(Bloomberg) -- Switzerland is investigating companies that use subsidiaries in other countries to sidestep sanctions on Russia, but which are still controlled from Swiss cities such as Geneva or Zug.
Since the invasion of Ukraine, Switzerland has largely followed European Union sanctions on Russia, breaking with the nation’s traditional neutrality. However, it has faced criticism for not being tough enough in enforcing those restrictions or chasing down rogue Russian money.
Some Swiss-based commodity traders have relocated or opened offices in jurisdictions such as Dubai to continue doing business with Russia. Now the State Secretariat of Economic Affairs — the government agency responsible for enforcing Swiss sanctions — is probing whether some of those companies are still effectively operating from Switzerland.
“If someone opens a pro-forma firm abroad, but still orchestrates sanctions evasion from Swiss soil, then Switzerland will take action,” Helene Budliger Artieda, head of the agency known as SECO, said in an interview. “We won’t tolerate this.”
Budliger declined to give any details of ongoing cases, but highlighted a number of red flags for potential sanctions-busting.
“If the management team of a foreign and a Swiss firm is identical, there are significant financial flows between the two firms or there is evidence for instructions given from Switzerland, then we would start to investigate this and there are cases where we do that already,” Budliger said.
In March, the Attorney General began a deeper probe into a Swiss firm referred by SECO. That came after Swiss broadcaster SRF reported that the agency had referred cases of two commodity trading companies suspected of violating sanctions. SECO itself hasn’t yet convicted any companies for breaching sanctions against Russia.
Switzerland’s government this week decided not to implement a new EU provision obliging firms to ensure their subsidiaries in third countries don’t undermine the measures against Russia.
That drew criticism from the Social Democrats, who called the move “scandalous” and “a huge step backwards.” Cedric Wermuth, the party’s president, said the government is suggesting that it will only scrutinize company activities on home soil.
“This sends the signal that after all, Switzerland won’t look too closely,” he said. “As was always the policy.”
US Criticism
Scott Miller, the US ambassador to Switzerland, joined the criticism on Friday, saying he’s “disappointed” in Switzerland and hopes the country will contribute to closing the “loophole.” Speaking to a Swiss newspaper, he added that “none of our companies should be complicit.”
The government said in a statement that it didn’t adopt the new EU rules because Swiss law already allows it to prosecute companies with rogue subsidiaries. As proof, it highlighted cases that are being investigate by SECO, which reports to Switzerland’s economy ministry.
The sanctions are a hot-button issue in Switzerland, with the right-wing People’s Party having collected enough signatures to hold a vote on enshrining a permanent stance of non-alignment into the constitution. That would prohibit the government from participating in any sanctions regime.
While Switzerland has blocked about 13 billion francs ($15 billion) in Russian assets held in the country, its parliament rejected a proposal to join a US-led sanctions task force.
Budliger also said that SECO will look at cases of Swiss banks financing Russian oil trading. So-called grey cargoes are reloaded in third countries like Turkey or Malaysia and marked as originating from those destinations.
“I don’t know of any such cases,” she said. “But if this happens from Swiss soil, we would investigate very closely if this constitutes sanctions evasion.”
Under a policy imposed by the Group of Seven nations and its allies, traders can buy Russian oil as long as it’s below $60 a barrel. If crude exceeds that price cap, then Western companies are prohibited from providing services such as insurance and shipping, which has seen many traditional providers step away.
The US ambassador’s criticism comes after past cases of Washington blacklisting Swiss nationals for enabling Russian cash flows through Switzerland’s financial sector. Still, Budliger said relations with the US were good, with no complaints on sanctions enforcement.
“I sleep very well, because we’re not hiding anything,” she said.
(Adds US ambassador’s complaint below ‘US Criticism’ subhead)
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