The Impact of Switzerland's Money Laundering Law on Capital Flows through Abnormal Pricing in International Trade

Abstract:     
Switzerland's banking institutions have historically been recognized as facilitators of the movement and the repositories of capital from other countries. In January of 1998, Switzerland adopted new and very stringent anti-money laundering statutes. Bankers and other financial institutions must now report suspicious transactions to Swiss banking authorities and block the funds from these transactions. Charles Intriago, Publisher of Money Laundering Alert stated, "The Swiss have now set the world standard for money laundering controls, and they're more advanced than the U.S." Although a vast amount of illegal and suspicious capital flows are conducted in the financial service industry, there are alternative methods of moving money and avoiding detection by government agencies. One such technique is through the manipulation of import and export prices in international trade transactions. The objective of this research is to determine the impact of Switzerland's money laundering law on the movement of money through false invoicing in international trade. This study evaluates every reported import and export transaction between the United States and Switzerland during the period from 1995 to 2000. The study indicates that there were significant changes in the degree of abnormal international trade pricing subsequent to the enactment of Switzerland's anti-money laundering law. The study supports the view that individuals and companies will find substitute techniques and channels to launder money when central banking authorities enact legislation that only focuses on financial institutions.

Keywords: Capital flight, money laundering, imports/exports, trade, transfer pricing

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