intervention.

35

The new law permits the state to freeze and to seize certain assets deemed to be held by politically exposed persons or their associates. Forfeiture restricts the guarantee of ownership and must therefore be both proportionate and justified by an over-whelming public interest (Art. 36 Const.). According to this principle, the restrictive measure must not only be a suitable means of bringing about the intended end, but must also be necessary, i.e. it may not be taken if an equally suitable measure but one more respectful of individual freedoms would be sufficient to produce the desired result.

At the national level and in respect of mutual assistance, applicable law thus permits assets to be forfeited if it can be established that they originate from a criminal act. Art. 72 of the Swiss Criminal Code (PC) on criminal organisations remains reserved here. Administrative law also provides for cases in which forfeiture may be ordered if there is a risk that property might be used illegally64.

The public interest lies in the punishment of the unlawful acquisition of assets by PEPs and their associates. Furthermore, the freezing and forfeiture of such assets is intended to help protect the reputation of Switzerland and the Swiss financial centre. Since the forfeiture provided for in the Act concerns assets of unlawful origin, it is a proportionate measure, since unlawful acquisition cannot be remedied by any other means. In addition, forfeiture is limited to cases in which international mutual assis-tance proceedings in criminal matters have proven unsuccessful owing to the failure of state structures in the requesting state.

Moreover, the Act provides that unlawfulness with regard to the origin of the assets is to be presumed where certain conditions are met (Art. 6). This presumption does not constitute an intervention in the guarantee of ownership as those concerned still have the opportunity to prove the lawful origin of the assets in question. It nonethe-less lends intervention greater weight as it considerably facilitates a forfeiture order. Where unlawful origin is suspected, assets whose lawful origin cannot be proven in all probability may be forfeited. The principle of proportionality must be upheld in such cases also.

The conditions for the presumption of unlawful origin that are laid down in Art. 6 para. 1 restrict the applicability of this provision to those cases in which unlawful acquisition appears very probable. The conditions are 1) that the assets have in-creased massively while the PEP was in office and 2) that the level of corruption was acknowledged as notoriously high. The person who holds powers of disposal over the assets may, however, submit all relevant evidence to the Federal Adminis-trative Court in order to overturn this presumption. The term "evidence" is to be understood in the sense of the laws of procedure65, i.e. independent of any bench-mark. Since the Federal Administrative Court is otherwise required ex officio to establish the facts in any legal proceedings66, the intervention in the guarantee of ownership would appear to be a proportionate measure.

64 E.g. Art. 2 para. 4 Internal Security Act (SR 120); 31 para. 3 Weapons Act (SR 514.54) 65 cf. Art. 36 ff. Civil Procedure Act (SR 273) 66 Art. 44 para. 2 ACA (SR 173.32)

36

5.2 Compatibility and coherence of the Act in respect of Switzerland's international obligations

5.2.1 European Convention on Human Rights

The presumption of unlawful origin provided for in the Act is not a question of guilt or innocence in the criminal law sense. The Act is concerned solely with the ques-tion of who holds powers of disposal over certain assets, and whether or not the latter have been acquired legitimately. In other words, it does not concern forfeiture under criminal law in the sense of Swiss legislation.

According to the European Court of Human Rights, the following criteria are key in deciding whether or not a sanction is of a penal nature in the sense of Art. 6 ECHR: its classification under domestic law, the nature of the offence, and the nature, severity and objective of the sanction67. These criteria are applied as alternatives, i.e. only one criterion need be met for a sanction to be classified as penal. The Court has concluded in several judgements that Art. 6 para. 2 ECHR is not applicable to forfei-ture measures, provided the latter are not formulated as charges in the sense of Art. 6 para. 2 ECHR, because forfeiture either constituted a preventive measure68 in con-nection with prior criminal proceedings69, or was directed against third parties70, or because it constituted action in rem against a vehicle that had been used for smug-gling purposes, irrespective of any criminal charges or the threat of criminal pro-ceedings in the event that the applicant for mutual assistance did not comply71. In a more recent decision, however, the Court found that Art. 6 para. 2 ECHR was actu-ally applicable to an asset forfeiture which – as in the Phillips72 judgement – had taken place following a criminal conviction, where the assets derived in part from other criminal acts of which the applicant had been convicted. In contrast to the Phillips judgement, however, the acts in question had been the subject of criminal proceedings that had ended with the acquittal of the applicant73.

