Subject: Dispute Resolution
Paper: NZZ
Reading time: 5 Min

For internationally active companies, continuing their business in Russia is a balancing act.

The drastic sanctions imposed by Switzerland mean considerable additional work, especially in the area of compliance

In response to Russia's invasion of Ukraine on 24 February 2022, the European Union significantly expanded its sanctions against Russia. In essence, they have already been in place since the annexation of Crimea in 2014. After initial hesitation, the Federal Council decided to largely adopt the EU sanctions and continuously align the Swiss sanctions regime. In the meantime, Switzerland has issued a wide range of sanction measures against Russian individuals and companies. In addition to asset freezings, travel bans and visa restrictions, it also includes far-reaching trade restrictions for various economic sectors as well as restrictions on activities in the financial sector. Never before has Switzerland imposed such drastic sanctions against another nation.

The adoption of EU sanctions by Switzerland is not automatic. Nevertheless, the Federal Council has adopted most of the sanctions measures with a certain time lag, including the EU's 10th sanctions package. Since its enactment on 4 March 2022, the Ordinance has already been amended more than thirty times by the State Secretariat for Economic Affairs (SECO). Often, the Federal Council brings the revised ordinance text into force just a few hours after the announcement of another sanctions package.

Intentional differences

Affected companies must therefore constantly check their compliance strategies for compatibility with the Swiss sanctions measures. It is not unusual for them to acquire an overview of the newly applicable sanctions and the scope of any transitional provisions within a very short time. This is made even more difficult by the fact that the revised ordinance is sometimes not even published online at the time of its entry into force. Especially for SMEs, which usually do not have specialised compliance departments, this leads to considerable additional work.

Most deviations from the EU sanctions provisions are intentional and appropriate. However, inconsistencies do occur from time to time. This can be illustrated by a discrepancy - which has since been corrected - in the so-called ban on services. This was felt by a company in Switzerland that is completely controlled by a US corporation: While the Swiss sanctions do not allow various services such as auditing, legal and IT consulting to be provided to Russian companies from Switzerland, such services have been permitted again for some time under EU sanctions law. This is the case if the Russian company is a subsidiary of a company established in the EU, in Switzerland or in a so-called partner state such as the USA, Japan or South Korea. In such cases, services can also be provided to a Russian subsidiary within the group.

Switzerland, on the other hand, did not provide for a corresponding exemption for such partner states for several months. According to Swiss sanctions law, exceptions only applied to corporations domiciled in Switzerland, in an EEA country or in the United Kingdom. For Swiss intermediate holding companies of a parent company from the USA or another partner state, this meant that services provided to Russian subsidiaries via Switzerland violated the sanctions for a while. This inconsistency was eliminated with the introduction of the 10th sanctions package at the end of March 2023. The exemption was explicitly extended to companies established in partner states. However, the amendment is only included in the German- and Italian-language text of the ordinance; the wording of the French version had not yet been adapted as of May. However, the Q&A provided by SECO confirms the adjustment made.

Compliance check required

Companies with business relations with Russia are therefore well advised to conduct a comprehensive compliance check to determine which areas of the company could be affected by sanction measures. Sometimes potential business partners also need to be screened for possible personal sanctions. For affected companies, this means a considerable additional internal effort, as such sanctions do not only affect obvious sanction addressees such as Gazprom or Rosneft. Business partners who are not themselves listed in the relevant annexes but whose companies are controlled by a sanctioned person may also be covered. In the case of multi-layered holding structures, compliance officers must trace the chain back to the ultimate beneficial owner in order to be able to reliably identify the actual control holders. This is especially difficult and burdensome for the business relationship when the only available source of information is the business partner himself.

For companies, this means that as long as the Ukraine conflict continues, they must expect further sanctions packages from the EU and Switzerland and urge their compliance departments to be more sensitive and diligent.