Switzerland finds itself between a rock and a hard place. Imposing sanctions on oligarchs in line with the United States and the European Union would place the alpine nation in the awkward situation of defending both its political neutrality and business interests.
Switzerland would be harmed far more than Russia if it caves in to EU and US demands to impose sanctions, according to Guy Mettan, president of the Swiss-Russian Joint Chamber of Commerce.
Mettan believes Switzerland has already pushed out the boat as far as it dares by suspending negotiations on a free trade agreement with Russia and agreeing to ban a handful of sanctioned Russian oligarchs from entering the country.
The US imposed a third round of sanctions on Russian firms and government officials on April 28, targeting seven Russian government officials, including two from Vladimir Putin's inner circle, and 17 companies linked to Putin allies. Some 38 people have now been targeted since March.
The EU also expanded sanctions, imposing asset freezes and visa bans on 15 more Russians and Ukrainians, including a deputy prime minister, a deputy chairman of the State Duma, the chief of staff of Russia's armed forces, as well as separatist leaders.
For its part, Switzerland announced on April 2 it would respect EU sanctions against 33 politicians and officials in Putin’s circle, without imposing any sanctions of its own. In a statement Switzerland said financial intermediaries based in the country would no longer be allowed to enter into new business relationships with these individuals.
The Swiss government’s decision to take this measure was to prevent creating the perception that Switzerland's financial centre could benefit from the EU sanctions. The persons concerned are therefore not permitted to transfer to Switzerland assets that they hold outside the EU. A transfer of assets from the EU is not possible as such assets are already blocked as a result of the EU sanctions.
However, existing business relationships involving the named individuals are not subject to this ban. The travel restrictions imposed by the EU on the same 33 private individuals also have an effect on Switzerland via the Schengen Association Agreement. Consequently, no special measures are needed to prevent the circumvention of these sanctions.
(source: State Secretariat for Economic Affairs, Reuters)
The Swiss authorities have frozen the assets of the Geneva-based coal trader Mako Trading Company, which is run by Oleksander Yanukovych, son of deposed Ukrainian president Viktor Yanukovych.
Gennady Timchenko sold his share of oil trading giant Gunvor to his business partner after being named by the US as having close links to Russian President Vladimir Putin.
Another business heavyweight linked to the former Ukrainian regime and with Swiss business interests, Dmytro Firtash, was arrested in Austria in March under an FBI warrant.
“Switzerland’s current stance has not damaged Swiss-Russian relations very much. But if Switzerland goes any further it will cross the red line, which could result in damage,” Mettan told swissinfo.ch.
“History has shown that sanctions invariably do not lead to regime changes,” he added. “They would be particularly bad news for the financial sector and would probably result in Russian capital flowing into rival offshore centres such as Singapore and Dubai.”
The latest data from the Swiss National Bank showed Swiss banks housing CHF13.8 billion ($15.6 billion) of Russian money in 2012. Capital outflows from Russia are increasing rapidly. Some $63 billion left Russia last year, and the World Bank predicts that up to $150 billion could exit the country in 2014 if the Ukraine problem escalates.
Russian companies and business figures are heavily involved in commodities trading. Oliver Classen, of the pressure group Berne Declaration, believes it is only a matter of time before Russians with Swiss business ties become linked with the Kremlin.
Politically exposed persons
“I believe that Yanukovych, Timchenko and Firtash are just the tip of the iceberg. It is only a matter of time before the Swiss commodities trading sector is embarrassed by another PEP [politically exposed person] popping up,” he told swissinfo.ch. “Switzerland needs to make sure that it does not become a commodities laundering centre.”
“The commodities sector generally has to have access to political executives in the countries they operate in, and this can lead to potential conflicts of interest. But it is one thing doing business with politically exposed persons and [another] having such people own or manage your business.”
Switzerland – oligarch appeal
Why does Switzerland appeal to oligarchs from the former Soviet Union, and why are they so active in commodities trading? It is believed they are individuals who made their fortunes by maintaining close friendships with the Kremlin. The easiest and fastest way to earn money is through the production of natural gas and oil.
That leads to two questions: where can natural gas and oil be sold? And how and where can the money “earned” be invested?
Switzerland provides an attractive solution to both problems. The country is a hub for commodities trading and at the same time is a financial centre.
Trade and investment in Switzerland allow the oligarchs to safely store a portion of their wealth. At the same time they can take care of business connected with the legalisation of money suspected of belonging to the narrow circle of players that surround President Putin. This is difficult or even impossible to prove, and very often happens legally through so-called “Soft Power” (for example, foundations).
Berne Declaration is unhappy with the Swiss government response to the potential reputational risks of its commodities trading sector. A year ago, the government commissioned a report that recommended greater voluntary controls by traders but no extra regulation.
Classen wants a public register set up documenting ownership of independent trading houses and enhanced checks of financial flows relating to the industry.
But Stéphane Graber, secretary-general of the Geneva Trading and Shipping Association (GTSA), said the industry was getting an unfair reputation for dealing with politically exposed persons.
“Just because you are friends with a politician or went to school with a politician does not automatically mean you are involved in corruption,” he told swissinfo.ch. “Commodities trading is no different to other industries. You can have just as many PEPs in other sectors.”
Switzerland is home to an estimated 500 companies in the sector, including commodities giants Glencore, Cargill, Vitol and Trafigura. The industry’s 10,000 employees contribute around 3.5 per cent to the country’s Gross Domestic Product – more than the tourist industry.
GTSA, the main lobby group for commodities traders in the greater Geneva area, would welcome the eventual application of tougher regulations controlling derivatives trades and tracking financial flows, because it would keep Switzerland in step with the US and EU.
But Graber insists that simple market forces dictate that commodities traders cannot get away with being a conduit for money laundering, tax evasion or any form of corruption.
“The current debate gives the impression that commodity merchants are giving too little attention to their operational risks, which is the opposite to reality,” he said. “If a company has a reputational problem then they can close down tomorrow because their financing [from banks] will simply dry up.”