Commodity Trader AML Compliance: Swiss Anti-Money Laundering Guide

Anti-money laundering (AML) compliance is among the most consequential regulatory obligations facing Swiss commodity traders. The intersection of high-value transactions, complex multi-jurisdictional supply chains, and counterparties in high-risk jurisdictions creates inherent money laundering vulnerabilities that Swiss regulators, banking partners, and international bodies expect commodity traders to address through robust compliance frameworks.

AML Risk in Commodity Trading

Commodity trading presents distinctive money laundering risks:

Inherent Risk Factors

Common Money Laundering Typologies

Specific money laundering methods observed in commodity trading:

Trade-Based Money Laundering (TBML):

• Over-invoicing imports (paying more than market value to transfer value abroad)
• Under-invoicing exports (receiving less than market value, with the difference paid elsewhere)
• Multiple invoicing of the same shipment
• Phantom shipments (invoices without actual commodity movement)

Misuse of Commodity Finance:

• Fraudulent letters of credit against fictitious or inflated shipments
• Misrepresentation of commodity quality, quantity, or origin in trade finance documentation
• Round-tripping through pre-export finance arrangements

Corruption and Bribery:

• Facilitation payments to secure commodity supply or offtake
• Kickbacks through commission structures to agents and intermediaries
• Corrupt allocation of state-owned commodity rights

Sanctions Evasion:

• Using commodity trade to circumvent financial sanctions
• False documentation of commodity origin to avoid sanctions restrictions
• Complex transaction chains to obscure the involvement of sanctioned parties

Swiss Legal Framework

Anti-Money Laundering Act (AMLA)

The Federal Act on Combating Money Laundering and Terrorist Financing in the Financial Sector (AMLA) is the cornerstone of Switzerland’s AML framework.

Applicability to Commodity Traders:

Not all commodity traders are directly subject to AMLA. The act applies to “financial intermediaries” — persons who, on a professional basis:

• Accept or hold deposits
• Help to invest, transfer, or distribute assets
• Act as payment service providers

Commodity traders may trigger financial intermediary status through activities such as:

• Operating in-house payment systems
• Managing client money or prepayment structures
• Providing financing to counterparties that constitutes financial intermediation

Even commodity traders that do not qualify as financial intermediaries are subject to indirect AML obligations through their banking relationships. Swiss banks must apply AML controls to all clients, including commodity traders, creating a cascading compliance effect.

Key AMLA Obligations

For commodity traders that qualify as financial intermediaries:

Know Your Customer (KYC):

• Identify the contracting party (legal entity or natural person)
• Verify the identity of the contracting party using reliable documents
• Identify the beneficial owner of assets
• Establish the purpose and nature of the business relationship
• Conduct ongoing monitoring of the business relationship

Due Diligence Requirements:

• Clarify the economic background and purpose of unusual transactions
• Apply enhanced due diligence for transactions involving politically exposed persons (PEPs)
• Maintain adequate documentation of all due diligence measures
• Update KYC information periodically

Suspicious Activity Reporting:

• Report to the Money Laundering Reporting Office Switzerland (MROS) when there is reasonable suspicion of money laundering
• Freeze assets involved in suspected money laundering for up to five business days pending MROS response
• Maintain confidentiality regarding reports (tipping-off prohibition)

Record-Keeping:

• Retain all transaction records and due diligence documentation for a minimum of ten years
• Records must be sufficient to reconstruct the nature and purpose of transactions

Criminal Code Provisions

Beyond AMLA, the Swiss Criminal Code contains provisions relevant to commodity trader AML:

• Article 305bis: Money laundering (punishable by up to five years imprisonment)
• Article 305ter: Insufficient diligence in financial transactions
• Article 322septies: Bribery of foreign public officials

These criminal provisions apply to all commodity traders, regardless of financial intermediary status.

Practical Compliance Framework

Governance

Board and Senior Management:

• Establish a culture of compliance from the top
• Approve AML policies and risk appetite
• Allocate adequate resources for compliance
• Receive regular reports on AML risk and compliance performance

Compliance Function:

• Appoint a qualified AML compliance officer (MLRO — Money Laundering Reporting Officer)
• Ensure the compliance function has appropriate authority and independence
• Provide compliance staff with access to transaction data and counterparty information
• Establish clear reporting lines to senior management and the board

Risk Assessment

A risk-based approach to AML requires systematic risk assessment:

Country Risk:

• Assess money laundering risk for each jurisdiction in which the trader operates
• Consider corruption indices, FATF grey-list status, financial system integrity, and governance quality
• Apply enhanced due diligence for high-risk jurisdictions

Counterparty Risk:

• Assess the money laundering risk profile of each counterparty
• Consider ownership structure, jurisdiction, business profile, and source of wealth
• Apply tiered due diligence (simplified, standard, enhanced) based on risk assessment

Product/Service Risk:

• Assess money laundering vulnerabilities of different commodity types
• Gold and precious metals present higher inherent risk due to value density and anonymity
• Soft commodities with cash-intensive supply chains present elevated risk
• Complex structured finance arrangements may present higher risk

Transaction Risk:

• Assess risk based on transaction characteristics (size, frequency, geography, complexity)
• Identify unusual patterns that may indicate money laundering

KYC Procedures

Detailed KYC procedures for commodity trading counterparties:

Corporate Counterparties:

1. Obtain certified copies of constitutional documents (articles of incorporation, certificate of registration)
2. Identify directors and authorised signatories
3. Identify beneficial owners (25 per cent threshold under Swiss law)
4. Verify beneficial ownership through reliable sources
5. Understand the counterparty’s business model and commodity expertise
6. Screen against sanctions lists, PEP databases, and adverse media
7. Assess the plausibility of the proposed trading relationship

