On 13 June 2024, the Swiss State Secretariat for Economic Affairs (SECO) published a document aimed at assisting the interpretation of sanctions. The first part of the document contains crucial information for interpreting provisions regarding asset freezing. Meanwhile, the second part provides important information on the interpretation of several articles of the Ordinance on Measures relating to the Situation in Ukraine.

Below we have summarized the key points outlined in the document:

General Remarks on the Interpretation of Measures Regarding Freezing of Assets and Economic Resources under Swiss Sanctions

• Normal Administrative Actions Excluded from Asset Freezing: Financial institutions can perform normal administrative actions without authorization despite asset freezing. These include administrative fees (e.g., account management fees) and interest accrual, but not portfolio management involving new investments or transactions using frozen assets.
• Crediting Income from Corporate Actions to Blocked Accounts: Income from corporate actions (OST) on blocked accounts can be credited without SECO authorization if they stem from securities added to the investment portfolio before sanctions. This applies to mandatory OST (e.g., dividends, bond interest) and non-active choices where cash dividends are deposited and no new investments are made.
• Acceptance of Securities Income from Sanctioned Entities: Financial transactions distributing income from securities issued by sanctioned entities are subject to asset freezing. Swiss financial institutions must block and report such transactions to SECO for potential release and accounting in any Swiss account, according to applicable regulations.
• Acceptance of Payments from Non-Sanctioned Clients of Sanctioned Banks: Payments from non-sanctioned clients of sanctioned banks are frozen assets. Swiss financial institutions can simplify procedures to accept and account for these payments without prior SECO approval, reporting quarterly to SECO.
• Reporting Blockage of Payments to Sanctioned Individuals or Entities: Payments to individuals or entities targeted by asset freezing must be blocked and reported to SECO, but the funds can potentially be re-credited to the non-sanctioned sender's account.
• Updating Declarations of Frozen Assets: Annual updates on frozen assets are required by February 15th for all sanctions regimes, using SECO's specified reporting format via secure platforms.
• Autonomous Unfreezing of Assets: Assets and economic resources frozen preventively and reported to SECO cannot be unfrozen autonomously. A consultation with SECO is necessary, providing reasons for potential release.
• Interpretation of "Ownership" of an Enterprise or Entity: Ownership is determined if a person, entity, or business directly or indirectly holds over 50% of ownership shares, aggregated in cases involving multiple sanctioned parties.
• Interpretation of "Control" over an Enterprise or Entity: Control is evaluated based on various criteria, including the ability to appoint or dismiss majority board members, control majority voting rights, or exert dominant influence through agreements or financial control.
• Operational Measures to Remove Effective Control Over Sanctioned Swiss Entities: Swiss entities can implement measures like "ring fencing" to prevent sanctioned individuals or entities from exerting control over their assets, subject to SECO approval and EU guidance criteria.

Interpretation of specific provisions of the ordinance establishing measures related to the situation in Ukraine

Oil and Petroleum Products (Art. 1 and 2)

• Operators handling oil and petroleum products must comply with price ceiling regulations specified by the European Union Commission.
• Compliance ensures adherence to allowable price limits set by regulatory directives.

Steel and Economically Significant Goods (Art. 3 and 4)

• Goods listed in Annexes 17 and 20 are prohibited for purchase if originating or exported from Russia.
• Exceptions apply to goods listed in Annex 20 intended for third countries.
• Goods listed in Annex 20 can transit through Switzerland without violating sanctions, provided they are not originally from Russia.

Proof of Origin for Steel Products (Art. 5)

• Stringent requirements mandate verification of the origin of steel inputs not sourced from Russia.
• Documentation must comprehensively detail each stage of steel product transformation to ensure compliance.

Territories Designated by Annex 6 (Art. 6)

• Donetsk, Kherson, Luhansk, and Zaporizhzhia regions under non-Ukrainian control face import restrictions.
• Certificates of origin from Ukrainian authorities are mandatory for imports originating from these regions.

Diamonds and Diamond Products (Art. 7)

• Strict limitations apply to importing diamonds and diamond products from Russia.
• Detailed timelines and procedures must demonstrate the non-Russian origin of these products.

Financial Transactions and Services (Art. 8)

• Financial services associated with prohibited goods within specified territories are restricted.
• Exceptions allow financial transactions supporting trade activities in Ukrainian regions under government control.

