Tightened sanctions against Russian interests pose a challenge for Switzerland. Existing measures have left their mark on financial institutions.

A Russia cut off from Western markets and sanctions against individuals close to the Kremlin have far-reaching consequences for Switzerland and its financial center.

Although the country is neutral, the law of neutrality does not apply in the event of unilateral aggression and disregard for the UN Charter, as experts have pointed out on various occasions.

Sanctioned by the U.S.

Switzerland needs to stake out its own position, and Russia’s strong economic exposure to the country adds to this challenge.

Viktor Vekselberg’s case exemplifies the matter well, with the investor sanctioned by the U.S. in 2018 following the crisis in Crimea. As a result, he had to reduce his holdings in companies such as the Winterthur-based Sulzer, industrial group Oerlikon and the steel manufacturer Swiss Steel (formerly Schmolz + Bickenbach).

Steadily Decreased

Despite Vekselberg having a large influence over one of the most important Swiss industrial groups, Swiss bank, Postfinance, terminated his personal account. The fact that the Federal Court recently ruled in Vekselberg’s favor on this issue, does not reduce the complexity of the matter.

In the past, Russian individuals and companies have parked significant funds in Switzerland. But as data from the Swiss National Bank shows, deposits at Swiss banks have stagnated for years.

In 2020, Swiss banks held just under 10.5 billion francs from Russian sources, matching the amount held in 2011. Holdings increased up to 2014, but have steadily decreased since then.

More Comprehensive

At this point, the now well-known circumvention sanctions, taken by Switzerland so that the local financial center cannot be abused by sanctioned parties, come into play. But previous sanctions against individuals are not comparable to the new sanctions. If the Russian state is to be kept out of Western financial markets, comprehensive measures will be necessary.

In Switzerland, the Federal Council is responsible for issuing coercive measures, a spokesman for the State Secretariat for Economic Affairs (SECO) told finews.com. Only sanctions lists drawn up by the United Nations are automatically adopted on the basis of obligations under international law. The Federal Council must decide separately on all other sanctions.

Federal Council Decides

If the Western community decides in favor of far-reaching financial sanctions, the Federal Council will have to decide whether to adopt them. In doing so, the government will not only take political issues into account but will also consider the effects these have on Switzerland.

Apart from the aforementioned bank deposits of Russian investors, there are extensive additional investments to consider. These include real estate holdings of companies and individuals, branches of Russian banks, and offshoots of Russian commodity companies, such as Gazprom.

Very Difficult Terrain

Stocks controlled by Russian investors in Switzerland increased from 8 billion francs in 2014 to 29 billion in 2018, making the Russians the most significant direct investors in Switzerland, according to an «NZZ» report (behind paywall, in German) on Wednesday.

Switzerland is navigating very difficult terrain, reflected in the federal government's cautious tone: «When the EU imposes sanctions on a country, the Federal Council discusses on a case-by-case basis whether to adopt them.

This careful weighing of interests is carried out on the basis of various foreign policy, foreign economic policy and legal criteria,» a State Secretariat for Economic Affairs (SECO) told finews.com upon request.