Financial Crime World

Sanctions and Financial Crime in Switzerland: A Closer Look

Maintaining Integrity in Swiss Finances

Switzerland has recently implemented EU financial sanctions against Russia, aiming to ensure the integrity of its financial centre. This move has sparked questions about its impact on the Swiss financial sector and potential collateral damage.

Why Implement EU Sanctions Against Russia?

The Swiss government has chosen to fully implement the EU sanctions in the financial sector, citing the importance of maintaining the integrity of its financial centre. Internationally active Swiss banks, insurance companies, the stock exchange, and commodity firms have been keeping a close eye on international sanctions and are implementing them accordingly.

Swift Adoption of EU Sanctions

The final texts of EU regulations must be available before Switzerland can make any adjustments. To prevent circumvention, the country does not announce actual implementation until measures enter into force. This was evident in the swift adoption of the first package of measures on February 28, 2022.

SWIFT Exclusion and Its Impact

SWIFT is a messaging network used to transmit payment instructions securely and quickly. It is not a payment system, but rather a cooperative owned by banks. Switzerland supports the exclusion of some Russian SWIFT members (banks) and will not permit any circumvention.

  • The exclusion could have an impact on Swiss companies that depend on smooth payment transactions with Russian clients or suppliers.
  • However, the threat to the Swiss financial sector’s stability is low according to current estimates.

Collateral Damage

Internationally, uncertainty could arise for payment transactions and the financial system if the sanction is not clearly defined. The move could also have an impact on commodity trading firms that depend on smooth payment transactions with Russian clients or suppliers.

Commodity Trading and SWIFT Exclusion

Switzerland cannot independently sanction Russia by suspending commodity trading. Internationally active commodity trading firms comply with EU and US sanctions, irrespective of their location.

  • The exclusion from SWIFT could affect commodity traders as they will no longer be able to exchange messages with sanctioned Russian members of SWIFT, making it difficult or impossible to finance and hedge transactions.

Financial Sector Impact

Russia is not one of Switzerland’s most important partners in terms of financial relations. Russian direct investments in Switzerland account for only 1% of foreign direct investment, while less than 2% of Russian central bank money is held at Swiss banks – not at the SNB.

  • The SNB has no business relations with the Russian central bank, and there are no assets or liabilities between the two central banks.
  • The percentage of Russian assets relative to total cross-border assets managed in Switzerland is in the low single-digit range.

Swiss Banks Affected by Sanctions

Due to their interconnectedness with the international capital market, banks in Switzerland have been keeping a close eye on international sanctions and implementing them accordingly. Legal implementation in Switzerland increases legal certainty.

  • The list of affected Russian banks in Switzerland includes those listed on the EU sanctions list.
  • The people listed by the EU also likely have accounts in Switzerland, but there is no central list or registry with the names of Russian holders of bank accounts in Switzerland.

Conclusion

Switzerland’s adoption of EU financial sanctions against Russia aims to maintain the integrity of its financial centre. While the impact may be minimal, potential collateral damage could arise from SWIFT exclusion and commodity trading disruptions.