Switzerland: increasing exposure of international businesses to criminal enforcement

Perception is not everything – general counsel should re-consider the risk exposure to criminal prosecution in Switzerland

When it comes to the exposure of international business to criminal enforcement in Switzerland perception is not everything. In the past, Switzerland has not had a reputation as a tough environment. However, in recent years, the Federal Prosecutor has shown increased resolve to prosecute corporate crime, with a focus on money laundering and bribery offences, often in concert with prosecutors elsewhere, including the US. This has brought results: in 2021 and 2022, the Federal Prosecutor secured the first two corporate convictions of before the Swiss Federal Criminal Court after full trial. Further, over the last 10 years, we have seen numerous resolutions by way of penalty orders against corporates following abbreviated proceedings. While criminal fines are capped at ₣5m, disgorgement orders in the hundreds of millions have added to the reputational damage, costs, distraction of management time, etc that come with every criminal investigation. In addition, efforts to prosecute individuals for crimes in the corporate context have not diminished and, in fact, the trend for lawmakers to criminalise misconduct has increased, as recently seen when the Federal Data Protection Act was amended or in relation to new ESG reporting requirements.

Against this backdrop, general counsel of international businesses whose operations touch on Switzerland should factor into their compliance risk management and incident response strategies their heightened exposure to enforcement in this market. This holds true despite the absence of vicarious liability of corporates for the criminal conduct of employees, and that corporate criminal liability is limited to instances where inadequate compliance failed to prevent the commission of certain specific criminal offences, including money laundering and bribery.

We discuss below the factors and strategic challenges that general counsel should consider as they re-assess their risk exposure and mitigation strategies for Switzerland.

Jurisdictional is wide and co-operation between Swiss and foreign authorities effective

The matters resulting in these convictions and penalty orders illustrate the three principal drivers concerning the exposure of international businesses to criminal prosecution in Switzerland. First, many international businesses maintain a banking relationship in what is one of the most important financial centers globally. Where a Swiss bank account is held by a foreign entity, a transfer of assets into or out of that account representing money laundering or bribery activities may attract Swiss criminal jurisdiction. Second, where an inadequate compliance programme is operated by a Swiss group entity, such as compliance oversight and control of business partner relationships, that entity may become the subject of criminal enforcement in Switzerland, even when the underlying criminal activity by individuals occurs entirely offshore. Third, as virtually all instances of international corporate criminal prosecution have shown, the Federal Prosecutor is co-operating closely with their counterparts elsewhere, making full use of inter-governmental mutual assistance.

Self-reporting does generally not provide a reliable route to a settlement

The proliferation of deferred prosecution agreements (see, eg, UK, France, Singapore, Australia) has not reached Switzerland. Recent efforts by the Federal Prosecutor to introduce this tool to resolve criminal investigations were unsuccessful. What is more, since 2018 the Federal Prosecutor has no longer applied to foreign multi-national businesses the option of an indefinite suspension of a criminal investigation without admission of guilt or conviction under art 53 of the Swiss Criminal Code. In 2015, a large foreign financial institution was able to avoid money laundering charges by way of implementing a robust remediation programme, paying ₣40m to the International Red Cross and persuading the prosecutor that there was no longer a public interest in prosecution. The only option now to avoid conviction is to persuade the Prosecutor that an employee’s conduct did not reach the level of individual criminal liability required, the company’s compliance programme was not inadequate, or that even an adequate compliance programme would not have prevented the individual from committing the criminal offence in question. Naturally, the strength of such arguments is very difficult to assess and, therefore, self-reporting in such circumstances is not generally a viable option.

Alternatives to adversarial strategies to mitigate the consequences of past criminal conduct

Despite increased enforcement risks, and the absence of a reliable self-reporting and settlement mechanism, there are strategies available to mitigate the consequences of
past criminal conduct other than seeking acquittal at trial. In fact, as mentioned, many high-profile corporate criminal investigations have been resolved by penalty orders. Without going into the details of the procedural steps that may lead to such outcome, an early indication by the corporate that a penalty order would be the desired outcome and an appropriate co-operative posture will speed the process, reduce the resources that have to be invested in a criminal investigation and limit publicity and reputational impact. Even more importantly, the route to a penalty order offers room to negotiate co-operation language and to explore trade-offs between the scope of misconduct covered and how it is portrayed, as well as the penalty and disgorgement amounts. Lastly, where international businesses are exposed to contemporaneous enforcement in multiple jurisdictions, this avenue provides the ability to coordinate issues such as respective scopes and timing of the various settlements, as well as disgorgement among the various authorities involved. While formally a penalty order is a criminal sentence, bringing the penalty amount as closely as possible to ₣1 (which we have seen) and favourable co-operation language can likely be positioned not more unfavourably compared to a non- or deferred prosecution agreement as they are available in other jurisdictions.

Universal maxims still apply: investigate quickly to establish the strongest defences available whether you co-operate or litigate

Whatever the strategic choices over self-reporting and co-operation, when confronted with past misconduct, universal maxims also apply in the Swiss context. First, establish independent governance and investigate swiftly to retain as much freedom to act as possible. Second, do not put undue pressure on witnesses and protect privilege. In the corporate context you must carefully consider that under Swiss law only a relatively small group of senior executives have the right not to give evidence against their employer; for instance, regularly, this would not include members of the legal or compliance functions. Third, in view of the structure of corporate criminal liability there are two main lines of arguments to challenge the prosecution’s case. We have seen instances where the Federal Prosecutor failed to establish there was in fact an employee who committed one of the crimes that may trigger the corporate’s liability (eg, money laundering, bribery, etc). Further, as international businesses have strengthened their compliance programmes, one should consider the strength of the ’rogue employee’ argument; no reasonable and adequate programme could have timeously detected the rogue employee, irrespective of the actual quality of the corporate’s programme.

To conclude, criminal enforcement is on the rise and incentives to self-report are weak given there is no avenue available to a non- or deferred prosecution agreement or equivalent. That said, litigation is not the only option as prosecutors are increasingly open (and as the practice has evolved increasingly accustomed) to engaging in negotiation of penalty orders. While these orders involve a criminal conviction they can be structured in ways that limit significantly the consequences to the company of past criminal conduct by employees.