Financial Crime World

Swiss Financial Institutions Face Growing Risks from Foreign Sanctions

As Switzerland’s financial institutions increasingly operate across borders, they are exposed to growing risks from foreign sanctions. The Office of Foreign Assets Control (OFAC) and the European Union (EU) have implemented strict sanctions regimes that can have significant consequences for non-compliance.

The 50% Rule: A Key Consideration

Under US and EU sanctions regimes, companies that are 50% or more owned or controlled by individuals or entities listed on sanctions lists are also subject to sanctions. Similarly, Switzerland’s sanction regulations apply to funds or companies owned or controlled by listed persons. Financial institutions must ensure they have the necessary data to identify companies controlled by sanctioned individuals.

Measures to Mitigate Risks

To manage sanctions risks, financial institutions should:

  • Establish a clear contractual framework and internal processes for handling sanctions.
  • Implement ongoing reconciliation of client bases with relevant sanctions lists.
  • Consider conducting risk assessments to determine the relevance of sanctions lists from third countries.
  • Verify that external database providers cover 50% ownership regulations and guarantee compliance with confidentiality obligations.

Consequences of Non-Compliance

Violations of Swiss or foreign sanction measures can result in:

  • Criminal liability
  • Supervisory consequences
  • Reputational damage

The Embargo Act punishes even negligent violations of reporting obligations to the State Secretariat for Economic Affairs (SECO), with penalties including up to five years’ imprisonment.

Expert Guidance

Grant Thornton’s Regulatory & Compliance Financial Services Team provides industry-specific expertise to help financial institutions efficiently assess their individual legal and reputational risks. Contact us today to learn more about how we can support your organization in navigating the complex landscape of foreign sanctions.

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