Financial Crime World

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Switzerland’s Financial Institutions on High Alert Over OFAC Sanctions Compliance

Zurich, Switzerland - In a recent development, a Swiss bank was deemed subject to US sanctions law by a Zurich Commercial Court ruling last year. Additionally, a Swiss non-financial institution was found to have breached US sanction regulations in 2020, resulting in a USD 7.8 million settlement with the Office of Foreign Assets Control (OFAC). These cases highlight the need for both financial and non-financial institutions operating in Switzerland to be aware of and comply with foreign sanctions law.

The legal basis for implementing sanctions measures is the Embargo Act, which serves as a framework law. The Federal Council has the authority to issue coercive measures, while implementation and enforcement are handled by the State Secretariat for Economic Affairs (SECO). Sanctions adopted by the United Nations (UN), Organization for Security and Cooperation in Europe (OSCE), or key trading partners like the EU can be enforced through coercive measures.

Purpose of Sanction Measures

Sanction measures aim to induce specific behaviors from targeted individuals, entities, and countries, thereby preventing threats to international security and peace. Switzerland has imposed various forms of sanctions, including:

  • Direct or indirect restrictions on transactions involving goods, services, payments, and people
  • Restrictions on trade in certain goods, such as war materials or military equipment

Extraterritorial Reach of OFAC Sanctions

In a notable trend, OFAC sanctions have expanded their extraterritorial reach, no longer requiring a US connection to apply. Any US-related connection is now sufficient for the OFAC to exercise jurisdiction. This has significant implications for Swiss financial institutions, which risk being affected by OFAC sanctions if they violate US regulations.

Recent Ruling Highlights Consequences of Violating US Sanctions

A recent Zurich Commercial Court ruling highlighted the potential consequences of violating US sanctions. The court found that non-US persons are prohibited from conducting business with US-sanctioned parties when using the US financial market infrastructure. Transactions conducted in US dollars can also be prohibited for supervisory reasons.

Impact on Non-Financial Entities

The impact of OFAC sanctions is no longer limited to financial institutions. Non-financial entities, such as a Swiss IT company, have also faced penalties for violating US sanctions. In this case, the company provided services to airlines listed on the US sanctions list for supporting terrorism. The OFAC pursued the company due to its use of computing resources located in the US.

Mitigating Risks and Ensuring Compliance

To mitigate risks and ensure compliance with foreign sanction law, it is essential for companies established in Switzerland to:

  • Establish a strong compliance team
  • Invest in regular training
  • Implement IT solutions like sanctions tools into their compliance processes

At [Your Company Name], we are committed to supporting you in navigating these complex legal requirements and ensuring your organization’s compliance with OFAC sanctions regulations.