In our previous post, we highlighted that Switzerland was going to reform its Code of Obligations (CO) and Criminal Code concerning transparency on non-financial matters as well as due diligence and transparency duties with respect to minerals and metals from conflict zones and child labor. From January 1, 2022, the new rules have now become a reality for certain Swiss companies. Here is an overview of key provisions and concepts that are now applicable.
The new provisions are found in Articles 964a-964c CO and 964j-964l CO, and Article 325ter of the Criminal Code. The Federal Council (the Swiss Federal Executive) also issued an Ordinance on the due diligence and transparency duties of Swiss companies with respect to minerals and metals from conflict zones and child labor (the ODiTr).
Transparency on non-financial matters
According to the new Articles 964a-964c CO, certain Swiss entities, described in our previous post, must now provide an annual report on non-financial matters containing notably a description of the policies adopted about CO2 goals, social issues, employee-related issues, respect for human rights and combating corruption.
Such annual report must, in particular:
- Contain the adopted due diligence procedures and measures on such matters as well as an evaluation of their effectiveness, and also a description of the risks and how such risks are managed;
- Meet the criteria of Articles 964a-964c CO even if the entity has already prepared a similar report based on other national, European or international regulations (such as the OECD guidelines);
- Include any other entity (Swiss or foreign) the Swiss entity controls; and
- Be publicly accessible for at least ten years.
Due diligence and transparency duties related to minerals and metals from conflict zones and child labor
According to the new Articles 964j-964l CO and the ODiTr, companies whose registered office, central administration, or principal place of business is located in Switzerland must comply with due diligence duties in their supply chain when they (i) release in the Swiss market or process in Switzerland ores or metals containing tin, tantalum, tungsten or gold from conflict or high-risk areas or (ii) offer goods or services for which child labor is suspected.
Such companies will be required to set up a management system and supply chain policies on such issues and ensure traceability in their supply chain. Moreover, companies will be required to implement a supply chain risk management plan to identify, assess and minimize the risks of adverse effects in their supply chain. In particular, companies will need to communicate the implemented tools to address such potential risks (e.g., on-site controls, communications with authorities and civil society, or application of certification systems).
The ODiTr, among others, defines the notions referred to in Articles 964j-964l CO (for example, the definition of “child labor”) as well as specifies the exemption regime for such due diligence and reporting duties, namely when such companies respect already internationally recognized conventions (the UN Guiding Principles on Business and Human Rights are expressly cited) or when the importation and transformation volume of ores or metals do not reach a certain level.
Those reports will have to remain publicly accessible for at least ten years.
The new Article 325ter of the Criminal Code punishes with a fine of up to 100,000 Swiss francs anyone who intentionally provides a false indication in the abovementioned reports or fails to maintain those reports. Negligent behavior is punishable by a fine of up to 50,000 Swiss francs.
The above provisions entered into force on January 1, 2022, which will apply to reports starting in 2023, the fiscal year that begins one year after the entry into force of those provisions. Companies falling under the scope of this new legislation should review the new rules to, if necessary, implement the required internal and external processes in time for the publication of their annual reports.
With this new legislation, Switzerland is following the international momentum on the need to address issues of transparency and human rights due diligence within the corporate world. Yet, considering the more stringent rules set to be adopted within the European Union, further developments are expected in Switzerland in the years to come.
Dr. James F. Reardon, J.D., above left, is a senior associate at MLL, based in Geneva, Switzerland. He focuses on complex international litigation and arbitration, as well as on a variety of regulatory matters, in particular in the fields of competition law, banking and finance, and compliance. He is a lecturer (chargé de cours) at the Institute for International Business Law of the Faculty of Law at the University of Fribourg, Switzerland (LL.M. program), where he teaches anti-corruption and anti-money laundering. He can be contacted here.
Tomás Navarro Blakemore, above right, is a senior associate at Swiss law firm MLL, based in Geneva, Switzerland, within its international dispute resolution practice and also advises private clients, businesses, non-profit organizations and social enterprises on governance, structuring and ethical issues. He speaks English, French and Spanish. He can be contacted here.