Sanctions 2024 Comparisons

Over two years after the launch of the Ukraine invasion, companies are still grappling with the novel sanctions regulatory landscape. Throughout the war, sanctions measures have increased in complexity. The type and scope of sanctions imposed against Russia go beyond measures previously taken against other countries.

The multitude of sanctions regimes, albeit their principles being somewhat co-ordinated by the G7, also gives rise to a number of challenges. Businesses often struggle to understand which sanctions regimes are applicable and often regimes are simultaneously applicable. Assessing which sanctions regime applies is the first step companies need to take in order to ensure compliance. Some sanctions regimes, such as US sanctions, are notoriously extraterritorial and can apply even in the absence of US jurisdictional nexus. Meanwhile, UK (post Brexit) and EU (and hence also Swiss) sanctions have even become more comprehensive in certain areas (eg, with the service and software ban).

Under the sanctions imposed against Russia and Belarus, there is no per se prohibition on conducting business in either Russia or Belarus – ie, there is no trade embargo. Nevertheless, doing so raises significant sanctions risks that must be carefully assessed in advance of any such business transactions, and in the wider context of the purpose underlying these sanctions. Many measures have been introduced in an attempt to cut Russia off from the global financial markets, for example by designating a vast number of Russian financial institutions under sanction. The sanctions imposed on Belarus were designed with similar purposes in mind and have meanwhile also been further strengthened.

Companies and financial institutions are having to constantly adapt to new sanctions measures. The last 12 months alone have seen the implementation of three new waves of EU sanctions measures – the last package was just implemented on 24 June 2024.

The challenge for many companies is to understand new sanctions measures and implement changes to their businesses in an informed manner. The lack of sufficiently comprehensive guidance at an EU and Swiss level adds another level of complexity.

Many companies are also wrestling with whether to continue having business ties with Russia or whether to pull out entirely. This decision-making process is also informed by risks from a Russian counter-sanctions perspective, such as the potential risk of nationalisation of a Western business by the Russian government, which has already happened.

The increased focus by regulators on circumvention means that it is all the more essential for companies to put in place comprehensive sanctions compliance measures. The increased focus on circumvention is further evidenced in the latest 14th sanctions package.

Neither SECO nor the European Commission have addressed any specific due diligence requirements which companies are expected to comply with. Broadly speaking, the level of due diligence should be informed by a risk-based approach. Companies should have effective screening systems commensurate to the nature, size and risk of their business. Counterparty screening, including involved payment providers, against the EU, Swiss, US and UK sanctions lists has become standard practice for companies to enable them to reduce their sanctions risks.

More broadly, companies should conduct an assessment of their own internal compliance function to ensure that it has been allotted appropriate resources to implement the requisite sanctions due diligence. In addition, a company should consider whether it is appropriate, in light of internal resources and the sanctions compliance risks posed by counterparties with a Russia or Belarus nexus, to limit the volume of transactional activity with these countries and to not further expand such business ties.

Sanctions have an impact on almost all relevant sectors of the Swiss economy. The Swiss (exporting) manufacturing and financial sectors, but also the trading, energy and even healthcare, luxury and consumer goods sectors have been particularly affected.

SECO’s pragmatic implementation of EU sanctions measures in the Swiss Ordinance on measures in connection with the situation in Ukraine (“Ukraine Ordinance”) has meant that companies that are purely subject to Swiss jurisdiction are granted a greater level of flexibility than companies that are subject to EU law. SECO has deviated in its implementation of EU financial sanctions by adopting broader exemptions to the restrictions on deposits, trusts and the sale of transferable securities. SECO has also limited the cases which apply under the deposit restrictions. Although many banks are also subject to other sanctions regimes and therefore tend to apply the stricter EU measures, SECO is trying to give financial institutions greater leeway.

However, there are instances where SECO has adopted a very restrictive interpretation of exceptions and licensing exemptions, even for companies operating in the healthcare industry, which has traditionally been impacted in a minimal way by sanctions. SECO tends to interpret restrictively the scope of the exemption for goods and services intended for “medical or pharmaceutical purposes” under Article 6 paragraph 1 let. b or the licensing ground of “medical or pharmaceutical purposes with an end use of a non-military character” under Article 11a paragraph 4 let. a of the Ukraine Ordinance. In these cases, SECO is concerned with the risk of diversion and requires operators to have oversight over the supply chain. SECO typically requires evidence of a robust supply chain traceability system and identification of the end-users.

