07 March 2022

Switzerland adopts EU Sanctions against Russia - What does this mean?

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The Swiss Federal Council responds to the conflict in the Ukraine by adopting the EU sanctions package in full. This is a departure from previous practice, and reaffirms Switzerland's unwavering commitment to upholding international law, and to the preservation of peace and international security. It also signals a policy rapprochement to its major trading partner, the EU.

Legal Basis and Sanctions System in CH

The Swiss sanctions regime is governed by the Federal Act on the Implementation of International Sanctions (EmbA). Article 1 of the EmbA authorizes the Swiss Federal Council to enact measures upholding international law, and in observance of international human rights regulations.

In practice, the Swiss Federal Council may implement sanctions imposed by the United Nations (UN), the Organisation for Security and Cooperation in Europe (OSCE) or by Switzerland’s most significant trading partners, such as the European Union (EU).

The State Secretariat for Economic Affairs (SECO) is instructed by the Federal Council to monitor and implement sanctions specifically by means of ordinances.

Switzerland only maintains so-called smart sanctions that are directed at specific individuals, entities, or organizations restricting trade in targeted manner. The names of sanctioned individuals, entities, or organizations are listed in the Annexes of specific ordinances published by SECO.

“Back then”- Crimea Sanctions, 2014

Following Russia’s annexation of Crimea in 2014, the EU instituted a sanctions regime (Council Regulation (EU) No 833/2014) that Switzerland decided against adopting. Instead, the Swiss Federal Council elected to take all necessary measures ensuring that Switzerland would be not misused to circumvent the EU sanctions. SECO published Ordinance of 2 April 2014 on measures to avoid circumvention of international sanctions in connection with the situation in Ukraine (SR 946.231.176.72).

In effect, the measures that Switzerland implemented aimed at ensuring that a prohibition of entering into new business relationships with sanctioned parties would be maintained, stopping short of implementing an asset freeze.

“This time around” - The Ukraine Situation, 2022

In light of Russia’s military intervention in Ukraine, the EU has adopted a package of sanctions (Council Regulation (EU) 2022/328) against Russia, imposing asset freezes, closing-off the EU capital market to certain entities and individuals, banning the export of dual-use products to Russia, and introducing VISA restrictions among others.

The Swiss Federal Council has decided to adopt the EU sanctions in full, and instructed SECO to modify and rename the existing ordinance as follows: Ordinance of March 4 on measures in connection with the situation in Ukraine (946.231.176.72), hereinafter “the Ukraine ordinance”.

Two distinct Swiss responses

The distinction between adopting “measures to prevent the circumvention of EU sanctions” and adopting said sanctions in full is significant symbolically, legally, but also in practice.

In effect, this means that now Switzerland has also introduced an asset freeze; moving beyond the prohibition of entering into new business relationships with sanctioned parties that prevailed under the “no circumvention” logic.

Actual measures adopted by Switzerland

As per the modified Ukraine ordinance, Switzerland is therefore currently maintaining, among others, the following goods, financial services, and freedom of movement restrictions.

Goods Restrictions

Goods restrictions and sectorial sanctions (Section 2 of the Ukraine ordinance) have been introduced as follows:

  • A prohibition on the sale, supply, export, transit and transport of arms and ammunition, dual-use goods (annex 2 GCO), special military goods (annex 3 GCO), and goods according to a newly established list destined for the development of the defense and security sectors to or for use in the Russian Federation or (under certain circumstances) to/in the Ukraine. Note that the latter list contains goods that were thus far, and prior to the issuance of the new ordinance, not considered ‘controlled’. Note further that certain exceptions/exemptions may apply. Note also that the provision of services is also prohibited.
  • A ban on the import of firearms, ammunition, explosives, pyrotechnic articles and gunpowder from the Russian Federation or Ukraine.
  • A prohibition on the sale, supply, export and transit of aerospace/aviation goods (currently aircrafts and components), and oil refining and oil industry goods as per a specified list to or for use in the Russian Federation.
  • A prohibition on the imports of goods originating in designated territories (Crimea, Sevastopol, Donetsk, Luhansk) without a certificate of origin issued by a Ukrainian authority.
  • An export ban on certain goods and services into designated territories and for use by designated individual/organizations/entities.

Financial Sanctions

Financial sanctions – in the narrow sense i.e. asset freezes and prohibitions to make economic resources available (Section 3 of the Ukraine ordinance) have been introduced as follows:

  • Assets belonging to persons, entities or organizations mentioned in the respective lists are frozen and it is prohibited to make economic resources available to such persons, entities, or organizations. This means that no business relations can be entered into or no business transactions can be fulfilled involving listed persons, entities, or organizations.
  • Financial institutions have reporting obligations concerning frozen assets.
  • Financial institutions face prohibitions related to the issuance and trading of transferable securities and money market instruments.
  • Financial institutions are prohibited from granting certain loans.
  • Banks are prohibited from receiving (new) deposits over CHF 100,000 from Russian citizens or natural and legal persons in Russia prevails.
  • Banks face reporting obligation for pre-existing deposits of more than CHF 100,000.
  • Prohibitions related to transactions with the Central Bank of Russia prevail.
  • Prohibitions as to the provision of specialized communication services for payment transactions prevail.

Freedom of Movement

  • Entry bans against a number of individuals close to the Kremlin prevail.
  • A suspension of the 2009 agreement on visa facilitation for Russian nationals has been introduced.
  • A closure of Swiss airspace affecting aircrafts operated by Russian carriers has been implemented (excluding flights for humanitarian, medical or diplomatic purposes).

How should businesses respond to the measures?

Businesses should scrutinize their upstream and downstream supply chains, the universe of business partners and buyers, including the banks they use to carry out transactions, and make an assessment as to whether any of these expose them to sanctions risks.

The first and most straightforward way of finding out what your 3rd party risk exposure looks like is to perform KYC checks.

Businesses should also analyze the items they manufacture, distribute or import. They should be aware of the correct classification of said goods, origin information, and licensing requirements potentially applicable to said goods.

We are here to help

Navigating complex and ever-changing international regulations is time-consuming and often daunting. Our sanctions experts are here to help. We can support you every step of the way in your compliance journey, and we take pride in our tailored, and swift support aimed at preserving your reputation and making sure you are always on the right side of the law.