How Russian sanctions are affecting the Swiss luxury sector


Russian clientele became rarer in Geneva’s beautiful neighborhoods. Keystone / Gilles Lansard

After Western sanctions against Russia in response to the war in Ukraine, the cat and mouse game began in Switzerland between regulatory authorities and oligarchs. With consequences for the luxury sector.

This content was published on June 13, 2022 – 09:11

“You just can’t reach them by phone these days,” an investigator working in asset recovery told swissinfo.ch. Swiss financial advisers with sanctioned Russian clients “work day and night”.

Since Russia’s invasion of Ukraine on February 24, Switzerland has aligned itself with European Union (EU) sanctions. In particular, it froze the assets of the Russian state and oligarchs close to President Vladimir Putin.external link🇧🇷 It also banned financial transactions related to the energy sector and commodity trade with Russia.

Swiss investigators looking for assets likely to be frozen have a lot of work ahead of them. As numerous media investigations of offshore fortunes have demonstrated over the years, wealthy individuals, not just Russian oligarchs, have long used complex legal structures to transfer assets to companies whose ownership is often described as Russian dolls: one legal entity being owned by another. and so on.

“SECO keeps receiving new communications about Russian assets”, explains Florian Maienfisch, spokesman for the State Secretariat for the Economy (SECO), the body that tracks the money of the oligarchs. “As this process is ongoing, the announcements already received represent only an incomplete and changing intermediate state.”

SECO explains that, in addition to banks, local and cantonal authorities, as well as insurance companies, individuals, civil society organizations or anyone who suspects the possession of property and assets by persons sanctioned in Switzerland can alert you. Lawyers, other than those defending a client in court, are “obliged” to report any assets that may be sanctioned.

Getting Russian assets in Switzerland is not an easy task, as the case of the Rotenberg brothers illustrates. According to a report by the Swiss weekly Sunday morningexternal link, Arkady Rotenberg and his brother Boris, whom the British prime minister called “friends” of the Russian president, used structures set up by a Geneva bank to hide the ultimate holder of the funds. The brothers were forced to sell their private jets after leases were terminated by Credit Suisse, as revealed by Financial Timesexternal link🇧🇷

fortunes out of sight

Estimates of Russian funds held in Switzerland (trust and personal deposits) vary widely: from around $25 billion in 2021external link according to the National Bank up to 200 billion francsexternal link according to the Swiss Association of Bankers. The Federal Council announced last month that it had frozen 6.3 billion francs in Russian assets. According to official data, approximately 16,500 Russians currently reside in Switzerland. That number does not include people with dual Swiss nationality and may actually be nearly double, according to the Russian Embassy in Bern.

Some holdings are easier to track than others. More than 1000 Russiansexternal link are currently on the federal sanctions list, including a handful of residents of Switzerlandexternal link, which would have benefited from tax packages. One such oligarch is Petr Aven, who is said to be a close confidant of Vladimir Putin. His luxury mountain home in the Bernese Oberland was confiscated in March.

Over the years, Geneva has become home to a number of politically exposed persons. These acquired properties worth several million francs, often raising questions about the source of these funds. In addition to Petr Aven’s house, other properties linked to sanctioned Russians in Bern, Geneva and other cantons were seized by the authorities. Local land registries review the sanctions list.

can do better

Other assets, such as those in the artistic domain, can be difficult to track. Although KYC requirements have been introduced in different industries, their implementation has been variable.

According to anti-corruption expert Mark Pieth, Switzerland’s record in confiscating Russian assets is mixed. “The Confederation failed to comply with EU sanctions following the annexation of Crimea. So it was considered by many Russians as a safe haven,” he told swissinfo.ch.

According to him, one of Switzerland’s problems is that financial advisors are not subject to anti-money laundering law. And add that the Financial Action Task Force (FATF), an intergovernmental organization that evaluates the performance of countries in the fight against money laundering, should “definitely discuss this matter” during its next evaluation of the Swiss.

The 100,000 euro (103,000 franc) limit imposed by the EU and adopted by Bern for money transfers from Russian citizens still allows commercial transactions up to that amount, retailers say.

Art is certainly one of the areas in which the oligarchs knew how to take advantage of the loopholes. Global experts fear the industry will continue to benefit from a lack of regulation, including through the use of non-fungible tokens (NFTs). US and British officials have shared these concerns since the start of the conflict.

Recently, Geneva’s free ports, where precious goods can be kept duty-free, underwent inspections. However, a problem arises: although free ports are subject to Swiss law, which means they have an obligation to hold inventories, they do not require the names of owners.external linkoften hidden behind a network of lawyers and companies.

Ultimately, it is up to the authorities to decide which assets should be frozen. “When we suspect that there is an asset that should have been frozen and it wasn’t, we investigate”, explains Michael Wuethrich, also from SECO.

toxic business

Targeted Russian oligarchs are seeking advice on how to manage their many assets, says a Geneva-based fiduciary expert. But financial advisers are increasingly wary, he says, of maintaining relationships with a Russian clientele deemed “toxic”.

“These people are toxic not only to banks, but also to people like us,” he notes. And to share an example: One client, who is on the sanctions list and has known residence in the suburbs of Geneva, approached several consultants about specific issues, “making it impossible for them to have an overview of their financial situation.

Swiss banks can no longer accept deposits of more than 100,000 euros from Russian citizens who do not reside in Switzerland, in line with EU sanctions. swissinfo.ch contacted several Russians to try to understand their situation, but none responded to our questions.

grounded planes

In the real estate market, wealthy Russian clients are becoming more and more rare. According to an independent luxury real estate agent in Geneva, a Russian client has decided to hold off on buying a “great property” for the time being. Because, in general, buyers are aware that “newspapers report important sales and don’t want people to talk about them”. The agent did not reveal the name of the buyer.

In early April, Russian speakers walked out of the Watches and Wonders watch fair in Geneva, the first in-person show in three years following the Covid-19 pandemic. Event organizers made little mention of the impact of the war on the sector, which also withstood the coronavirus crisis without major difficulties.

As in art, “panic buyingexternal link» Luxury items such as watches or jewelry have been reported. According to the employees of a watch shop in Geneva, empty that afternoon, the clientele is “obviously” at a low point due to the sanctions. Brands contacted for this article, meanwhile, declined to comment.

For his part, Robert Grauwiller, president of the Swiss Association of specialized watchmaking and jewelery houses, says that, after the imposition of specific sanctions on his trade, “no one intends to break the rules”. The organization does not collect customer data, but stores specializing in high-end sales have “a very closed network of customers and customers”.

In other areas of luxury, the absence of wealthy Russians is also felt. “It was complicated,” said Gabriela Pfulg of Jet Aviation, an aviation services provider, during a recent visit to a private jet terminal in Geneva. He was responding to a question about the consequences for the company of banning air traffic with Russia.

Geneva, a regular destination for private jets from Russia, has seen all such flights cease in recent weeks. As the Rotenberg case shows, at least one Swiss financial institution until recently repaid loans for private jets owned by oligarchs.

According to WingX, a business aviation information company, Geneva airport accounted for 5.17% of business jet traffic to Russia and Ukraine last year, traffic that has virtually disappeared since the start of the war.

“Operators are suffering from the suspension of flights. That’s a problem, points out Richard Koe, managing director of WingX in Switzerland. In addition to planes grounded due to European sanctions and those that continue to fly within Russia, around 20% of executive jets with Russian registration travel between countries like Turkey, the United Arab Emirates and Kazakhstan. “We monitor these movements,” he says. Two planes, including an Aeroflot aircraft, are stranded in Genevaexternal link🇧🇷

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