The EmbA forms the legal basis for the adoption and implementation of sanctions in Switzerland. It is a so-called “framework law”, which regulates matters of general application (purpose, responsibilities, obligation to provide information, monitoring, data protection, administrative and legal assistance, legal protection and criminal provisions).

As mentioned in 1.4.1 Types of Sanctions, the Federal Council alone has the authority to enact and amend coercive measures by means of sanctions ordinances (Article 2 paragraph 1 EmbA).

SECO is the competent authority to implement and enforce Swiss sanctions (see 2.2.1 Enforcement Responsibilities).

There are numerous reporting obligations under Swiss sanctions laws. In principle, under the current SECO guidance (“SECO FAQ”, version of 13 June 2024, points 2.6.6 and 2.12.4), such reports must be submitted to SECO by the individuals or companies concerned (or their legal counsel based on a power of attorney), usually via electronic means such as file transfer or by email.

In particular, in the scope of financial sanctions, various reporting obligations must be observed. One of the most important reporting duties can be found in Article 16 of the Ukraine Ordinance, whereby companies and individuals who hold or manage assets owned or controlled by designated individuals or entities, or who have knowledge of the existence of such assets, are obliged to notify SECO immediately of all transactions which occurred in the two weeks prior to the listing of these persons, companies or organisations. Further details can be found in the section on “Trends in the financial sector” of the Switzerland Trends and Development chapter in this guide.

Other reporting obligations (or notification obligations, as they are usually referred to) can for instance be found in Article 28e paragraph 6 of the Ukraine Ordinance – ie, the notification of ongoing services or software still being provided to Russian group companies held by Western parent companies.

The last three years have been dominated by the implementation of the EU sanctions packages against Russia into the Swiss sanctions framework. However, in contrast to other jurisdictions, case law is still scarce. SECO’s decisions (usually in the form of penalty orders) are not published and there is still little case law from the Federal Administrative Court, which hears on appeals against SECO’s decisions.

As far as the enforcement environment in Switzerland is concerned, reference is made to the section on “Swiss Enforcement Landscape” in the Switzerland Trends and Development chapter in this guide.

The following two judgments of the Federal Supreme Court are noteworthy.

Judgment of 7 November 2023 of the Federal Administrative Court (B-547/2023)

The appeal concerned a company domiciled in Cyprus wholly owned by a company domiciled in Russia which is controlled by a EU and Swiss designated person. The latter is the founder and financial supporter of a public school in Moscow. The financial resources to support the school were received via a charity fund. Since the designation, the payments to the charity fund had been stopped as a result of the freeze of the Swiss bank accounts, affecting two donation agreements of 2021 to the charity fund which could no longer be executed.

The Judgment of the Federal Administrative Court offers an interpretation of the following questions:

Coherence between the Ukraine Ordinance and the EU Russia Regulations

The Federal Administrative Court emphasised that although the two regulations may differ in their wording, as they are subject to different legal requirements, the Ukraine Ordinance is based on a clear declaration by the Swiss government to implement the EU Russia sanctions. In light of this, it is appropriate to refer to the EU legal basis and jurisprudence when interpreting uncertainties in Switzerland, although limits of such an interpretation must be set where legislatively intended exceptions or amendments come into play (consideration 6.2.3).

Definition of “ownership” and “control” according to Article 15 paragraph 1 of the Ukraine Ordinance

The Federal Administrative Court noted that Swiss case law is based on the principles of control and domination under company law and of beneficial ownership (considerations 4.2 et seq. with further references).

The Court took the view that the designated person continued having a de facto connection with the school for the following reasons:

• the designated person continued having a seat on the school board and the charity fund board, which is authorised to decide on all areas of the fund’s activities, including on the use of the funds;
• various members of the school board and the director had already held their respective offices at a time when the designated person was still acting in his capacity as founder of the school;
• the school was founded by the designated person and largely financed by him;
• the current founder is also a former member of the board and the current director of the school had also been appointed by the designated person;
• the new appointments took place on the date of filing the application to SECO; and
• there was no guarantee of the independence of the audit conducted on the school, given that the auditing services were done free of charge as the provision of services without compensation suggest that the auditors may have close relationships with the designated person and do not act independently (consideration 7).

