Investigating Swiss traders’ links to murky world of Russian oil
Western sanctions imposed on Russia after its invasion of Ukraine in February 2022 have triggered a shake-up in global oil trading.
In Switzerland, a key hub for oil trading, many traditional players have pulled out of the market only to be replaced by opaque, “pop up” traders whose buying and selling activity is uncannily similar to some firms based in the Alpine nation. It’s almost impossible to track who is behind these new traders and whether Swiss nationals and companies are involved.
Russia’s invasion of Ukraine prompted a series of sanctions on Russian individuals, companies and trade by the European Union, the United States and wealthy G7 nations. Switzerland has kept in line with the EU, implementing its tenth package of sanctions in March.
That has not stopped the international community — including NGOs and more recently the G7 — from criticising Switzerland for not doing enough. They particularly point the finger at the limited amount of Russian assets frozen in Switzerland and argue the Alpine nation could do a better job enforcing sanctions.
In this series we look at what steps Switzerland has taken to conform to international standards and where it lags behind. We question the grounds for sanctions and their consequences for commodity traders based in Switzerland. We also analyse Russian assets in the county and understand how some oligarchs are navigating sanctions.
“There has been a huge shift of business away from Western companies to new start-up trading companies or specialist Russian traders,” says Russel Hardy, the CEO of Vitol, the world’s biggest independent oil trader with headquarters in Geneva and Amsterdam.
Restrictions on oil trading and shipping are among a raft of sanctions imposed on Moscow. In June 2022, Switzerland signed up to sanctions adopted by the European Union that progressively banned the maritime transport of crude oil from Russia. In February this year Bern fell into line with the imposition by EU and G7 member countries of price caps on fuel and on refined petroleum products. Since December, crude oil bought directly from Russia has been subject to a ceiling of $60 per barrel.
Before the war, oil sales accounted for 30-35% of Russia’s budget revenue, making it an obvious target for sanctions. Europe was the biggest buyer of Russian crude, and 50 – 60% of it was traded from Switzerland by commodity trading companies including Trafigura, Vitol, Glencore and Gunvor, according to Swiss NGO Public Eye.
Trafigura and Vitol said in March that they now only export limited supplies of Russian refined products while adhering to international rules, a complex task that has kept in-house compliance teams working round the clock.
Trafigura only deals with Russia on “some limited products… but obviously within the price cap” and reviews the situation daily, CEO Jeremy Weir said at an FT commodities conference in Lausanne in March.
Hardy, speaking at the same event, was more specific. He said less than 100,000 of the 7.5 million barrels per day the company handled in 2022 involved Russian business.
“We are not trading crude and we are trading a little bit of product into specific markets where Russian barrels are a good fit with our system,” he said.
Exodus of the giants
Involvement in Russian oil has become fraught with ethical and legal challenges, and it’s become a reputational minefield for banks that extend credit to oil traders. But it’s also become a lucrative opportunity for nimble newcomers operating in the shadows with little fear of getting caught up in sanctions busting.
Energy majors BP, Shell, and Equinor ditched their Russian business in March 2022 and Swiss traders weren’t far behind. Before the war, Vitol, Trafigura, Glencore, and Gunvor between them handled well over one million barrels per day of Russian oil, one eighth of the country’s daily crude sales, according to some estimatesExternal link. But since summer 2022, these major trading houses have officially cut ties with the Russian market.
In July, Trafigura sold its controversial 10% stake in Vostok Oil, a project led by Russian state oil company Roseneft to develop oil and gas deposits in the Arctic. Vitol sold its holding in December. Both stakes were snapped up by a small company called Nord Axis Limited, which was registered in Hong Kong a week before the invasion of Ukraine, the Financial Times (FT) reportedExternal link.
The hole left by these trading giants has been filled primarily by Russian and Chinese state-owned companies and a constellation of small companies registered in low-transparency jurisdictions that are not party to Western sanctions against Russia. The result is an oil market that is even more fragmented and opaque, according to NGOs and oil industry leaders.
“In general, the thought process is: that is not a good thing overall – that that level of understanding and transparency won’t be there with those companies that would be the case if the oil were being handled by Western companies,” says Hardy.
The rise of these so-called “pop up” traders and their Swiss ties have been the subject of investigations by the FT, Public Eye, and Global Witness. Two companies in particular – with doppelgangers outside Switzerland – have been a source of intrigue: Paramount and Sunrise. They are shrouded in secrecy making it almost impossible to ascertain their ownership and whether they have violated sanctions or the price cap.
“The problem is we don’t know who is behind these companies because they often have no websites, there is no way of contacting them,” says Mai Rosner, a senior campaigner at Global Witness. “They are very opaque and we don’t know ultimately who is controlling them.”
The jurisdictions where these new traders are based require little disclosure. In Dubai, for example, a private company is not obligated to disclose the names of directors or their shareholders. The spotlight has fallen on Paramount Energy and Commodities DMCC, a trader that emerged in the United Arab Emirates and replicates the oil transaction flows of Switzerland-based Paramount Energy & Commodities SA. The similarity of their names and trading patterns drew attention to both and to the challenge of ensuring international sanctions.
Rosner came across Paramount Energy while investigating whether traders were respecting the crude oil price capExternal link of $60 per barrel. The ceiling was imposed to make it harder for Russia to fund the war by restricting its oil revenue while maintaining crude supplies to prevent surging energy costs from hurting consumers and businesses around the world.
