Financial Crime World

Switzerland’s Financial Institutions Face Risk of Breaching Foreign Sanctions Law

A recent ruling by Zurich’s Commercial Court has highlighted the risk that Swiss financial institutions face when it comes to breaching foreign sanctions law. The court found that US sanctions law applies to a Swiss bank, prompting concerns about the potential consequences for financial and non-financial institutions operating in Switzerland.

The Risk of Violating Sanction Law

According to experts, both financial and non-financial institutions are at risk of violating US sanction law and facing penalties as a result. In 2020, a Swiss non-financial institution was found to have violated US sanctions law and subsequently agreed to a settlement worth $7.8 million.

Switzerland’s implementation of sanction measures is based on the Embargo Act, which provides a framework for the Federal Council to issue coercive measures. These measures can include:

  • Direct or indirect restrictions on transactions involving goods, services, payments, and people
  • Trade restrictions on certain goods such as war material or military equipment

Foreign Sanctions in Switzerland

Foreign sanctions do not have any legal effect in Switzerland unless they are adopted by the government. However, UN sanctions are exempt from this requirement, while EU sanctions have not been adopted by Switzerland’s Federal Council. US sanctions imposed by the Office of Foreign Assets Control (OFAC) are generally only applicable to US persons, but their scope has expanded in recent years to include any US connection.

The Impact on Financial Institutions

Violations of OFAC sanctions can have significant implications for financial institutions, including:

  • High financial impact
  • Exclusion from the US financial market

In 2020, Zurich’s Commercial Court emphasized that non-US persons may be prohibited from doing business with US-sanctioned parties if they use the US financial market infrastructure.

The Impact on Non-Financial Institutions

OFAC sanctions have also had an impact on non-financial institutions. For example, a Swiss IT company agreed to a settlement worth $7.8 million for violating US sanctions. The company provided services to airlines listed on the US sanctions list for supporting terrorism and was pursued by OFAC due to its use of computing resources located in the US.

Mitigating Risks

Experts advise companies operating in Switzerland to take steps to mitigate risks, including:

  • Setting up strong compliance teams
  • Investing in regular training
  • Implementing compliance programs
  • Using IT solutions such as sanctions tools to detect potential breaches

By taking proactive steps, companies can reduce the risk of breaching foreign sanctions law and avoid costly penalties.