Scope of Article 15 paragraph 2 of the Ukraine Ordinance regarding “the making available of economic resources”

SECO had argued that the financing of the public school promotes the philanthropic reputation of the designated person and therefore benefits him indirectly.

The Federal Administrative Court held that, even if one’s reputation is considered an intangible asset, from a teleological and systematic perspective, the subsumption of reputation under the sanctions law concept of “economic resources” would overstretch the scope of the prohibition. It cannot be assumed that the designated person can acquire funds, goods or services solely through his reputation as a patron of the public school, which he could use to financially support the war (consideration 6.5).

Licensing ground of Article 15 paragraph 5 let. a of the Ukraine Ordinance for “avoidance of hardship cases”

The Federal Administrative Court interpreted the undefined legal term “case of hardship” by reference to the equivalent Article 4 paragraph 1 let. a of the EU Regulation due to the coherent implementation of Russia sanctions. As such, hardship cases shall be understood as those necessary to satisfy basic existential needs. The court noted that the financing of the public school, including the awarding of scholarships, serves neither to secure goods that are indispensable for human existence nor to pay public taxes, legal representation costs or the costs of compulsory insurance (consideration 8).

Judgment of 6 August 2021 of the Swiss Federal Supreme Court (4A_659/2020)

This decision deals with the impact and implementation of foreign sanctions in Switzerland. The appellant was a Panamanian company ultimately owned by an individual that was designated in 2018 by the US. In 2013, the company opened certain accounts with a Swiss bank. As part of the banking relationship, the parties signed a loan and a pledge agreement in 2013. In 2015, the bank granted the company a loan in the form of a fixed advance in the amount of USD160 million which was collateralised with deposited securities.

After the publication of the sanctions listing and shortly before the fixed advance fell due, the company instructed the bank to sell some of the USD securities from the custody account and use the proceeds to repay the loan. The bank refused to carry out the instructions alleging that the beneficial owner of the company was an SDN and any transactions in USD in connection with the company were therefore prohibited. The bank demanded to remedy the existing shortfall or otherwise it would sell the shares that were not denominated in USD.

In the first instance, the Commercial Court of the Canton of Zurich (in Judgment HG180215-O of 16 November 2020) held that OFAC sanctions were not directly applicable in Switzerland, but that the bank is obliged under Swiss banking supervisory law to refuse to carry out transactions that violate US sanctions laws. Furthermore, the company had no claim to fulfilment under contract law either, because the execution of the disputed instructions would make the bank’s position unreasonably difficult, as a result of the penalties that it could face.

The Federal Supreme Court stated that the bank was able to rely on its General Terms and Conditions, thus on a contractual right of refusal, which authorised the bank to refuse performance that was not in accordance with the regulations or practices of stock exchanges or other trading venues, which was to be interpreted broadly, thus also including OFAC regulations.

The Federal Supreme Court stated, without going deeper into the discussion, that the bank would have had the right under statutory law (ie, the Swiss Code of Obligations (CO)) to refuse performance if it is unreasonable to expect the instruction to be carried out due to the threat of penalties and possible exclusion from the US financial market.

Thus, the applicability of sanctions is regarded by the Swiss Federal Supreme Court as rendering performance unreasonably onerous for a specific obligor due to the penalties threatening the non-compliance with such (foreign) regulations, such unreasonableness being subject to Article 119 CO on impossibility of performance.

Lastly, the authors refer to a recent decision by the Zurich High Court (which is, at this point in time, not yet publicly available) regarding the compliance of employees of Gazprombank Switzerland with their due diligence obligations in financial transactions. According to the media coverage on this decision, the CEO and other employees of the bank were convicted (the decision is not yet final as an appeal is still available). In particular, the Court found that the compliance measures taken by the employees in relation to the accounts held by a certain Russian individual between 2014 and 2016 were insufficient in light of several indications of straw funding.

It is to be expected that the Swiss sanctions system, including the guidance for the implementation of sanctions, the involvement of the courts in sanctions matters and the enforcement of sanctions by SECO, will become more robust and also more diversified in the future. In particular, it is expected that the enforcement landscape will expand significantly.

In light of 1.4.3 Domestic and/or Supranational Measures, Switzerland is expected to continue the current trend of implementing the sanctions regulations of the European Commission. There is no indication that this current trend should change, although the Swiss legislature is expected to continue implementing the European sanctions framework with certain “Swiss finishes” (as has been the case in the past: an example of such Swiss finish can notably be found in the notification obligation concerning the provision of services or software under the services and software ban, Article 28e paragraph 6 of the Ukraine Ordinance).