In the light of this legal precedent (albeit not always explicit with regard to the criteria stated above), it cannot be entirely ruled out that the forfeiture of assets provided for in the Act will be regarded as being criminal legislation in the sense of Art. 6 ECHR, such that Art. 6 para. 2 ECHR would be applicable. Even if this were the case, however, the presumption of unlawfulness would still satisfy the require-ments of Art. 6 ECHR. Specifically, the European Court of Human Rights stated the following in a landmark ruling:

"Presumptions of fact or of law operate in every legal system. Clearly, the Conven-tion does not prohibit such presumptions in principle. It does, however, require the Contracting States to remain within certain limits in this respect as regards criminal law. (…) Art. 6 para. 2 does not therefore regard presumptions of fact or of law provided for in the criminal law with indifference. It requires States to confine

67 Judgement in Engel vs. Netherlands of 8 June 1976, Series A, No. 22, § 80 ff. 68 Judgements in Acuri et al. vs. Italy of 5 July 2001, No. 52024/99, ECHR 2001-VII, p. 515; Butler vs. United Kingdom of 27 June 2002, no. 41661/98, ECHR 2002-VI, p. 383; Riela et al. vs. Italy of 4 September 2001, no. 52439/99, p. 8 ff 69 Judgement in Phillips vs. United Kingdom of 5 July 2001, ECHR 2001-VII, § 28 ff. 70 Judgement in AGOSI vs. United Kingdom of 24 October 1986, Series A Bd. 108, § 65 ff. 71 Judgement in Air Canada vs. United Kingdom of 5 May 1995, Series A, Bd. 316-A, § 52 ff. 72 cf. footnote 64 73 Judgement in Geerings vs. Netherlands of 1March 2007, req. 30810/03.

37

themselves within reasonable limits which take into account the importance of what is at stake and maintain the rights of the defence 74.

With this in mind, the proposed regulation satisfies the requirements of the European Court. Its scope of application is limited to assets held by politically exposed per-sons and their associates; it offers those concerned the opportunity to disprove the presumption, and it affords the courts complete freedom in evaluating the evidence. Furthermore, it confines itself to the minimum which is absolutely necessary to combat effectively the impunity that has been caused by the failure of state struc-tures in cases in which it would be immoral to permit those responsible and their associates to draw profit from their actions.

5.2.2 United Nations Convention Against Corruption (UNCAC)

The UNCAC contains universal standards for the prevention and combating of corruption. Switzerland signed the Convention without reservations on 10 December 2003, and ratified it on 24 September 2009.

The UNCAC devotes its entire Chapter V to the recovery of assets obtained by illegal means. Art. 51 UNCAC states that the return of assets is a fundamental principle of the Convention and that states parties must afford one another the widest measure of cooperation and assistance in this regard. The article expresses the will of the states parties to do their utmost to ensure that the Convention is a substantial improvement on earlier legislation75. Art. 57 para. 2 obliges all states parties to adopt the legislative measures necessary to enable its competent authorities to return confiscated property. Paragraph 5 of this article mentions other approaches that might help requested and requesting states to manage situations for which resolution is in doubt, specifically where the requesting state is not capable of cooperating at the judicial level.

Swiss law is already compatible with the imperative regulations of the UNCAC both from a general point of view and concerning in particular the restitution of assets in the sense of Art. 57 UNCAC76. The Act takes the same direction and has the same objectives as the UNCAC in respect of the restitution of assets. Its purpose is to improve the domestic legal framework to permit the return of illegal assets even in those rare cases in which mutual assistance proves unsuccessful owing to the failure of state structures in the requesting state. This upholds the core principle of the Convention in full. Furthermore, in line with the UNCAC the Act provides that states parties may agree ad hoc solutions to ensure the faster return of assets for-feited abroad. This avoids them having to wait for the conclusion of long and com-plex court proceedings. The approach nonetheless requires a mutual agreement between the parties since in this context restitution is neither automatic nor obliga-tory. As such, the requesting state is given a say with regard specifically to the terms on which the assets are to be returned, i.e. where at all possible to benefit the popula-

74 Judgement in Salabiaku vs. France of 7 October 1988, series A, Bd. 141. In the same meansing cf. arrêt Pham Hoang vs. France of 25 September 1992, series A, Bd. 243 no 32 and judgement in Janosevic vs. Sweden of 23 July 2002. 75 Dispatch of the Federal Council of 21 September 2007 (Federal Gazette 2007 6931), p. 6987. 76 ibid. pp. 6933 and 6989

38

tion and the victims of bribery and corruption77. It is precisely these principles on the restitution of forfeited assets that are rooted in the new Act.

