17 October 2024

No extraterritorial extension of Swiss sanctions

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  • Legal
  • Trade / Logistics

The Federal Council is tightening sanctions against Russia, but is not obliging persons and companies in Switzerland to ensure that subsidiaries abroad comply with Swiss sanctions.

  • Dr. Kiril R. R. Haslebacher

    Legal Associate

Following a detailed review, the Swiss Federal Council decided on 16 October 2024 to adopt the sectoral measures of the 14th package of sanctions against Russia, which the European Union enacted on 24 June 2024, in order to strengthen their impact. As a result, measures in the goods sector (in particular export restrictions or the re-export to Russia of intellectual property rights and trade secrets) will be further tightened. In the financial sector, further sanctions will be imposed with the aim of cutting off Russia's cash flows to finance its defence machinery (including the creation of a legal basis for transaction bans on entities that offer crypto services and facilitate transactions to support the Russian defence industry).

It is interesting to note that the Federal Council has decided not to materially adopt the obligation for economic operators introduced by the EU as part of the 14th sanctions package, according to which they must ensure that their subsidiaries established in third countries do not undermine the EU's sanctions measures (Art. 8a Regulation [EU] No. 833/2014). The aforementioned EU article extends the EU's sanctions measures extraterritorially by requiring (natural and legal) persons in the EU to use their "best efforts" to ensure that their subsidiaries outside the EU also comply with EU sanctions. Such an extraterritorial extension of Swiss sanctions law contradicts the principle of territoriality and does not appear to be enforceable, especially as subsidiaries abroad are bound by the local legal systems (and not by Swiss law).

Furthermore, it is unclear what measures the EU expects from persons domiciled or resident in the EU to implement Art. 8a Regulation (EU) No. 833/2014, i.e. what is meant by undertake their best efforts. It should be noted in this context that the obligation of a Swiss parent company to ensure compliance with Swiss sanction measures by its subsidiary established in a third country would conflict with the principle of parity applicable in Switzerland, according to which each body has irrevocable powers, since the ultimate supervision of the persons entrusted with the management of the company, namely with regard to compliance with laws, articles of association, regulations and directives, is assigned to the board of directors (and not to the shareholder) in accordance with Art. 716a para. 1 Code of Obligations. Furthermore, the fulfilment of such a provision, i.e. compliance with foreign sanctions, is expressly prohibited in countries such as Russia or China.

As the Federal Council writes in its press release of 16 October 2024, actions by Swiss companies that misuse their subsidiaries to circumvent sanctions can and will be prosecuted under current law. This is confirmed by several SECO investigations in connection with suspected sanctions violations by Swiss companies via subsidiaries abroad and the takeover of such proceedings by the Office of the Attorney General of Switzerland.

Since an extraterritorial extension of Swiss sanctions would contradict both the principle of territoriality and the principle of parity, and since a Swiss parent company would lack the legal means to enforce such a provision, and given that Switzerland already has the means under current sanctions law to pursue sanctions evasion via subsidiaries and is actively doing so, there is no reason to adopt the corresponding EU regulation. The Federal Council's decision is to be welcomed in this respect.

Do you have questions about dealing with Swiss sanctions? Our experts from the Trade Controls and Sanctions team will be happy to support and advise you.

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