Sanctions lists are updated based on the corresponding lists of the UN or, in the case of alignment with EU sanctions, the EU (see Article 1 paragraph 1 EmbA; see 1.4.3 Domestic and/or Supranational Measures). For example, in the case of EU sanctions against Venezuela, Switzerland has aligned with all EU sanctions measures and has so far also aligned with the EU delistings.

Thus, the responsible Swiss agencies and courts will generally reject delisting requests as long as the individual or entity concerned is designated by the corresponding international or foreign authority with which Switzerland has aligned. Designations should actually be challenged before the foreign or international authority that initially decided on the designation. When it concerns UN sanctions, delisting requests should be submitted to the Office of the Ombudsperson to the ISIL (Da’esh) and Al-Qaida Sanctions Committee and, for other sanctions regimes, the Focal Point for Delisting.

The process for a designated person to domestically seek judicial review in Switzerland to overturn the listing should follow the Federal Act on Administrative Procedure (Administrative Procedure Act (APA)), see Article 1 paragraph 2 let. a APA). In Nada v Switzerland, where the Grand Chamber of the European Court of Human Rights considered that the applicant had exhausted the domestic remedies available in Switzerland relating to the sanctions regime in question to claim his delisting, the applicant had pursued the following procedure:

• submission of a request for the deletion of the name of the applicant from the annex to the respective Swiss sanctions ordinance to SECO;
• following the dismissal of such request, lodging of an administrative appeal with the Federal Department of Economic Affairs;
• following the dismissal of such appeal, lodging of an appeal to the Federal Council;
• the Federal Council ruled on the appeal and referred the applicant’s appeal to the Swiss Federal Supreme Court; and
• the Swiss Federal Supreme Court decided on the admission and merits of the appeal (see paragraphs 30-52 of judgment of 12 September 2012, ECHR, Grand Chamber, case of Nada v Switzerland).

Margin of Appreciation of UN Member States for Delisting

The responsible Swiss agencies and courts generally reject the delisting if the individual or entity concerned is mentioned on sanctions lists issued by the UN (or, in case of alignment with EU sanctions, the EU). See, in this regard, the reasoning of the Swiss Federal Supreme Court in Nada v Switzerland in 4.1 Process. The Swiss Federal Supreme Court, when examining the question of the extent to which Switzerland is bound by the relevant UNSC resolutions and whether it has any margin of appreciation in implementing them, held that sanctions, including the names of those affected by them which are also notified to UN member states, afford UN member states no margin of appreciation in their implementation. For obtaining deletion from a sanctions list, the relevant sanctions committee provides a specific procedure, so that UN member states are debarred from deciding on their own on the delisting; thus Switzerland would be in breach of its obligations under the UN Charter were it to delete the names of a UN designated person from the annex of the relevant ordinance (see paragraph 50 of judgment of 12 September 2012, ECHR, Grand Chamber, case of Nada v Switzerland).

Effects of Delisting

In cases where a delisting occurs, the corresponding restrictive measure is no longer applicable.

However, in practice, most companies typically take a global approach when considering whether individuals or entities are designated. Thus, a delisting should be obtained in all jurisdictions in which the individual or entity has been designated.

It is difficult to predict the time it might take to obtain delisting for the reasons set forth in 4.1 Process and 4.2 Remedies, but it can take between months to years, also given Swiss listings originate either with the UN or the EU.

As mentioned in 1.4.1 Types of Sanctions, sanctions can take a number of different forms, including restrictions on the export and import of certain services to sanctioned countries.

The most striking example is where Switzerland aligned with the EU in implementing a stand-alone ban on the provision of certain services or software to Russia. Article 28e of the Ukraine Ordinance prohibits, inter alia, the direct or indirect provision of services such as business and management consulting, legal advisory and IT consultancy services, or of certain business software to the Government of Russia or legal persons, entities or bodies established in Russia.

Moreover, there are bans on ancillary services of any kind which are related to the trade of restricted goods under the Ukraine Ordinance.

In the case of other sanctions regimes (eg, Iran, Syria and North Korea), the ban on the provision of services is related to the underlying restriction on certain goods. Service providers should conduct regular assessments to ascertain whether the underlying goods that they are providing services for are subject to restrictions under the applicable sanctions laws.

