Financial Crime World

Sanctions and Financial Crime in Switzerland: A Growing Concern for Institutions

Introduction

The implementation of foreign sanction measures has become a pressing issue for financial and non-financial institutions operating in Switzerland. Recent developments have highlighted the risks associated with breaching US sanctions law, which can have significant financial consequences and even threaten the existence of a financial institution.

  • The Embargo Act (EmbG) serves as the framework law for implementing sanction measures in Switzerland.
  • The Federal Council is responsible for issuing coercive measures, while implementation and enforcement are carried out by the State Secretariat for Economic Affairs (SECO).
  • UN, OSCE, EU, and other sanctions intended to enforce international law can also be enforced through coercive measures.

Possible Coercive Measures

Direct or indirect restrictions on transactions involving goods, services, payments, and people can be imposed. These measures can target:

*   Countries
*   Regimes
*   Individuals linked to terrorism
*   Entities linked to terrorism
*   Trade of certain goods like war material or military equipment

Extra-Territorial Effects

Foreign sanctions do not have automatic legal effect in Switzerland unless adopted by the country. However, UN sanctions are exempt from this requirement due to Switzerland’s commitment to supporting them upon accession to the UN.

  • The Federal Council has chosen not to adopt EU sanctions.
  • US Office of Foreign Assets Control (OFAC) sanctions can apply extraterritorially if a US connection is established.

Implications of OFAC Sanctions on Financial Institutions

The violation of US sanctions can have severe consequences for financial institutions, including:

*   Significant financial impacts
*   Potential exclusion from the US financial market
  • A recent court ruling has highlighted that non-US persons are prohibited from doing business with sanctioned parties if they use the US financial market infrastructure. This includes transactions conducted in US dollars, which can be prohibited for supervisory reasons.

Implications of OFAC Sanctions on Non-Financial Institutions

OFAC sanctions have also had an impact on non-financial institutions, including a Swiss IT company that agreed to a $7.8 million settlement with the OFAC for violating US sanctions. The company provided services to airlines listed on the US sanctions list due to their support of terrorism.

Supporting Institutions

  • Foreign sanction law not having automatic legal effect in Switzerland should be taken seriously.
  • We recommend setting up a strong compliance team, investing in regular compliance trainings, implementing a compliance program, and utilizing IT solutions like sanctions tools to mitigate risks.