Key Take-aways
1. The various supervisory authorities construe the scope of disclosure requirements differently.
2. Given the anti-money laundering regu- lations and in case of doubt, one should clarify the origin of donations.
3. Failure to comply with the new data-pro- tection provisions may result in sanc- tions, including personal liability for the foundation board.
1 Introduction
The requirements for foundation board members have steadily increased over the last few years and the legal framework is constantly evolving. This newsletter provides an overview of some important legal changes and the associated obligations that every foundation board should familiarise themselves with.
2 New Reporting Obligations and Duty of Remuneration Transparency
Since 1 January 2023, the board of foundation or the auditors are obliged to notify the supervisory authority immediately
in the event of the foundation's imminent insolvency or over-indebtedness.
Further, an obligation to disclose the remuneration of the board of foundation was introduced, which will have to be complied with for the first time when reporting for the 2023 financial year. The new disclosure obligation requires the highest foundation body, i.e. the board of foundation, to disclose the total amount of remuneration paid directly or indi- rectly to its members to the supervisory authority each year in accordance with Art. 734a para. 1 CO. If there is an executive board, its remuneration must be disclosed separately. The reference to company law leads to a - non-exhaustive - list of types of remuneration that must be disclosed. These include in particular
- Fees, attendance fees, salaries, bonuses and credit notes;
- Bonuses, shares in sales and other shares in the business result;
- Starting bonuses;
- All benefits for additional
The disclosure requirement for foundations is not entirely new.
2.1 How much Transparency is Really Necessary?
It is important to note that the new remuneration transparen- cy only exists towards the supervisory authority and not towards the public. Family foundations are not affected by the disclosure obligation. In contrast to the provision under company law, the wording of the law only requires that the total amount of remuneration be disclosed. However, this provision is currently interpreted differently, even by the various super- visory authorities. For example, the Swiss Federal Supervisory Authority for Foundations (FSAF) assumes that the foundation must disclose the amount of remuneration attributable to each member separately. By contrast in some cantons, it is sufficient to disclose the total remuneration. It is also disputed whether the disclosure obligation should also extend to advi- sory boards or other foundation bodies. The remuneration must be disclosed either in the notes to the annual finan- cial statements, in the profit and loss statement itself (see e.g. Supervisory Authority in Zurich) or in a separate report to the competent supervisory authority.
This new disclosure obligation is likely to be of particular relevance for charitable, tax-exempt foundations. Some cantonal tax authorities are known to follow a strict practice and refuse tax exemption if the foundation board activities are remunerated. As the supervisory authorities must in certain cases to provide information to the domestic tax authorities or to forward the documents received as part of the reporting process, charitable foundations may be at risk of losing their tax privileges as a result.
2.2 Cautious All-Clear
That said, the disclosure obligation for foundations is not really new. Even before the introduction of the new transparency provisions, the supervisory authority was able to request spe- cific evidence and more detailed information on the board's or the management's remuneration and compensation during its audit of the annual financial statements. Cantonal tax author- ities have also already been able to require organisations to disclose their compensation to governing bodies as part of the periodic review of the tax exemption. The legislator therefore views the new provision as a mere clarification. The disclosure obligation will probably lead to the development of appropriate remuneration practices.
Foundation boards should take the opportunity to review and, if necessary, adjust their remuneration practices. If not already the case, the principles of remuneration should be set out in regulations or guidelines (flat-rate fees or attendance fees, amount of remuneration per board member or for the board as a whole, other remunerated activities). It is recom- mended to consult the relevant information sheets issued by the competent supervisory authorities and, if necessary, to contact the relevant authorities.
3 New Obligations due to the Revision of the Anti-Money Laundering Regulations?
With the revision of the Anti-Money Laundering Act (AMLA) and its entry into force on 1 January 2023, the question arises (again) for foundation boards as to whether and, if so, which du- ties they must observe when accepting donations. While the offence of money laundering is enshrined in the Swiss Criminal Code (SCC), the AMLA also contains duties that are relevant for foundation boards when accepting donations.