Most sanctions regimes impose restrictions on the trade of certain goods, namely military and dual-use goods.

For example, the restrictive measures against Iran include a ban on the sale, supply, export, etc, of goods for nuclear items or drones to Iranian persons or organisations or for use in Iran. Furthermore, there are bans on the export of arms, repressive equipment and equipment for surveillance purposes which traditionally form part of every sanctions regime.

Under the Russia sanctions regime, the scope of these bans is considerably broader, extending beyond goods that may be used for military purposes to encompass those that could potentially enhance Russia’s economy. Such measures include export bans on luxury goods, goods destined to strengthen Russia’s industry as well as an import ban on goods that generate significant revenue for Russia. These export or import restrictions include a wide array of goods such as also coal, iron and steel as well as other (otherwise common) goods.

The case law of the Swiss Federal Supreme Court on the question of impossibility of performance due to compliance with sanctions is scarce. Worth mentioning, however, are the following two decisions.

In the judgment of 6 August 2021 of the Swiss Federal Supreme Court (4A_659/2020) referred to in 3.1 Significant Court Decisions or Legal Developments, it was held that the US designation of the beneficial owner of the holder of certain Swiss bank accounts exempted the relevant Swiss bank from having to implement the instructions issued by the account holder that would entail transactions in breach of US sanctions, (i) pursuant to a right granted in the contract with the account holder, which authorised the Swiss bank to refuse performance that did not comply with regulations or practices of stock exchanges or other trading venues, which was to be interpreted as including OFAC regulations, and (ii) pursuant to the CO, which authorised the Swiss bank to refuse performance due to unreasonableness, given the threat of penalties and possible exclusion from the US financial market. Thus, the case was subject to Article 119 CO on the impossibility of performance.

In the judgment of 23 May 2022 (4A_583/2021), the Swiss Federal Supreme Court dealt with an appeal against the judgment of the Commercial Court of the Canton Zurich of 7 October 2021 (HG180161-O). The appellant, domiciled in the UAE and acting as paying/financial agent for the respondent, domiciled in Iran, stopped carrying out any activities under the relevant service contract from August/September 2013, after the entry into force of the UN sanctions against Iran in the UAE. In July 2013, the appellant issued an invoice for its claims for fees and expenses and retained around AED60 million from the monies received to cover its alleged claims. A fee dispute subsequently arose between the parties. The Commercial Court of the Canton of Zurich noted that the discontinuation of the appellant’s activity after August 2013 as a result of impossibility due to the implementation of the sanctions in the UAE justified a discretionary reduction of the retainer fees by three quarters from September 2013 until the end of the contract.

The Swiss Federal Supreme Court held that the first instance court did not breach federal law, including Article 119 CO, by its discretionary reduction of the retainer fee by 75%. The Swiss Federal Court noted that it had to be assumed that the retainer fee was agreed between the parties with regard to all services to be provided, which is why a corresponding reduction had to be made if a service was cancelled due to impossibility. The reduction of 75% could be justified by the fact that the most important part of the service provision under the contract became impossible (see consideration 7).

In this decision, however, the Swiss Federal Supreme Court was largely bound by the factual findings of the lower court for procedural reasons. Thus, the Swiss Federal Supreme Court did not have to decide whether the sanctions imposed on Iran actually constituted a case of objective or subjective impossibility within the meaning of Article 119 CO. The lower court – ie the Commercial Court of the Canton of Zurich, also did not have to decide whether the fulfilment of the contract was actually impossible. Rather, for procedural reasons (because the appellant did not sufficiently dispute this), the first instance court was able to rely on the allegation of permanent impossibility of fulfilment of the contract put forward by the respondent and therefore concluded that the requirements of Article 119 CO were met (see HG180161-O, consideration 4.2.3.4).

The authors expect that the continuing extension of the Swiss sanctions framework combined with resulting cases of (alleged) impossibility to fulfil contractual obligations will lead to a series of court decisions in the near future. It will be of particular importance to understand how the courts involved will approach the element of burden of proof which must be borne by the party arguing in favour of the impossibility to perform under the contractual agreement.

The authors are currently not aware of any Swiss court rulings explicitly dealing with the enforcement of judgments on sanctions-based issues. However, it is expected that this topic will be raised soon in light of international arbitration and interim (counter-)measures seeking international enforcement.