Individual Counterparties:

1. Verify identity through official identification documents
2. Obtain proof of address
3. Screen against sanctions lists, PEP databases, and adverse media
4. Assess source of wealth and source of funds
5. Understand the purpose of the trading relationship

Agents and Intermediaries:

1. Apply full KYC to all agents and intermediaries
2. Understand the agent’s role and the necessity for their involvement
3. Assess commission structures for reasonableness
4. Monitor agent transactions for unusual patterns
5. Consider whether the agent relationship introduces additional risk

Transaction Monitoring

Effective transaction monitoring for commodity traders involves:

Automated Screening:

• Screen all payments against sanctions lists
• Flag transactions involving high-risk jurisdictions
• Identify unusual transaction patterns (size, frequency, counterparty)

Manual Review:

• Review flagged transactions with commodity market expertise
• Assess whether transaction characteristics are consistent with market conditions
• Investigate unexplained deviations from expected patterns

Physical Commodity Verification:

• Where feasible, verify the physical existence and movement of traded commodities
• Cross-reference shipping documents with transaction records
• Utilise independent inspection services for high-risk transactions

Suspicious Activity Reporting

When suspicious activity is identified:

1. Do not alert the counterparty (tipping-off prohibition)
2. Document the suspicious indicators and the analysis conducted
3. Report to the MLRO for assessment
4. If suspicion is confirmed, file a Suspicious Activity Report (SAR) with MROS
5. Freeze relevant assets for up to five business days
6. Await MROS instruction before proceeding
7. Maintain records of the report and all associated documentation

Banking Relationship Management

Banks’ AML Expectations

Swiss banks expect their commodity trading clients to maintain:

• Written AML policies and procedures
• Trained compliance staff
• Effective KYC and transaction monitoring systems
• Regular compliance reporting
• Cooperation with bank due diligence requests

Impact of AML on Trade Finance

AML requirements significantly affect commodity trade finance:

• Enhanced documentation requirements for letters of credit
• Additional due diligence on counterparties in pre-export finance transactions
• Restrictions on financing counterparties in high-risk jurisdictions
• Longer processing times for compliance checks
• Higher costs for compliance-intensive transactions

Bank De-Risking

Banks’ AML concerns have led to de-risking — reducing exposure to clients, sectors, or jurisdictions perceived as high-risk:

• Smaller commodity traders have experienced bank account closures
• Traders with exposure to high-risk jurisdictions face reduced banking options
• De-risking concentrates banking relationships among larger traders, contributing to industry consolidation

International Coordination

FATF Recommendations

The Financial Action Task Force (FATF) sets international AML standards. FATF Recommendations relevant to commodity trading include:

• Recommendation 20: Suspicious transaction reporting
• Recommendation 22: Customer due diligence for designated non-financial businesses and professions
• Recommendation 28: Regulation and supervision of designated non-financial businesses and professions

Switzerland underwent its most recent FATF Mutual Evaluation in 2016, with follow-up assessments ongoing. Areas identified for improvement include transparency of beneficial ownership and the supervision of certain non-financial sectors.

Mutual Legal Assistance

Switzerland cooperates with foreign authorities in AML investigations through:

• The Federal Act on International Mutual Assistance in Criminal Matters (IMAC)
• Bilateral mutual legal assistance treaties
• Multilateral conventions (UN Convention against Corruption, Council of Europe conventions)

This cooperation means that AML failures by Swiss commodity traders can have consequences beyond Swiss borders.

Emerging Trends

Technology in AML Compliance

RegTech Solutions:

• AI-powered transaction monitoring with reduced false positive rates
• Network analysis to identify complex ownership structures and hidden relationships
• Natural language processing for automated adverse media screening
• Blockchain analytics for cryptocurrency-related commodity transactions

Digital KYC:

• Electronic identity verification
• Automated beneficial ownership identification using corporate registry data
• Continuous monitoring of counterparty risk profiles

Regulatory Evolution

Expanding Scope:

• Discussion of broadening AMLA’s scope to explicitly cover commodity traders
• Consideration of sector-specific AML guidance for commodity trading
• Alignment with evolving EU AML framework (Anti-Money Laundering Authority, AML Package)

Enhanced Enforcement:

• Increasing resources for AML enforcement
• Higher penalties for non-compliance
• Greater international cooperation in investigations

ESG-AML Integration

The convergence of AML and ESG compliance is an emerging trend:

• Supply chain due diligence serves both AML and ESG objectives
• Counterparty assessment increasingly covers both financial integrity and ESG performance
• Technology platforms are integrating AML screening with ESG data

Practical Recommendations

1. Treat AML compliance as a strategic investment, not merely a regulatory cost
2. Invest in commodity-specific AML expertise — generic financial services AML knowledge is insufficient
3. Integrate AML with sanctions, ESG, and broader compliance for efficiency and effectiveness
4. Maintain strong banking relationships through transparent, proactive compliance engagement
5. Invest in technology to manage the growing volume and complexity of compliance obligations
6. Conduct regular training tailored to front-office staff who are the first line of defence
7. Test compliance systems regularly through independent audit and scenario analysis
8. Stay current with regulatory developments across all relevant jurisdictions
9. Engage with industry peers and associations to share best practices and intelligence
10. Document everything — the ability to demonstrate compliance decisions is as important as the decisions themselves

Donovan Vanderbilt is a contributing editor at ZUG COMMODITIES, covering commodity compliance, anti-money laundering, and financial integrity in commodity trading. Based in Zurich, he draws on two decades of experience in commodity market analysis and institutional research.