3.1 The Foundation Board or Foundation in the Criminal Code's Sights?
Anyone who carries out an act that is aimed at frustrating the confiscation of assets which he knows or must assume originate from a crime is liable to prosecution for money laun- dering under Art. 305bis SCC. Specifically, the assets must originate from a felony or a qualified tax offence, which the perpetrator knew or at least should have known. Contributions and grants to foundations can also fall under the definition of such assets, thus money laundering is already possible for small amounts. The foundation board and - in certain cases - the foundation itself can also be considered perpetrators.
However, this provision does not impose a general duty on the board of foundation to clarify and research the origin of the funds received. Nevertheless, caution is generally required when accepting gifts and making grants. In case of doubt, clar- ifications should be made; if the doubts cannot be dispelled, one recommends to reject the donation.
3.2 The Foundation Board or Foundation within the scope of the anti-money laundering law?
The new AMLA has been in force since 1 January 2023, introducing a number of new obligations and rights. The most important changes include the duties of financial intermedia- ries to verify the beneficial owner's identity and to periodically review the contracting party's details, as well as the right to terminate a reported business relationship under certain conditions.
The foundation board or foundation only has to com- ply with the AML duties if they fall within the scope of the AMLA. However, this Act only applies to professional financial intermediaries and so-called "dealers" who trade commer- cially in goods and accept cash. Serving as a foundation board member does not usually qualify as financial inter- mediation. Indeed, on the one hand, it does not qualify as a professional activity and, on the other, the board of foundation generally does not dispose of third-party assets but only of its own (foundation) assets.
However, if a foundation is deemed a domiciliary company, the activities of its board members may be subject to the AMLA. Domiciliary companies usually act as financial vehicles for asset management without operational business. The decisive factor is that their governing bodies act in accordance with the beneficial owner's instructions. According to the FINMA guidelines, charitable foundations are not deemed domiciliary companies as long as they exclu- sively pursue their statutory purpose. However, the situation becomes tricky if the foundation's assets cannot be clearly distinguished from those of the beneficial owner's, which is the case, for example, if the foundation board only disposes of assets as per the founder's or a beneficiary's instructions. It is therefore crucial that all transactions fall within the scope of the foundation's purpose and are based on a discretion- ary decision by the foundation board. Whether the activities of the foundation board are subject to the AMLA therefore depends on the specific circumstances and requires an indi- vidual assessment.
4 New Obligations due to the Revised Data Protection Act
Since 1 September 2023, foundations have been subject to the revised Data Protection Act and the new Data Protection Ordinance (see the newsletters from October, November and December 2022) if they process data of individuals, which is likely to be the case. There are no specific exceptions for char- itable foundations.
The most important changes are an extension of the rights of affected individuals, an active information obligation on behalf of the foundation, the duty to report data protection breaches and to maintain a data processing register (for larger foundations or those with high-risk processing). New sanction provisions apply: Fines of up to CHF 250,000.00 can be imposed, which are generally not aimed at the entity, but at the responsible individu- al. This may also include members of the board of foundation.
The new data protection law also applies to foundations.
4.1 Comprehensive Review of Data Processing Procedures
First, foundations should identify the areas in which they pro- cess personal data. Subsequently, they should check for each process whether data protection principles (in particular trans- parency, purpose limitation and proportionality) are complied with. In particular, they should check whether the foundation's data protection declaration fulfils the new requirements, especially the stricter duty to provide information. In order to safeguard the rights of affected individuals, one must ensure that the processes relating to data collection, analysis, storage and deletion are properly implemented and documented.
Moreover, a foundation must be able to provide an indi- vidual with information about all processed personal data. An appropriate process must also be developed for assessing data breaches and subsequently notifying the competent authorities as well as (if applicable) the affected individuals. Depending on the foundation's size and the data processed, additional regulations and obligations may apply.
5 Other Developments to keep an Eye on
On 1 January 2024, a number of new legal provisions in foun- dation law will come into force. The most important changes include:
- The possibility for the founder to include a reservation on or- ganisational changes in the articles of association, in order to simplify future adjustments to the organisation.
- The hurdle for insignificant amendments to the foundation deed is lowered.
- Public notarisation is no longer required for amendments to the foundation deed.
- The enactment of a legal basis for the previously-unregulat- ed complaint to the foundation supervision.
Lastly, there is currently a discussion in Parliament about ex- panding the scope for family foundations and allowing mainte- nance foundations.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
