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Swiss Companies Face Growing Risks from International Sanctions
In the wake of the Russia-Ukraine conflict, national and international sanctions have become a major focus for businesses around the world. For Swiss companies, particularly those in the financial sector, navigating these complex regulations has become a significant challenge.
Failure to Comply with Sanctions: Serious Consequences
Failure to comply with sanctions can result in reputational damage as well as serious regulatory and criminal consequences. In Switzerland, the Embargo Act of 2002 serves as the legal basis for sanctions, authorizing the Federal Council to issue compulsory measures to enforce international sanctions imposed by the UN, OSCE, and other major trading partners.
Current Sanctions Regimes in Place
There are currently 26 federal council sanction ordinances in force, with measures targeting countries, individuals, and organizations. The State Secretariat for Economic Affairs (SECO) is responsible for implementing and enforcing these sanctions in Switzerland. Companies must report any funds or resources that may be subject to blocking to SECO without delay.
International Sanctions Regimes Pose Additional Risks
Switzerland has no obligation to accept EU sanctions, but the majority of EU sanctions have been adopted by the country in the past. US sanctions, administered by the Office of Foreign Assets Control (OFAC), also pose a risk for Swiss financial intermediaries. While OFAC sanctions do not apply directly in Switzerland, non-compliance can result in significant fines and reputational damage.
The Commercial Court of Zurich Ruling
The Commercial Court of Zurich ruled in 2020 that a Swiss bank has a duty to comply with US sanctions law, citing the serious risks of being confronted with significant fines or even being cut off from the US financial system. The Federal Supreme Court upheld this obligation in 2021.
Secondary Sanctions and Complex Ownership Structures Pose Additional Risks
Swiss financial institutions must also be aware of secondary sanctions, which target companies and individuals in other countries. In the case of OFAC sanctions, transactions executed using US financial market infrastructure are subject to restrictions. Companies must conduct a risk assessment to determine their exposure and potential consequences of non-compliance.
Complex ownership structures can also pose additional risks, as not only listed individuals and entities but also companies controlled by them (50% or more owned) are subject to sanctions.
Measures to Mitigate Risks
To mitigate these risks, financial institutions should define clear internal processes for handling sanctions risks. This may include:
- Implementing an ongoing reconciliation of client bases with relevant sanctions lists
- Considering the use of external database providers that cover 50% regulations and offer sufficient guarantee for confidentiality obligations and data security
Consequences of Non-Compliance
Failure to comply with sanctions can result in serious consequences, including custodial sentences or monetary penalties. Natural persons committing offenses, principals, employers, boards of directors/management, or companies themselves may be held liable.
In conclusion, Swiss companies face growing risks from international sanctions, particularly those in the financial sector. By understanding these regulations and implementing measures to mitigate risks, institutions can minimize reputational damage and ensure compliance with regulatory requirements.