Switzerland to begin phasing out bearer shares in November

Switzerland has been moving towards the abolition of bearer shares since July 2016, when the OECD's Global Tax Transparency Forum published its phase 2 peer-review report. This listed various recommendations, accompanied by indications that, if they were not adopted in full, the country would fail its follow-up review at the end of 2018. One of the key recommendations was the need for companies to determine and report their beneficial owners to the authorities, so that they can be traced for tax and anti-money laundering purposes. The existence of bearer shares makes this difficult or impossible.

In January 2018, the Federal Council of Switzerland therefore introduced a Bill to implement the OECD demands, including provisions for the compulsory conversion of bearer shares into registered shares. The Bill met stiff opposition within the country, not least because it went beyond what the Global Forum had requested, and would entail severe consequences for 60,000 Swiss companies and many more shareholders and creditors.

However, in November 2018, Switzerland decided to proceed with the legal abolition of bearer shares, at least for unlisted companies, and pushed the Bill through parliament, adopting it in June 2019 as amendments to the Anti-Money Laundering Act. The government has now announced the timescale for its provisions.

From 1 November, bearer shares of unlisted companies will not be valid unless they are structured as intermediated securities, although listed companies can still issue them. Persons holding bearer shares that do not meet these conditions will be required to report to the issuing company within 18 months of the Act coming into force, so that the shares can be converted into registered shares by 1 May 2021. The Act sets out a procedure to identify shareholders who fail to do this in time for the conversion deadline.

Shares held by non-registered shareholders will become void five years after (i.e., 1 November 2024) the entry into force of the Act.

Shareholders or companies will be fined if they fail to report beneficial owners, or fail to maintain the share register and the list of beneficial owners of shares. The Act also requires legal entities headquartered abroad, but with their effective administration in Switzerland, to keep a register of their owners at the Swiss head office.

Sources

• Swiss State Secretariat for International Finance
• STEP International News 27 June 2019: Switzerland adopts FATF's demands for anti-money laundering reforms
• STEP International News 28 Feb 2019: Switzerland to enact OECD Global Forum's latest information exchange demands in two years