In accordance with Article 2 paragraph 1 EmbA, the Federal Council is responsible for enacting restrictive measures, including designations. With regard to UN sanctions, the Federal Council automatically adopts the designations originating from the corresponding UN Sanctions Committee established by the relevant UN Security Council Resolution, whereas it will have a margin of appreciation in the adoption of designation decisions originating, for example, in the EU, where no automatism applies. However, under the Russia sanctions, all EU designations have been implemented by Switzerland, usually within days.

Indirect Designations

In addition to persons expressly listed in the annexes to the respective sanctions ordinances, non-designated third parties may qualify as designated parties if the designated person is determined to own or have control over them.

Article 15 of the Ukraine Ordinance is a good example of the meaning and impact of “indirect designation”. This provision imposes a freeze of the funds and economic resources owned or directly or indirectly controlled by individuals and entities listed in Annex 8 to the Ukraine Ordinance, individuals and entities acting on behalf of or on the instructions of the latter, as well as entities owned or controlled by these. Thus, this provision subjects to asset freeze not only those designated in Annex 8, but also (i) those acting on behalf of or on the instructions of those designated, and (ii) those entities owned or controlled by those designated.

Article 18 of the Ukraine Ordinance provides another example. It restricts the provision of certain services in connection with securities and money market instruments with certain maturities and issued after certain dates. This provision subjects to this prohibition not only those designated in Annex 9, but also (i) those foreign entities more than 50% owned by those designated, and (ii) those acting on behalf of or on the instructions of those designated.

Concept of Ownership

SECO FAQ, point 1.8, defines “ownership” as the fact that the designated person “directly or indirectly holds more than 50% of the ownership shares in a company or an organization”. As provided in the judgment of the Federal Administrative Court of 7 November 2023 (B-547/2023) referred to in 3.1 Significant Court Decisions or Legal Developments, “the Ukraine Ordinance does not define the cases in which an ownership or control relationship relevant under sanctions law is to be assumed. Swiss case law links this to principles of control and domination under company law and of beneficial ownership” (consideration 4.2). Switzerland follows therefore the same definition of “ownership” as the EU (see EU Best Practices, paragraph 62).

SECO also follows an “aggregated” concept of “ownership”, taking into account the ownership quotas of all designated persons involved in each case (see SECO FAQ, point 1.8), again in alignment with the EU.

Concept of Control

In accordance with SECO FAQ, point 1.9, if any of the following criteria is met, it is assumed that the entity in question is controlled by a designated person:

“a) the natural person, company or organization has the power to appoint and/or remove, formally or de facto, the majority of the members of the administrative or management body of the company or organization;

b) he or she formally or de facto holds the majority of the voting rights of the company or organization;

c) he or she has the right to exercise a dominant influence over the company or organization by virtue of a contract concluded with it or by virtue of a provision laid down in the memorandum or articles of association;

d) he or she has the power to exercise the right to exercise a dominant influence within the meaning of point (c) without itself holding that right;

e) he or she has the right to use all or part of the funds and economic resources of the company or organization or to determine how they are used;

f) he or she manages the business of the company or organization on a uniform basis with the preparation of consolidated accounts;

g) he or she is jointly and severally liable for the financial liabilities of the company or organization or acts as guarantor for it;

h) as a lender, he or she formally and/or de facto exercises a controlling influence on the decisions of the management.”

These criteria may be met individually or based on agreements with another shareholder or a third party. The presumption established by meeting any of these criteria can be rebutted on a case-by-case basis (see SECO FAQ, point 1.9; see also below on “ring-fencing”). These criteria coincide with those in the EU Best Practices, paragraphs 63-65.

In addition, SECO takes into account the following non-exhaustive criteria to assess whether funds or economic resources have been formally transferred to third parties, but the designated person still exercises control over them:

“- the close relationship (family, business, personal) between the person directly subject to the asset freeze and the third party;

- the economic and/or professional independence of the third party who is now the nominal owner of the funds or economic resources;

- the value and frequency/regularity of the benefits in question in comparison with benefits to the third party that were made before the sanction was imposed;

- Existence and content of formal agreements between the sanctioned person and the third party;

- Compliance with the arm’s length principle in the transfer of value (eg, terms of sale of company shares)” (see SECO FAQ, point 1.9).

