Transparency of Regulatory System
Regulations affecting both local and foreign investors are generally transparent and applied in a nondiscriminatory manner.
In the past, cartels were endemic to the Swiss economy. Companies in a number of industrial and service branches organized themselves, through trade and industry associations, into horizontal and vertical cartels. Such arrangements existed in the market for prescribed medicines, sanitary ware, kitchen equipment, optical products, books, beverages, food retailing, dietary products, and many other sectors of the economy.
The Swiss cartel law specifically allows cartels unless the government concludes that they are harmful to society or the economy. On June 12, 2003, the Swiss Parliament adopted a revised competition bill, which subsequently entered into force on April 1, 2004. The most significant improvements in the revised law include the authority to sanction anti-competitive behavior without prior warning, with a maximum fine of ten percent of a firm’s total combined revenue for the past three years. Whistle-blowing companies that cooperate with regulators are eligible for a reduced fine (leniency program). The transition period for adapting to the new law ended on April 1, 2005. According to IMF and OECD reports, Switzerland’s gross domestic product could grow by an extra 0.5-0.8% a year if all cartels were eliminated.
In general, the Competition Commission considers vertical agreements with less than 20% of market share as insignificant, whereas others potentially face a fine. Cartels with over 50% of market share will be fined. Restrictions on the sale of components or spare parts are generally unlawful.
A number of administrative requirements restrict retail operations in the domestic market. These include planning regulations, local building codes, advertising restrictions, standards for equipment, approval procedures, and opening hours for shops. Although such measures are not intended to be discriminatory, their practical effect can be to limit market access for large discount retailers. Bureaucratic procedures are numerous, but generally transparent and nondiscriminatory.
A recent independent study highlighted the wide discrepancies in efficiency that exist between the country’s many cantonal administrations. While Zurich, Basel, Bern, Jura, Valais, and Neuchatel get full marks for their cost-efficient services, including public access to government services on the internet. Other cantons, such as Geneva and Vaud, are criticized for being too bureaucratic, unfriendly and for taking twice as much time and money to deliver the same set of services. The study found that, for example, a work permit cost 200 francs in Lausanne and was delivered on average after 41 days, whereas a permit in Zurich cost 65 francs and was delivered in 12 days.
Switzerland’s strong economy shows that good institutions and competent macroeconomic management, coupled with world-class educational attainment and a focus on technology and innovation, are a successful strategy for boosting economic competitiveness. Business activity benefits from a well-developed institutional framework, characterized by the rule of law, an efficient judicial system and high levels of transparency and accountability within public institutions. Excellent infrastructure is an additional positive feature of the business environment. The indicators also point to the rapidly growing importance of higher education and training as engines of productivity growth.
Efficient Capital Markets and Portfolio Investment
The efficiency of the Swiss capital market has helped make Switzerland a leading financial center. The Swiss franc denominated foreign bond market is one of the largest markets for foreign borrowers, and Zurich is one of the largest gold trading centers in the world. There are generally no restrictions on the purchase or sale of foreign currencies and equities. Residents and non-residents may conclude foreign exchange contracts, whether of a commercial or financial nature, in all currencies. Foreigners and Swiss nationals can make “forward transactions” at prevailing market rates. Payments for imports from all sources may be made freely, and exporters can freely transfer their proceeds. No legal impediments apply to payments for or receipts from invisibles. The repatriation of invested capital is unrestricted. The Swiss credit market is open to foreign investors on the same terms and conditions as for Swiss investors. A variety of credit instruments are available to the private sector.
To prevent the misuse of Switzerland’s liberal market framework for money-laundering or criminal activity, provisions to regulate certain aspects of portfolio investment are regularly updated. One important firewall established by the Swiss banking industry is the 1997 Due Diligence Convention, under which banks must identify the beneficial owner of the invested funds. The EBK (now FINMA) updates the 1997 Due Diligence Guidelines on average every five years. The latest set of EBK amendments, which entered into force July 1, 2003, ordered Swiss banks to abandon anonymous numbered bank accounts, keep banking records ten years after the closing of an account, and refrain from actively assisting customers to evade taxes.
Nevertheless, widely used investment techniques still permit customers to hedge their investments against tax exposure. The EBK guidelines also increased the banks’ awareness of Personally Exposed Persons (PEPs), such as well-known foreign political figures. The guidelines are expected to deter corruption through the application of several risk assessment criteria (customer name, nationality, country of residence, and business activity). The EBK guidelines apply to domestic and foreign banks based in Switzerland and to Swiss banks’ subsidiaries abroad. The Swiss penal code explicitly recognizes money laundering as a criminal offense, as is membership in, or support of a criminal organization. The change in the law facilitates confiscation of illicitly acquired assets without having to establish an exact linkage between a given asset and a specific crime. Money laundering regulations extend to non-banking financial institutions and require reporting suspicious transactions. Switzerland has signed and ratified all of the 12 UN anti-terrorism conventions as of September 2003.
Foreign investment is not restricted by “cross-shareholding” or “stable shareholder” arrangements. There is generally little discrimination against foreign investors, the areas of chief complaint being the type of limitations cited under the section “right to private ownership and establishment.” Special measures available to Swiss firms to defend against hostile takeovers are covered under the above section as well.
There is not government effort to restrict foreign participation in industry standard- setting. The Swiss private sector generally does not support efforts to restrict foreign investment, participation, or control of domestic enterprises.