5.3 Relation with European law The Federal Act on the Restitution of Assets of Politically Exposed Persons Ob-tained by Unlawful Means does not affect European law, and where it has an indi-rect link with some provisions of European law, in particular in the area of interna-tional mutual assistance, they two sets of law coincide.

5.4 Form of the act to be adopted The draft law contains important provisions setting out the rules of law that must be issued in the form of a federal act, in conformity with Art. 164, para. 1, Const.

77 ibid., p. 6989.

39

Appendix 1

Summary of the most recent cases in which assets of unlawful origin have been returned Just as court proceedings differ from case to case, so too the restitution of assets of unlawful origin varies according to the particular circumstances, as well as the expectations and options of those concerned. In some cases, Switzerland has been affected only because a third-party state, which was itself conducting proceedings, requested mutual assistance in respect of assets held in Swiss banks (Kazakhstan). There have also been cases in which no mutual assistance was requested because a Swiss investigating magistrate was able to conduct independent investigations without it (Angola). Some prime examples of restitution and of monitoring cases from the recent past are described below: § Advance transfer to escrow accounts: the case of the Philippines

In its decisions of December 1997 and January 1998, the Federal Supreme Court determined that the great majority of the assets held in the Marcos foundations were of evidently criminal origin, and ordered the advance transfer of these assets to escrow accounts in the Philippines. The Court imposed two conditions on this early transfer.

The Philippines complied with the two conditions set by the Federal Supreme Court. A legally enforceable ruling from a court in the Philippines enabled mutual assis-tance proceedings in the Marcos affair per se to be concluded. Thereafter, the Swiss authorities received regular updates on the measures and processes designed to compensate victims of human rights violations under the Marcos regime.

The USD 683 million in assets that had been frozen in Switzerland could thus be repaid to the Philippine state via escrow accounts – an unprecedented move at that time. § National monitoring: the case of Peru

Some USD 180 million in assets was returned to Peru over a five-year period after 2001, approximately USD 93 million of which was transferred by Switzerland.

Restitution by Switzerland was based primarily on a ruling from the public prosecu-tor's office of Canton Zurich in money laundering proceedings against Vladimiro Montesinos. In the context of its proceedings, in 2002 the public prosecutor's office ordered the restitution to Peru of around USD 77.5 million in assets that were the product of corruption. With the consent of the persons concerned, a further tranche was returned the same year. In addition, in October 2006 the public prosecutor's office repaid to Peru a further USD 11.5 million that originated from accounts held by one of Montesinos' associates.

40

Peru itself set up a special national fund for the administration of forfeited corrup-tion proceeds (FEDADOI) in the October of 2001, which was designed as a vessel to allow the state to manage the recovered assets transparently and in a manner fitting to their purpose. Decisions on the use of the money were taken by the members of the FEDADOI board. The results were not always satisfactory, since money was used among other things to finance leisure activities for the police. This, naturally, was not the object of the fund. § Monitoring by Switzerland (SDC): the case of Angola

Assets were confiscated as part of a criminal investigation instituted in Geneva in April 2002. It was determined that these assets should be used to repay Angola's foreign debts to Russia. Proceedings were suspended in 2004 after the investigation found no irregularities. However, assets held in accounts in the names of four high-ranking Angolan public officials remained frozen since they had not disputed that the money actually belonged to the Angolan state.

At the request of Angola, in 2002 talks began between Angolan and Swiss govern-ment agencies. They were intended to seek ways in which the assets frozen by the Geneva judicial authorities could be returned to Angola and, in view of the severe crisis in the country, be used for social and humanitarian projects. The Swiss and Angolan delegations signed the corresponding agreement on 1 November 2005.

Under the terms of this bilateral agreement, the Angolan assets frozen in Switzerland were to be used for social and humanitarian purposes. Two specific development programmes were adopted to clear land mines and to support agriculture. Where mine clearance was concerned, Angola proposed that the money be used to finance an existing contract between the Angolan state and the Swiss company RUAG concerning the removal of mines. Since this contract had been signed prior to the bilateral agreement, in consultation with RUAG, Switzerland and Angola had it reviewed by the Société Générale de Surveillance. Where the agriculture develop-ment programme is concerned, there are plans to establish and operate two agricul-tural training centres in two Angolan provinces.