“The entire price cap mechanism was explicitly designed to keep as much Russian oil flowing onto the market as possible even though the stated goal is to reduce revenues to the Kremlin,” she notes. “Oil is really critical to the Kremlin’s war chest.”
Opaque connections
Her research focused on ESPO crude oil traded out of the Russian port of Kozmino because it was trading at prices higher than the G7 $60 cap that took effect in December. The commodities database Kpler showed that Paramount SA was among the biggest traders of ESPO in January and February this year in an apparent breach of the ceiling.
Public Eye published a profile of this mysterious traderExternal link in April 2022. Separate investigations by Global Witness and the FT, published in March this year, found the trader appeared to have shifted its Russian oil business to Dubai-based Paramount DMCC in June 2022.
“It’s hard to believe claims that these two entities have no relation whatsoever,” says Rosner. “The two companies say that they operate independently and that the founder of Paramount SA has no direct holding in Paramount DMCC, despite reports that he is now living in Dubai and the fact that Paramount DMCC has taken over all the trade that Paramount SA used to handle between Kozmino and China.”
She does not allege these companies breached international sanctions or the price cap. The Global Witness report notes it is possible for Paramount to operate beyond the jurisdiction of the price cap, provided the Dubai-based entity has no European employees, does no business in Europe, and is not controlled by a European entity. That makes the question of ownership and control of the two companies all the more important. A Swiss citizen, according to Geneva public records, administers Paramount SA. Another Swiss citizen, according to the FTExternal link, is listed in Dubai corporate records as director of Paramount DMCC.
Legal Loopholes
Unlike European and US legislation, Swiss sanctions law does not apply to nationals living abroad. This loophole amounts to “an invitation for the globally active traders to circumvent sanctions by making slight changes to their organisational structures,” notes Public Eye, which also a shone a light on Paramount in its report Russian Oil in Switzerland: A Fake Farewell?External link, published in March.
Paramount SA says it has done nothing illegal. In a statement to SWI swissinfo.ch, the company said that while Paramount DMCC is its subsidiary it is a separate legal entity, obliged to follow Emirati versus Swiss law.
“Paramount SA emphatically denies any allegations that it violated the price cap on Russian oil or any other sanction,” the company said in an email. “Paramount SA stopped all transactions involving crude oil and petroleum products of Russian origin by September 2022, well before the price cap took effect. Its activities were always conducted in strict accordance with the sanctions and more generally all laws applicable to its activities.”
Public Eye’s report also highlights the activities of Sunrise, which collected the equivalent of four shipments – nearly 400,000 tonnes of crude oil – from Kozmino in September 2022. In the Swiss commercial register a company called Sunrise Trade SA registered in Geneva in 2020 at a trustee. Its spartan website says the company trades crude oil, refined petroleum products and petrochemicals globally and across Russia. In 2022, a company called Sunrise X Trading was registered in Hong Kong. A definite link between the two is hard to establish in the absence of a formal investigation by authorities. SWI efforts to contact the Swiss company were unsuccessful.
“Switzerland still does not have a public register of the beneficial owners of companies, and it is only when an investigation is opened that the authorities can access this data. That’s a real problem,” says Agathe Duparc, a Public Eye researcher.
Oil still flows
Russian oil – by design – is still ending up in the global market. A loophole in Western sanctions allows the crude to be shipped anywhere in the world and, once refined, imported back to Europe without penalty. That has meant big business for refineries in countries that have not signed to up to the sanctions. In January 2023, India imported over 57 million barrels of Russian crude, nearly 20 times more than a year earlier, according to Global Witness. Its analysis of data from Kpler shows that in 2022 Turkey imported 143 million barrels of crude from Russia, a 50% increase from 2021.
“The refining loophole allows Russian oil that is transported to refineries in third countries and then turned into other products like diesel or petrol to come into Europe,” explains Rosner. Global Witness points to a Turkish refinery that accepts almost exclusively Russian crude oil which is then exported as diesel to the EU by major oil traders including Vitol.
The rules governing the crude-oil ban and price cap are complex to follow and hard to enforce. Switzerland, for instance, doesn’t have its own sanctions authority and thus relies on its cantons, banks, or federal agencies to report violations of both the price cap and the sanctions package.
Switzerland’s State Secretariat for Economic Affairs has publicly stated that it is not monitoring compliance. The Office of the Attorney General said it can only open an investigation into alleged violations of sanctions if asked to by the SECO, but declined to comment on whether the secretariat had submitted any such request. It also declined to comment on where the line is drawn between companies that are linked but operate in different jurisdictions when it comes to Swiss enforcement of sanctions.
“We have to rely on the fact that companies operating in Switzerland respect Swiss law,” Helene Budliger, the head of SECO said in an interview with Swiss television in March. “We are neither the police nor the public prosecutor.”
+ SECO: “We are neither the police nor the public prosecutor”
Switzerland has for decades prided itself on maintaining confidentiality of individuals who do business in the country, but the fallout from Russia’s invasion of Ukraine has shone an uncomfortable light on the practice. Ukrainian officials and US lawmakers, along with numerous NGOs, says Swiss authorities should be more proactive implementing sanctions.
“The war in Ukraine has put a spotlight on all the Swiss shortcomings in the fight against corruption, money laundering, and the implementation of sanctions,” says Duparc of Public Eye.
Edited by Nerys Avery, Virginie Mangin
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