Switzerland has long been characterized by political and social stability, and there are no indications that this will change in the foreseeable future.
Switzerland has an effective legal and policy framework to combat domestic corruption. Laws are enforced effectively. U.S. firms investing in Switzerland have not complained of corruption to the Embassy in recent years. Corruption is reportedly not pervasive in any area or sector of the Swiss economy. Switzerland maintains effective investigative and enforcement procedures to combat domestic corruption. The giving or accepting of bribes in Switzerland is subject to criminal and civil penalties, including imprisonment up to five years.
Switzerland signed the OECD Anti-Bribery Convention in 1997 and it entered into force in the country on May 1, 2000. In February 2001, Switzerland signed the Council of Europe’s Criminal Law Convention on Corruption and in December 2003 it signed the UN Convention against Corruption. In order to implement the Convention, the Parliament amended the Penal Code to make bribery of foreign public officials an offense (Title Nineteen “Bribery”, Articles). The amendments entered into force on May 1, 2000. In accordance with the revised 1997 recommendation, Parliament amended the legislation on direct taxes of the Confederation, cantons and townships so as to prohibit the tax deductibility of bribes. The amendment of the Tax Code became effective on January 1, 2001.
In 2003, the Swiss cabinet issued guidelines to combat corruption among government officials. Under the recommendations, gifts should generally be declined, but those worth less than SF 100 may be accepted. Staff members are urged not to accept anything that would “challenge their independence and capacity to act.” The guidelines also call for better internal control systems and include recommendations on how to protect whistle-blowers.
Switzerland ratified the Council of Europe’s Criminal Law Convention on Corruption on July 1, 2006. Switzerland’s penal code was amended so that foreign diplomatic staff and members of international organizations can be brought to court if they accept bribes.
On September 21, 2007, the Federal Council approved the 2003 UN Convention against Corruption. The lower chamber of parliament approved the draft bill on December 11, 2008 while the upper chamber has yet to approve it. Government experts believe that final approval will not result in significant changes since passive and active corruption of public servants is already considered a crime under the Swiss Criminal Code (Art. 322)
In June 2008, the Group of States against Corruption (GRECO, Council of Europe) welcomed Switzerland’s efforts. Switzerland is among the top ten European countries in effectiveness for fighting corruption. For its first evaluation of Switzerland, the GRECO expressed satisfaction at the 2000 and 2006 revisions to the criminal law on corruption. The implementation of the criminal responsibility of the person (2003) was well perceived, as was the prohibition on tax breaks on bribes (2001).
In December 2008, the government announced a proposed change of the Swiss Obligation Code to ensure a better protection for “whistle-blowers” against unfair dismissals by an employer.
In 2007, Transparency International (TI) Switzerland said Switzerland wasthe export nation most effective at preventing bribery in its companies. It ranked Switzerland ranked seventh globally with a score of 9.1 out of ten. TI noted that Switzerland had no transparency laws on political party financing. According to the organization’s anti-corruption report, Switzerland still did well when it came to preventing illegal political donations and in the fight against money laundering. But the country did less well when it came to “policy consequences of legal political donations”, achieving only an average score. Transparency International reports that the problem lies mainly with minor incidents of corruption, especially in the area of public procurement. While TI believes it is a positive sign that Switzerland had ratified in 2000 the OECD anti-bribery convention and has adapted its legislation, it notes that Swiss courts had convicted only one person since 2000 in connection with bribing a foreign public official. During 2005, Swiss official statistics reported a total of 11 convictions for bribery. There were nine corruption cases in 2006.
A number of federal administrative authorities are involved in combating bribery. The State Secretariat for Economic Affairs deals with issues relating to the OECD Convention, the Federal Office of Justice with those relating to the Council of Europe Convention, and the Department of Foreign Affairs with the UN Convention. The power to prosecute and judge corruption offences is shared between the cantons and the Confederation. For the Confederation, the competent authorities are the Office of the Attorney General, the Federal Criminal Court and the Federal Police (“Fedpol”). In the cantons, the relevant actors are the cantonal judicial authorities and the cantonal police forces.
A third of Swiss workers report that they come across illicit dealings during their working lives. Around 12 per cent of economic crime concerning Swiss companies involves corruption, according to government estimates. One study by financial analysts KPMG into economic crimes in Swiss companies put corruption in second place behind fraud, in the frequency of offenses committed. Former Suva workers have been caught up in a bribery scandal concerning the sale of property for tens of millions of francs below the market price. Seven people have been arrested. Since 2000, criminal stautes concerning corruption have been tightened. For example, bribes paid abroad are no longer tax deductible.
Corruption is generally regarded to have decreased in the public sector over time. Swiss civil servants who accept money or unwarranted benefits risk up to five years’ imprisonment. The upper-limit value of presents such as bottles of champagne and watches is a grey area that poses a problem because it varies according to department and canton. Transparency International believes a maximum sum valid at the federal level should be fixed. Some multinationals have assisted with the fight against corruption by setting up internal hotlines to enable staff to report problems anonymously.
After several visa abuses during the past few years in Swiss embassies abroad, a government audit highlighted 33 embassies and consulates with potential problems. The problematic cases identified occurred in Morocco, Turkey, Peru, Russia, Oman, Nigeria, Serbia, Macedonia and the Democratic Republic of Congo. The Swiss Federal Foreign Affairs Department also confirmed around 100 cases of visa fraud at the Swiss Embassy in Pakistan.
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