The SDC is responsible for administering the fund and providing support to the programme. The money is to be transferred to an account in the name of the SDC with the Swiss National Bank. The Angolan state is to be named as the beneficial owner of this account, but only the SDC is authorised to withdraw funds. § Bilateral monitoring with the World Bank: the case of Nigeria

The Federal Supreme Court decided on 7 February 2005 that the majority of the Abacha assets that had been frozen in Switzerland were of evident criminal origin. This meant that USD 460 million could be handed back to Nigeria even though the country had not issued any forfeiture order. The Federal Council subsequently determined the detailed restitution terms for these assets.

In this case, with the consent of Nigeria and the support of the World Bank, Switzer-land was able to set up a monitoring system to oversee how the money that had been returned to Nigeria was being used. The agreement on the principles of monitoring related to the return of a total of USD 700 million, 460 and 40 million dollars of

41

which could be repaid owing to judicial rulings in Switzerland, and 200 million thanks to the consent of the current owners of those assets.

Monitoring encountered problems in that the government had included the funds in its budget for 2004, while the assets were not actually returned until 2005. Switzer-land was thus able to conduct only a review after the fact, drawn from the monitor-ing activities of the World Bank. However, since this case marked the first time ever that the return of forfeited assets had been monitored, Switzerland's approach was recognised as a breakthrough even by highly critical NGOs. § Trilateral monitoring with the World Bank and the USA: the case of Ka-

zakhstan

From 2003 onwards, Switzerland and the USA held talks about the details of the return to Kazakhstan of assets that had been frozen in accounts in Geneva in the framework of international mutual assistance proceedings involving the USA (approx. USD 84 million), as well as proceedings in Geneva (approx. USD 60 million). The parties sought a solution which offered a guarantee that the assets to be returned to the Kazakh people would be used appropriately and not diverted. Return-ing the assets under the supervision of an international financial institution, namely the World Bank, seemed to be the safest way of accomplishing this.

The solution proposed by the USA, Kazakhstan, Switzerland and the World Bank involved the establishment of a new Kazakh foundation named the "BOTA Kazakh Child and Youth Development Foundation". The foundation comprises five Kazakh founders, nominated by the Kazakh government, which must be approved by the parties. The foundation is to be administered by an international NGO that is nomi-nated by the parties and is completely independent of the Kazakh authorities. The frozen assets are to be transferred in tranches to this foundation, and deployed by it under the patronage of the World Bank. A Supervisory Board, made up of partners to the agreement, is to monitor the way in which the money is actually used. The payment of funds may be blocked at any time at the request of any one of the part-ners to the agreement.

On 2 May 2007, the Federal Council approved an agreement with the USA and Kazakhstan, as well as a service agreement with the USA, Kazakhstan and the World Bank concerning the restitution of Kazakh assets that had been frozen in Switzerland. It is expected that the funds will have been exhausted within five years.

42

Appendix 2

Frozen Mobutu assets in Switzerland: chronology of events (1997-2009)

On 16 May 1997, following a request for mutual assistance from the Democratic Republic of the Congo (DRC), Switzerland ordered a partial freeze on Mobutu assets in Switzerland as a precautionary measure. The absence of key information meant that the Swiss authorities were unable to freeze the assets in their entirety.

In order to remedy this problem, the Federal Council decided on 17 May 1997 to impose a precautionary freeze on all of the assets held by Mobutu and his family in Switzerland. Following certain additions to the request for mutual assis-tance from the DRC, the freeze on assets was upheld in the context of mutual assis-tance proceedings.

Between May 1997 and November 2003, the Swiss authorities asked the Congo-lese authorities on several occasions and at various levels to provide greater detail on their request for mutual assistance. Since the DRC did not accommo-date this request, mutual assistance proceedings ultimately had to be suspended.

To prevent the restitution of the frozen assets to Mobutu's heirs, the Federal Coun-cil resolved, on the basis of the relevant constitutional provisions, to freeze the assets for an initial period of three years. It instructed the FDFA to support the parties in finding a solution that was as satisfactory as possible for both sides.

On 15 December 2006, despite little progress on the matter, the Swiss government ordered the first extension of the asset freeze for a further two years.

In July 2007, the President of the Swiss Confederation visited the DRC and asked the Congolese state to nominate a contact person to represent it in further negotiations on the matter.