Under the last criterion, transactions must take place under the same conditions as would be agreed between unrelated third parties in an environment of free competition and under comparable circumstances.

Measures of Ring-Fencing

Where the above-mentioned ownership or control is established with regard to entities significant for the economy, operating in sensitive sectors or employing a significant workforce, SECO supports the implementation of ring-fencing measures. Ring-fencing in this sense aims at removing the designated person from the day-to-day operations and any business decisions of the entity that they own or control and the resulting resources and profits. Ring-fencing measures enable the affected entity to continue operating (ie, having access to funds and economic resources as well as receiving services), under the new conditions, free from the ownership or control of a designated person. The ultimate goal of such measures is to refute the presumption of ownership or control of the designated person.

Provisions with licensing grounds to enable the establishment of ring-fencing in the Ukraine Ordinance

In a situation of presumed ownership or control of an entity by a designated person, the relevant restrictive measures would also apply to the non-designated entity. The Ukraine Ordinance provides for licensing grounds in Articles 15 paragraph 10 and 28e paragraph 4 in the event that the establishment, certification or evaluation of ring-fencing measures is hindered by such restrictive measures.

Beneficiaries of the ring-fencing measures

SECO requires that the beneficiaries of ring-fencing measures are companies or organisations established in Switzerland, significant both in terms of their market position and their employment volume, active in the sectors of food production, pharmaceuticals, fertilizers, chemicals, water management and wastewater treatment or nuclear power, for being regarded as “essential” (SECO FAQ, point 1.10). This coincides with the criteria of the EU, which take into account the positioning and significance of the entity on a national market or the European market, both in terms of market positioning and employment volume, as well as its activity in any of those “essential” sectors (see EU Guidance Note – Implementation of Firewalls in cases of EU entities owned or controlled by a designated person or entity, p. 3).

Types of measures

The measures must prevent designated individuals or entities from exercising their rights in relation to their ownership or control and ensure that no funds or economic resources are made available directly or indirectly to the designated person (SECO FAQ, point 1.10).

Such measures should accordingly:

• hinder the involvement of the designated person in the day-to-day and business decisions of the entity in question;
• ensure that no funds or economic resources from the entity are accrued directly or indirectly by the designated person;
• ensure that the designated person cannot assert influence over the entity; and
• remove the designated person from any responsibility in the entity, including any executive activities like those of a director or member of the board of directors or any decision-making role or any other role that entails any responsibility in the entity.

Criteria to assess the ring-fencing measures

SECO follows the criteria for ring-fencing measures provided in the EU “Guidance Note – Implementation of Firewalls in cases of EU entities owned or controlled by a designated person or entity” and particularly its Annex 2 (see SECO FAQ, point 1.10).

Accordingly, the entity that establishes ring-fencing measures has to resort to an external auditor that implements and/or certifies the effectiveness of the changes to the entity’s corporate governance. The audit must be able to confirm that the designated person does not exercise influence or has any responsibility in the entity or benefit from the assets of the entity (eg, via dividends). It is central that this external auditor acts in full independence. The audit process shall be based at least on the following information:

• articles of association, by-laws, shareholder structure and a description of the changes that have taken place to remove the control by the designated person (eg, board minutes attesting to management changes in the entity);
• interviews with the entity’s executives other than the designated person; and
• written undertakings given by the non-designated chief executive, engaging their responsibility on the ring-fencing measures.

Procedure followed by SECO

In case of presumption of ownership or control, the establishment of ring-fencing measures is necessary to rebut this presumption and benefit from an authorisation – eg to release the entity’s frozen assets. The process will generally include the following steps:

• filing of an application before SECO for the implementation of the proposed ring-fencing measures and provision of information on the significance of the entity and the compliance with the other requirements to benefit from such measures, as presented above;
• SECO will examine applications and may authorise such measures after examining the significance of the entity;
• SECO may, if necessary, grant an authorisation under Article 15 paragraph 10 and/or Article 28e paragraph 4 of the Ukraine Ordinance if it is necessary for the implementation of ring-fencing measures;
• implementation of the relevant ring-fencing measures;
• independent external audit as stated above;
• submission to SECO of assurances that the designated person is no longer involved in the entity; and
• SECO will officially confirm the successful implementation of ring-fencing measures by entities on a case-by-case basis. For confirming this successful implementation, SECO will take into account the above-mentioned criteria.