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Switzerland sharpens historic Russia sanctions

We published two previous posts, the first discussing potential scenarios that Swiss individuals and entities, including foreign subsidiaries located in Switzerland, could be facing should new sanctions target certain Russian Federation individuals and entities, and the second focusing on the amendments to the Ordinance instituting measures in connection with the situation in Ukraine taking effect on February 28, 2022 (the “Original Ordinance”).

On March 4, effective at 6:00 pm local time, the Swiss Government adopted, with immediate effect, an entirely new ordinance (the “March 4 Ordinance”), effectively replacing the one adopted first in 2014 and last amended on February 28, 2022. The March 4 Ordinance reinforces and expands the sanctions regime against Russian entities and nationals. This post seeks to provide some guidance on how to respect the rules set forth in the March 4 Ordinance.

Structure of the March 4 Ordinance

The March 4 Ordinance is a much more important ordinance than the Original Ordinance. Indeed, it contains 36 articles, spread over 17 pages with 14 annexes; whereas the Original Ordinance contained 15 articles, spread over 10 pages with 4 annexes.

The March 4 Ordinance is divided into six sections, with the principal sections focus on the restrictions to trade (section 2), the financial restrictions (section 3), and other restrictions (section 4).

General introduction to the March 4 Ordinance

The restrictions to trade focus on, among others, military goods, dual-use products, goods intended to the aerospace industry, goods for oil refining, oil industry assets, services related to exploration and extraction projects, and the export and import of goods to and from listed territories (Crimea, Sebastopol, the areas of the Ukrainians oblasts of Donetsk and Louhansk not under the control of the Ukrainian Government). The trade of such goods is generally prohibited to the Russian Federation or subject to authorization granted by the Swiss Government. Military goods or dual-use products destined to Ukraine are also generally prohibited or subject to authorization granted by the Swiss Government. The restrictions to Ukraine should be understood as the remnant of the policy of neutrality adopted since 2014 in the context of the annexation of Crimea and the fights in the eastern oblasts mentioned above.

The financial restrictions concern, among others, the freezing of assets and economic resources to listed individuals and entities, the mandatory declaration to the federal authorities of any frozen asset or economic resource, prohibitions on securities and money market instruments, prohibition on granting loans, prohibition on accepting deposits, mandatory reporting on existing accounts, and the prohibition on the sale of securities.

In particular, Swiss financial institutions cannot, in principle, open new accounts of Russian citizens for amounts over the CHF 100,000 (about $107,000) and must disclose to the Swiss Government the information on the accounts held by Russian citizens if the amount is greater than CHF 100,000. The Swiss Government provided guidance on this specific prohibition on March 16, 2022. Moreover, as from April 12, 2022, the sale of securities to Russian citizens and entities will in principle be banned.

Lastly, the other restrictions prohibit the entry on Swiss soil and the transit through Switzerland of listed individuals. In addition, the Swiss Government prohibits the honoring of certain debts owed to individuals and entities listed in Annexes 2 or 8 through 14, any individual or entity acting on behalf of those individuals or entities, and any Russian individual or entity.

Those running afoul of those prohibitions may be found criminally liable. In non-severe cases, the perpetrator may be sanctioned by imprisonment up to one year and a CHF 500,000 (about $534,000) fine. In severe cases, the perpetrator may be sanctioned by imprisonment up to five years and a CHF 1,000,000 (about $1,070,000) fine. Other sanctions are also provided for.

What is expected going forward?

As explained in our previous post, we anticipated the European Union would impose further and harsher sanctions on Russian Federation individuals and entities and that Switzerland would follow suit. This occurred on March 15, 2022 when the EU adopted a new series of sanctions, with Switzerland imposing the same measures on March 16, 2022 (updating certain annexes to the March 4 Ordinance). On March 18, 2022, the Swiss Government announced that it will be working on adopting the EU’s fourth package of sanctions, which should come into force during the week of March 21, 2022. We expect such amendments to continue.

We also anticipate that numerous entities will continue to “de-risk” and exit the Russian market, regardless whether their activities are covered by the March 4 Ordinance. The two main reasons we see are the public perception of continued dealing in the Russian market and the risk of not being able to be paid other than in Russian ruble, which loss in value relative to other currencies has created serious doubt as to its strength and sustainability.

What has been observed since the freezing of accounts held by listed Russian individuals and entities is the amount of Russian assets located in Switzerland. According to a recent news article, Russian assets currently frozen amount to approximately CHF 150-200 billion ($160-214 billion). As we are witnessing an increase in sanctions, we expect to see even more funds and other assets frozen in Switzerland.

Lastly, we also anticipate specific guidance on cryptocurrencies. Indeed, per the March 4 Ordinance, crypto assets are to be frozen under the same mechanisms as more traditional assets (which was not specifically the case in the Original Ordinance); yet, questions on the effectiveness of those measures on this industry remains to be seen. As Switzerland has been at the vanguard in terms of Fintech and cryptocurrencies for years (for instance the Crypto Valley between Zurich and Zug), it will most certainly seek to avoid measures deemed to damage the industry beyond what is necessary to provide effective enforcement of sanction measures.

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Dr. James F. Reardon, J.D., pictured 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.

Marcel C. Steinegger, above right, is a partner at MLL, based in Zurich, Switzerland. He has over 20 years of litigation and trial experience in a variety of mainly international but also domestic commercial and corporate cases including representing individuals and companies in regulatory enforcement proceedings. He has in-depth experiences in cross-border litigation and international judicial assistance issues in civil and criminal matters, particularly in asset recovery, repatriation of assets and being expert in foreign proceedings. He can be contacted here.

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