In August 2007, the deputy State Secretary received the Vice-Minister for Expa-triate Congolese in order to renew the FDFA's request for a contact person.

In November 2007, the Swiss ambassador in Kinshasa handed a follow-up letter to the Foreign Minister of the DRC, in which Switzerland expressed its concern about the matter as well as its desire to find a solution that benefited the Congolese people.

In July 2008, the FDFA sent a letter to the Foreign Minister of the DRC that expressed Switzerland's regret that, despite several attempts, with only five months left until the asset freeze was to expire on 15 December 2008, no talks had yet been held that might have accelerated a solution for the restitution of assets to the DRC. Switzerland thus offered the DRC technical assistance with the resumption of the criminal proceedings that had been instituted in 1997 and with the submis-sion of a new request for mutual assistance.

On 23 October 2008, Switzerland learned from a diplomatic note from the Congo-lese Foreign Ministry that the Congolese government had decided not to pursue criminal proceedings against the associates of the late President Mobutu, opting instead for negotiations with Mobutu's heirs.

43

In a letter dated 13 November 2008, the Swiss Foreign Minister offered Presi-dent Kabila the services of a Swiss lawyer specialised in the recovery of assets, who had been instructed to obtain a court-ordered freeze on the Mobutu assets on behalf of the DRC.

Following last-minute agreement from the DRC, the Swiss government extended the freeze for a second time up to 28 February 2009. This extension was intended to allow the lawyer for the DRC to institute proceedings for a court-ordered freeze in Switzerland, and to give the Federal Public Prosecutor's Office the opportunity to decide on the next steps in these proceedings.

After the lawyer for the DRC had filed criminal charges, the Swiss government decided on 23 January 2009 to extend the freeze for a third time up to 30 April 2009, as it believed that the Federal Public Prosecutor's office would require a great deal of time to study the corresponding files.

On 21 April 2009, having examined the criminal charges, the Federal Public Prosecutor's Office decided not to commence investigations since the statute of limitation on the alleged acts had already expired.

Surprisingly, the DRC instructed its lawyer not to contest the decision of the Federal Public Prosecutor's Office. In doing so, the DRC destroyed all hope that the frozen assets would be returned to the Congolese people.

On 27 April 2009, the Federal Council was informed that a Swiss citizen had sub-mitted a complaint to the Federal Criminal Court. These unexpected legal pro-ceedings were instigated by a private individual who wished to make a final attempt to prevent the transfer of assets to the heirs of the late President Mobutu. The Swiss government then decided to extend the asset freeze for the fourth time to give the Federal Criminal Court the opportunity to respond.

On 14 July 2009, the Federal Criminal Court decided not to admit the com-plaint and denied the Swiss citizen leave to appeal on the grounds that the latter was not the victim of the matter. Under the circumstances, in accordance with the gov-ernment decision of 30 April 2009 Switzerland had no other option after twelve years of effort but to lift the freeze on the Mobutu assets.

44

Appendix 3

Frozen Duvalier assets in Switzerland: chronology of events (1997-2010)

On 14 March 1986, the Haitian authorities submitted a request for mutual assis-tance to Switzerland, asking the Swiss authorities to freeze and seize assets in Switzerland belonging to Mr Duvalier and his associates, as well as to communicate all information concerning these assets and, ultimately, to ensure the return of the assets to the requesting state. The request was transmitted by the responsible author-ity, the Federal Office of Police (FOP), for execution by those cantons where the Duvalier assets had been frozen as a provisional measure (responsible authority now: Federal Office of Justice (FOJ).

On 14 June 2002, after 16 years of mutual assistance procedures in criminal matters, the Federal Council decided to freeze the assets in Switzerland of the Duvalier family and its entourage for a period of three years, i.e. until 14 June 2005. At the same time, the Federal Council instructed the FDFA to assist the parties with a view to finding the most satisfactory outcome possible.

On 3 June 2005, in view of a possible agreement, the Federal Council decided to extend the freeze for a further two years, i.e. until 3 June 2007, to allow the agreed solution to be finalised and implemented. In the end, this amicable settlement however could not be finalised.

On 1 June 2007, the Federal Council decided to extend the freeze for a further three months, i.e. until 31 August 2007, since possibilities for finding a way to return at least a part of the assets still existed.

