Off-Bank Safe Deposit Boxes: Is There a Duty of Disclosure?
Note: This article makes no claim to be comprehensive and it does not constitute any explicit legal advice. As such, it is for guidance only. For legally binding information, we recommend that you contact a lawyer of your choice and the information that is available publicly.
The reality of negative interest rates – but also the uncertainty about the continued existence of different currency zones – is increasing the attractiveness of safe deposit boxes at the moment. Various authorities fear that safe deposit boxes will be used to assist international tax evasion and terrorist financing with the help of such facilities. In the European Union (EU), an expanded and tightened regulatory framework came into force this year with the 5th EU Anti-Money Laundering Directive. The aim is to combat tax evasion and terrorist financing more effectively.
In the course of these extensions and tightening of the rules, safe deposit box users are increasingly asking themselves to what extent their service provider is subject to a duty of disclosure which will entail them providing information about tenants or their lockers. Will they need to be automatically screened? In the following article, these questions about the duty of disclosure for different types of safe deposit box will be examined.
The following applies to bank safe deposit boxes in the European Union today: they must be linked to a legitimate bank account, something that makes it impossible to pay in cash for rental fees. In addition, there is now a transparency register for safe deposit boxes provided by banks. With the 5th EU Anti-Money Laundering Directive Extension, the due diligence requirements for obliged parties have been expanded and made more concrete. Before the change, only people with a legitimate interest had access to the transparency register. With this adjustment, however, these access rights can now be granted to ‘all members of the public’.
The Swiss Legal Situation
As in other countries, it is important to differentiate between different types of safe deposit boxes in Switzerland. The following facts should be noted about safe deposit boxes provided by Swiss banks. Firstly, since the safe deposit box user manages the facility him or herself, the bank does not have to record details about the contents of a deposit box. In practice, however, it has also been shown that renting a safe deposit box in this way must always include having a bank account. It is not a legal obligation, but it is dealt with as an unwritten rule across the country by Swiss banks.
By linking any bank safe deposit box with an account, each bank consequently has automatic additional information about the customer it is related to. As such, the account holder must comply with all of the due diligence expected in the banking sector.
It is different with off-bank safe deposit boxes, however. These are offered by private companies such as Swiss Gold Safe. Swiss Gold Safe needs to establish the identity of the customer. Payment of the safe deposit box’s rental can be made by bank transfer, postal deposit, cryptocurrency or cash, which is why a bank account is not necessary.
An Obligation to Notify or Not?
The extent to which a private safe deposit box provider has a duty of disclosure ultimately depends on their due diligence. According to the Anti-Money Laundering Act, the obligation to comply in this way is tied to a financial intermediary activity. So the question arises as to whether such safe deposit box providers act in the manner of a financial intermediary.
According to current practice and prevailing thought, the purely physical safekeeping of assets of all kinds does not represent a financial intermediary activity, in accordance with the facts as they are today. A safe deposit box provider which, like Swiss Gold Safe, does not operate as a trader in precious metals is, therefore, not classified as a financial intermediary. This is why it is not automatically subject to the Anti-Money Laundering Act. As a result, the due diligence requirements and the obligations to provide information contained therein do not apply to such service providers.
Furthermore, a custody and storage company like Swiss Gold Safe is not subject to the Automatic Exchange of Information (AEOI) rules or the regulations aid out in FATCA. What does apply, however, are the criminal law provisions on money laundering and terrorist financing. A provider who deliberately accepts the promotion of illegal activities as part of renting a safe deposit box is, of course, punishable by law.
Assessment of the Federal Council
The Federal Council and the Federal Department of Finance, in particular, currently see no need for action to tighten the law on reporting requirements. In an investigation, they concluded that although a residual risk of money laundering and terrorist financing can never be completely ruled out, there is currently little evidence of real danger or actual abuse. Law enforcement agencies would not consider safe deposit boxes in Switzerland to be a risk in this context, according to the report of the Federal Council Commission from 2015.
Therefore, the expansion of the term financial intermediary to include the custodians of purely physical assets, which has already been called for by some, should not be considered as something that is pending, due to the increased complexity and high costs involved. Although the Federal Council is not taking any such steps, it will monitor developments closely.
It should also be mentioned in connection to these reporting requirements that secrecy continues to apply with safe deposit boxes in Switzerland. Since renting a safe deposit box is not considered the same as holding a bank account, the related data remains sealed. A safe deposit box is, therefore, one of the last havens of financial privacy.