EU ban on Russian gold puts Switzerland on the spot

The European Union has banned gold of Russian origin in a further tightening of sanctions against Moscow over its aggression in Ukraine. The question is whether Switzerland, a major global hub for gold, will follow suit.

The European Union’s sanctions on Russian gold reflects broader efforts to undermine Moscow’s ability to finance the war against Ukraine. It also reflects concerns that Russian oligarchs are using this asset to evade international sanctions. Keystone / Martin Ruetschi

“This is a good opportunity for the Swiss Federal Council to also tighten sanctions against Russia and to finally refrain from direct or indirect imports of Russian gold,” said the NGO Swissaid in a statement on Friday. “This is the only way to ensure that Switzerland does not support Russia in the cruel war against Ukraine.”

The EU sanctions prohibits the direct or indirect purchase or transfer of gold that originates in Russia. The restriction came into effect on July 22. Gold represents Russia’s most significant export after energy. It was worth more than $18.9 billion (CHF18.2 billion) in 2020, according to the Observatory of Economic Complexity (OEC), which analyses international trade data.

In 2020 the vast majority of Russia’s gold went to the United Kingdom ($16.9 billion), according to the same source. Switzerland, which is home to many of the world’s largest refineries, represented the second main destination for gold of Russian origin that same year ($693 million). 

Until now Switzerland joined all sanctions packages that the EU adopted following the Russian military aggression in Ukraine. 

“We have taken note of the EU’s decision to adopt further measures against Russia, including an embargo on gold imports,” the State Secretariat for Economic Affairs (SECO) told SWI swissinfo.ch in an emailed statement.

“It is up to the Federal Council to decide whether Switzerland will adopt these new measures,” it added, without providing a timeline for such a decision. “In doing so, the Federal Council will also assess and consider the possible impact of the ban.”

The London Bullion Market Association (LBMA) said it did not believe the new restrictions would have a major effect on the Swiss market given that LBMA-accredited Swiss refiners already operate under the sanctions on Russian gold applied by the US on June 24, and followed by the UK, Canada and Japan. Switzerland’s LBMA-accredited refiners are Argor-Heraeus, Metalor, MKS Pamp, PX Precinox and Valcambi.

“We have not seen nor do we anticipate any disruption to trading in the OTC [over-the-counter] wholesale gold market following the EU sanctions,” the LBMA said.

View from Moscow

Moscow painted a different picture, saying the latest measures would hurt the global economy. “The devastating consequences of EU sanctions on various segments of the global economy and security … are becoming increasingly obvious,” said a Russian foreign ministry spokeswoman in a statement quoted by Reuters. 

The World Gold Council told SWI swissinfo.ch it was difficult to quantify the impact as there was limited information available on Russian gold exports. “That said, Russia is the second-largest gold producer in the world, and it may look to sell its gold to countries that have not imposed sanctions. It can also sell domestically to investors and the Russian Central Bank.”

Switzerland currently forbids the export of gold to Russia. Imports are technically allowed but avoided for ethical reasons. However, it has not been possible to trade in Switzerland bullion produced by Russian refineries since March 7. That’s when the LBMA suspended six Russian gold refineries from its Good Delivery accreditation system. 

The import of three tonnes of Russian gold to Switzerland in May and 284kg in June has raised eyebrows in Switzerland. The Federal Office for Customs and Border Security has previously noted this gold could have been produced before March 7 and therefore not subject to the sanctions currently in force in Switzerland.

Swissaid points out in its Friday statement that it remains unclear whether the unexpected gold imports in May and June came from sanctioned individuals or other entities and therefore constitutes money laundering.

Opportunity for clarity 

The controversial imports also revealed difference in interpretations of the rules in the Swiss precious metals sector. The sector is now divided between the newly founded Swiss Precious Metals Institute and the Swiss Association of Manufacturers and Traders in Precious Metals (ASFCMP), which claims to represent 90% of the Swiss gold sector. 

“Any risk of participating in the war effort through the purchase of Russian gold cannot be accepted by the ASFCMP and its members,” the ASFCMP said earlier this month. 

The Swiss Precious Metals Institute takes the view that gold produced by Russian refineries after March 7 may be imported and processed by trade assayers in Switzerland.

“An embargo on Russian gold would provide clarity. The import of Russian gold into Switzerland would thus be prohibited for all companies,” says Marc Ummel, head of commodities at Swissaid.