On 13 August 2007, the President of Haiti sent a letter to the President of the Swiss Confederation informing her of “the determination of the Haitian Govern-ment to seek ways and means to allow the return of the assets to Haiti and of the pending instigation by the responsible judicial authorities in Port-au-Prince of appropriate procedures against Jean-Claude Duvalier”.

On 22 August 2007, the Federal Council decided to prolong the freeze on the Duvalier assets for a further 12 months, i.e. until 31 August 2008, on the basis of the information contained in the letter of President Préval.

On 23 May 2008, the Republic of Haiti presented a new request for mutual assis-tance to Switzerland via the FOJ.

On 11 February 2009, the FOJ ordered the return of the Duvalier assets to the Republic of Haiti.

With its rulings on the appeals of 7 April 2009 and 3 July 2009, the Federal Su-preme Court confirmed the decision on restitution taken by FOJ.

With its judgement of 12 January 2010, which was published on 3 February 2010, the Federal Supreme Court annulled the decision of the FOJ, citing the statute of limitations and the termination of the mutual assistance procedure. The Federal Supreme Court moreover considered that the conditions required for mutual assis-

45

tance in criminal matters “appeared too strict for this kind of matter” and invited the legislature to make the necessary corrections and simplifications.

On 3 February 2010, the Federal Council decided to freeze the Duvalier assets a second time on the basis of provisions in the Constitution. The freeze will last at the latest until the Federal Act on the Restitution of Assets Politically Exposed Persons Obtained by Unlawful Means comes into force and until the decision on forfeiture taken on the basis of it is made, or until Parliament rejects this draft law. An appeal against this decision has been made to the Federal Administrative Court.

46

Addendum to the English version only of the Explanatory Report Federal Acts referred to in this Report

English

German French SR no.*

Federal Act on the Restitution of Assets of Politi-cally Exposed Persons Obtained by Unlawful Means, RAA

Bundesgesetz über die Rückerstattung unrech-mässig erworbener Ver-mögenswerte politisch exponierter Personen, RuVG

Loi fédérale sur la resti-tution des valeurs patri-moniales d’origine illicite de personnes politiquement exposées, LRAI

Federal Constitu-tion, Const.

Bundesverfassung, BV Constitution fédérale, Cst.

SR 101

Swiss Criminal Code, PC

Strafgesetzbuch, StGB Code pénal, CP SR 311.0

Civil Code, CC Zivilgesetzbuch, ZGB Code civil, CC

SR 220

Federal Supreme Court Act, FSCA

Bundesgerichtsgesetz, BGG

Loi sur le Tribunal fédéral, LTF

SR 173.1

Federal Adminis-trative Court Act, FACA

Verwaltungsgerichtsge-setz, VGG

Loi sur le Tribunal administratif fédéral, LTA

SR 173.32

Administrative Procedure Act, APA

Verwaltungsverfahrensge-setz, VwVG

Loi fédérale sur la pro-cédure administrative, LPA

SR 172.021

Federal Civil Procedure Act, CPA

Bundesgesetz über den Bundeszivilprozess, BZP

Loi fédérale de procé-dure civile fédérale, LPC

SR 273

Money Launder-ing Act, MLA

Geldwäschereigesetz, GwG

Loi sur le blanchiment d'argent, LBA

SR 955.0

Federal Act on International Mutual Assistance in Criminal Mat-ters, MAA

Bundesgesetz über inter-nationale Rechtshilfe in Strafsachen, IRSG

Loi fédérale sur l'en-traide internationale en matière pénale, EIMP

SR 351.1

Federal Act on Debt Collection and Bankruptcy, DCBA

Bundesgesetz über Schuldbetreibung und Konkurs, SchKG

Loi fédérale sur la pour-suite pour dettes et la faillite, LP

SR 281.1

Division of For-feited Assets Act, DSAA

Bundesgesetz über die Teilung eingezogener Vermögenswerte, TEVG

Loi fédérale sur le par-tage des valeurs patri-moniales confisquées, LVPC

SR 312.14

47

Domestic Security Act, DSA

Bundesgesetz zur Wah-rung der inneren Sicher-heit, BWIS

Loi fédérale instituant des mesures visant au maintien de la sûreté intérieure, LMST

SR 120

Weapons Act, WA Waffengesetz, WG Loi sur les armes, LArm SR 514.54

Asylum Act, AsylG

Asylgesetz, AsylG Loi sur l'asile, LAsi SR 142.31

*Classified Compilation of Federal Legislation

48