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The Swiss government will investigate commodity traders’ compliance with sanctions on Russian oil and coal, following concerns over lax enforcement and potential loopholes in the current regime. 

Switzerland’s lower house of parliament voted last week to require the Federal Council – the country’s head of state and executive body – to produce a report examining how sanctions on Russia are being applied within the lucrative raw materials trading sector. 

The report must address shortcomings in Switzerland’s efforts to block trade involving Russian commodities, as well as additional measures that could be taken “to strengthen the application of sanctions and their monitoring”. 

“Today, to enforce sanctions in the raw materials sector, the confederation relies mainly on self-regulation by the companies concerned,” says the parliamentary motion, which was initially submitted by lawmakers in June. 

“This self-regulation is open to criticism, including internationally.” 

The motion notes the historically prominent role of Swiss traders in exporting Russian oil and coal, adding that commodities trading accounts for as much as 9% the country’s GDP. 

“These figures show that Switzerland plays a decisive role in the global commodities trade. This entails both a considerable reputational risk and a particular responsibility in terms of control, particularly with regard to compliance with the sanctions against Russia,” it says. 

Swiss traders and banks have been prohibited from facilitating the import or transit of Russian oil and coal since April last year, and the country has adopted the G7 and EU’s crude oil price cap of US$60 per barrel – albeit with less onerous demands on market participants. 

But non-profit organisations, including Public Eye and Global Witness, have expressed concern that those restrictions are not being enforced in practice. 

Public Eye said in March that some traders previously based in commodities hub Geneva had relocated to Dubai in the wake of Russia’s invasion of Ukraine. 

These traders appeared to be “retain[ing] a strong presence in Geneva to conserve their credit lines” despite Switzerland’s sanctions regime, it suggested, citing an anonymous industry source. 

The same month, Global Witness said Dubai-based entities with ties to Switzerland were seemingly involved in sales of Russian Eastern Siberia–Pacific Ocean (ESPO) crude oil at prices “well above” the cap. 

Further criticism of Switzerland’s sanctions regime has centred on potential gaps or loopholes. Public Eye notes that traders planning to rely on the price cap mechanism are under no obligation to keep documentation relating to the purchase of Russian oil, nor notify Swiss authorities of transactions. 

It also says sanctions apply only to Swiss nationals living in the country, and that Swiss companies are able to bypass sanctions by using “supposedly independent” foreign subsidiaries. 

Responding to the parliament’s backing for an investigation, Public Eye says it welcomes the result of the vote and lambasts the Federal Council’s “lax handling of the scandal-ridden commodity industry in the context of Russia’s attack on Ukraine”. 

“Oil traders in Geneva, who were selling an estimated 50-60% of all Russian oil as recently as early 2022, had little to fear,” it says. “Meanwhile, numerous new companies, whose sources of funding and beneficiaries are unknown, have transformed this opaque sector into a virtual black box.” 

Robert Bachmann, a commodities and finance expert at Public Eye, acknowledges that implementing existing sanctions effectively “is certainly not sufficient” to address trade involving Dubai-based entities. 

“But it would help now to understand how important the shift to Dubai actually is,” he tells GTR. 

In a statement responding to the motion, the Federal Council says it is “aware of the challenges, particularly in relation to the raw materials sector” and that enforcing sanctions on Russia “is a priority”. 

Separately, the lower house has also partially adopted a proposal from March last year – resisted by the Federal Council – to introduce new legislation targeting transparency in commodities trading. 

The law would ensure “complete traceability of transactions, cargoes and raw materials”, impose tougher requirements around legality of funds and beneficial ownership information, and give stronger powers to the Swiss Financial Market Supervisory Authority, Finma.