Here is the rewritten article in Markdown format:

Swiss Financial Institutions Must Take Note: OFAC Sanctions Compliance a Growing Concern

=====================================================

In recent years, national and international sanctions have been increasingly in the spotlight since the Russia-Ukraine conflict. For Swiss financial institutions, especially those in the financial sector, compliance with these sanctions is crucial to avoid reputational damage, criminal and regulatory consequences.

Legal Basis in Switzerland

The Embargo Act of March 22, 2002, serves as the legal foundation for sanctions in Switzerland. This framework law authorizes the Federal Council to issue compulsory measures through ordinances to enforce international sanctions imposed by the UN, OSCE, and major trading partners, particularly the EU.

Implementation and Enforcement

The State Secretariat for Economic Affairs (SECO) is responsible for implementing and enforcing sanctions in Switzerland. The “SESAM” database on SECO’s homepage allows searching for sanctioned persons and organizations. Financial institutions holding or managing funds that are likely to be subject to blocking must report this information to SECO without delay.

International Sanctions Regimes

Switzerland is obligated under international law to support UN Security Council sanctions. However, there is no legal obligation to adopt EU sanctions. Switzerland decides whether to accept them in whole or in part after weighing the interests. In the past, most EU sanctions were adopted by Switzerland.

OFAC Sanctions Compliance

US Office of Foreign Assets Control (OFAC) sanctions do not apply directly in Switzerland, but compliance is linked to the supervisory guarantee of irreproachable business conduct. The Swiss Financial Market Supervisory Authority (FINMA) expects supervised financial intermediaries to comply with foreign sanction provisions. A 2020 ruling by the Commercial Court of Zurich and a 2021 decision by the Federal Supreme Court emphasize the duty for Swiss banks to comply with US sanctions law, citing the risk of severe fines or even being cut off from the US financial system.

Secondary Sanctions

For Swiss financial institutions, secondary sanctions can be relevant. These include sanctions targeting companies and individuals in other countries (rare) or transaction prohibitions linked to a sanctioning state (more frequent). In cases involving OFAC sanctions, monitoring processes are essential.

Consequences of Non-Compliance

Violations of the Embargo Act provisions or ordinances can result in criminal penalties, including custodial sentences up to five years or monetary fines. Supervisory consequences and damage to reputation may also occur.

Conclusion

The importance of cross-border financial services and the interconnectedness of Swiss financial intermediaries with international markets demands they increasingly address foreign sanction measures. By implementing Swiss sanctions and incorporating foreign sanction measures into risk management and internal processes, financial institutions can mitigate the risks of violating supervisory guarantees and reputational damage.

Do you have questions about the Embargo Act and how to deal with sanctions? Our Regulatory & Compliance FS Team is here to assist you.