Contractual Obligation to Prevent Re-exports (art. 14f)

• Definition of "Adequate Remedies" (art. 14f, para. 2):
  • Contract clauses must include effective remedies against re-exportation to Russia.
  • Remedies should deter non-compliance, such as contract termination or monetary penalties.
• Specific Formulations in Contracts:
  • Operators can choose the wording but must meet art. 14f requirements.
  • It's recommended to specify the clause as essential in the contract.
• Model Clause (English and French):
  • Prohibits direct or indirect sale, export, or re-export to Russia.
  • Importer/Buyer ensures downstream parties comply.
  • Establishes monitoring mechanisms.
  • Violation leads to contract termination or penalty payment.

Freezing of Assets and Economic Resources and Mandatory Reporting (art. 15 and 16)

• Assets Held by National Settlement Depository (NSD):
  • NSD-held securities not owned or controlled by NSD are not frozen.
  • Payments to NSD are prohibited under art. 15, para. 2.
• Sale of Russian Securities Held by NSD:
  • Prohibited if involving payments to NSD under art. 15, para. 2.
• Conditions for SECO Derogations (art. 15, para. 5ter):
  • Allows release of frozen assets to entities transferred from Russia.
  • Applies to entities listed in EU Regulation (EU) no 269/2014, Annex I.
• SECO's Authority under art. 15, para. 8quater:
  • Allows exceptions for NSD asset release if conditions met.
  • Swiss banks can disclose investor identities for Russian dividends.
• Handling Payments from Russian Omnibus or Individual Accounts:
  • Payments from non-sanctioned Russian banks accepted.
  • Payments directly from sanctioned entities blocked under art. 15.
• Mandatory Reporting under art. 16, para. 1bis:
  • Requires reporting to SECO on transactions involving listed persons.
  • Covers movements, transfers, or access to assets within two weeks.
• Format and Submission of Reports:
  • Reports submitted electronically via SECO's specified channels.
  • Deadline extended for entries until December 1, 2023.

Ban on Accepting Deposits and Crypto-assets and Mandatory Reporting (art. 20 and 21)

• Applicability to Banks under Banking Law:
  • All credit institutions subject to EU sanctions comply.
  • Applies to deposit acceptance and credit granting professionally.
• Exemptions for Certain Persons:
  • Swiss nationals, EEA citizens, and holders of Swiss/EEA residence permits exempt.
  • Dual nationals with Russia and non-EEA countries not exempt.
• Declaration Obligations under art. 21:
  • Report existing deposits exceeding CHF 100,000 per person.
• Submission Format and Requirements:
  • Electronic submission required via SECO's secure platform.
  • Specific Excel form available on SECO's website.
• Exclusions from Deposit Limits:
  • Operations related to deposited securities exempt from CHF 100,000 limit.
  • Interest on pre-existing deposits not counted toward new limits.
• Handling of State Payments and Pension Contributions:
  • Payments for state services or pensions exempt from deposit limits.
  • Payments to repay loans exempt from deposit limits.

Prohibition on Sale of Securities (Art. 23)

• Securities Issuance: Securities issued before April 12, 2022, are subject to prohibitions under Article 23 if they are indistinguishable from new issuances after this date, unless the new securities have a distinct ISIN code.
• Derivatives: Total return swaps and similar derivatives offering synthetic exposure to sanctioned securities are prohibited.
• Collective Investments: Deposited units of collective investments are exempt from prohibitions under Article 23, unless new securities are issued at the underlying level.
• Nationality Exceptions: Individuals of Monegasque, Andorran, or British nationality, or those holding residence permits in specific territories, are exempt from Article 23 prohibitions.

Prohibition related to transactions with the Central Bank of the Russian Federation (Art. 24)

• Declarations related to reserves and assets under Article 24, paragraph 3, must be submitted using a form from SECO (Swiss State Secretariat for Economic Affairs).

Prohibitions related to companies in the energy and mining sectors of the Russian Federation (Art. 28b)

• ADRs and Shares: Exchange of American Depository Receipts (ADRs) for shares of Russian companies is permitted for existing holdings.
• Acquisition of Shares: Prohibits acquisition or increase of stakes in Russian energy or mining sector companies.
• Acquisition of Bonds: Prohibitions do not apply to acquiring existing bonds of affected Russian companies.
• Investment Funds: Investing in funds containing securities of Russian energy or mining sector companies is allowed if the participation is less than 10%.

Prohibitions concerning trusts (Art. 28d)

• Legal Institutions Covered: Foundations and similar institutions under Swiss or foreign laws, excluding certain charitable or religious foundations, are subject to Article 28d.
• Existing Trust Structures: Applies to existing as well as new trust structures, if they meet the definition of trusts or similar legal institutions.
• Prohibited Services: Management services provided to trusts or similar institutions are prohibited, but usual banking services like providing bank accounts or executing payments are not.