How Russian sanctions permeate the sanctuary of Swiss luxury

A district of luxury boutiques in Geneva Keystone / Gilles Lansard

After Western countries imposed sanctions on Russian assets abroad in response to the war in Ukraine, a game of cat and mouse over this wealth began in Switzerland between regulators and oligarchs. The luxury sector feels the cold.

This content was published on June 5, 2022 – 09:00

“They just can’t be reached by phone these days,” an investigator working on international asset recovery told SWI of Swiss financial advisers working with targeted Russian clients. “They work 24 hours a day.”

Since the Russian invasion of Ukraine on February 24, Switzerland has aligned itself with European economic measures, including the freezing of assetsExternal link owned by the Russian state and oligarchs who had benefited from relations with President Vladimir Putin, and banning financial dealings in companies linked to Russia’s vital energy sector and commodity trade with Russia.

Swiss investigators looking for assets likely to be frozen certainly have their work cut out for them. As multiple media investigations of offshore wealth have demonstrated over the years, wealthy individuals, and not just Russian oligarchs, have long used complex legal structures to transfer assets into corporations whose ownership has often been characterized as Russian dolls: one legal entity owned by another and so on.

“Reports on the assets of sanctioned persons are constantly coming to SECO,” said Florian Maienfisch, spokesman for the State Secretariat for Economic Affairs (SECO), which heads the government’s oligarch taskforce. “As this process is still in full swing, the reports already received represent only an incomplete and changing interim status.”

The office explained that in addition to banks, local and cantonal authorities as well as insurance companies, individuals, civil society groups or anyone who suspects ownership of property and assets by sanctioned persons in Switzerland can alert the working group to these links. Lawyers working in capacities other than defending a client in court – including as fiduciary – are “obligated” to report any sanctionable assets.

An example of the challenges Swiss regulators face in getting their hands on Russian assets in the country include those of the Rotenberg brothers. According to a report by the Swiss weekly Le Matin DimancheExternal link, Arkady Rotenberg and his brother and Boris, whom the British Prime Minister described as “buddies” of the Russian President, had employed structures set up by a Geneva bank to hide the ultimate holder of the funds. The brothers had been forced to sell their private jets after Swiss bank Credit Suisse terminated the leases, as revealed by the Financial TimesExternal link.

Wealth as far as the eye can see

While estimates have varied widely, the value of Russian assets in Switzerland has varied from a conservative Swiss National Bank estimate of around $25 billion.External link (CHF24 billion) 2021 for fiduciary and customer deposits, up to CHF200 billionExternal link ($209 billion) according to the Swiss Bankers Association. The government announced earlier this month that 6.3 billion francs of funds had been frozen, compared to 7.5 billion francs after some funds were released due to “insufficient grounds”.External link to hold them. According to official data, approximately 16,500 Russian nationals currently reside in Switzerland. The Russian Embassy in Bern said that, as this does not include people with dual Swiss nationality, the number could in fact be almost double.

Some assets are easier to track than others. Over 1,000External link Russian individuals are currently on Switzerland’s sanctions listExternal linkincluding a handfulExternal link of residents in Switzerland, who would have benefited from authorizationsExternal link related to their assets, involving tax transactions. One such oligarch is Petr Aven, considered a confidant of Putin, whose Bernese vacation home was seized in March.

Over the years, Geneva has become home to a number of Politically Exposed Persons (PEPs), who have purchased properties worth millions of francs, often raising questions about where the funds came from. In addition to Aven, other properties linked to sanctioned Russians in Bern, Geneva and other cantons have been seized by authorities, as local land records run through the sanctions list.

can do better

Since the introduction of sanctions, the concern has been that, as with liquidity, other more tangible assets such as art can be difficult to track. While KYC (Know Your Client) requirements have been introduced in different industries, implementation has been variable.

For Mark Pieth, a Swiss-based anti-corruption expert, Switzerland’s overall record in confiscating Russian assets has been patchy. “Switzerland did not follow EU sanctions after the annexation of Crimea, so it was seen by many Russians as a safe haven,” he told SWI.

Art has certainly been one of the sectors where the oligarchs have been able to take advantage of the loopholes.

Global experts fear the sector will continue to benefitExternal link lack of regulation, notably through the use of non-fungible tokens (NFTs). American and British authorities have shared these concerns since the beginning of the war.

Recently, Geneva’s secret free ports, where valuable goods can be held duty-free, have come under inspection by Swiss customs officials. But local regulations mean that inspectors themselves may find it impossibleExternal link to know what to look for.

If free ports are subject to Swiss law, that is to say they have the obligation to keep inventories, they do not ultimately ask for the names of the beneficial owners, often hidden behind a network of lawyers and businesses.

But ultimately, the decision about which assets to freeze rests with the authorities. “When we suspect there is an asset that should have been frozen and was not, we will investigate,” Michael Wuethrich, also from SECO, told SWI.

Toxic business

Still, as the sanctions against the oligarchs endure, a Geneva fiduciary expert has admitted those targeted are feeling the chill as they scramble for advice on how to manage their many assets.

Financial advisers are increasingly reluctant, he says, to nurture relationships with Russian clients considered “toxic”.

“They’re toxic not only to banks but also to people like us,” he said. The adviser shared that a certain client and a key target on the sanctions list who had a known residence in a Geneva suburb had resorted to consulting various consultants on specific issues, “making it impossible for any of them to have an overall view of its financial situation. situation”.

SWI contacted several other Russians for comment on their situation, but they did not respond.

Ground jets

In Russian luxury hotspots like Geneva, the effect of the sanctions is certainly being felt.

In the real estate market, for example, wealthy Russian clients have become rarer. An independent luxury real estate agent in Geneva told SWI that a Russian client had decided to delay the purchase of a “large property” for the time being. She said buyers know that “newspapers report when there’s a big sale in Geneva, and they don’t want it talked about.”

The agent did not reveal the name of the Russian buyer.

In early April, Russian speakers were nowhere to be heard entering a watch fair in Geneva – the first to take place live in three years due to the pandemic. Organizers of the Watches and Wonders event made little mention of the war’s impact on the industry, which has otherwise fared well throughout the pandemic.

Similar to the art, “panic buyingExternal linkof tradable luxury items such as watches or jewelry was reported. But on a recent afternoon, workers at one of Geneva’s many empty watch shops told SWI that “of course” the sanctions were having a downward impact on their customer base. The brand’s headquarters contacted for this article declined to comment publicly.

Robert Grauwiller, president of the Swiss Association of Watch and Jewelery Retailers, said that following the imposition of trade-specific sanctions, “no one will want to break these rules”. He specifies that the group does not collect customer data on its sales, but adds that stores specializing in high-end sales constitute “a very closed network vis-à-vis customers”.

Elsewhere in the Swiss luxury market, the absence of wealthy Russians has also been noted.

“It’s been complicated,” said Gabriela Pfulg of Jet Aviation, an aviation service provider, during a recent visit to the private jet terminal in Geneva, answering a question about what the Russian business cut has meant for the company.

Geneva, which was a regular destination for private jet traffic from Russia, has seen such flights halt in recent weeks. As the Rotenberg case shows, at least one Swiss financial institution was handling loans for private jets owned by oligarchs until recently.

According to WingX, a business aviation intelligence company, Geneva airport had a 5.17% exposure to business jet traffic last year in connection with Russia and Ukraine, near loss since the beginning of the war.

“Operators are suffering with planes that have been frozen. This is a problem,” said Richard Koe, managing director of WingX in Switzerland. He said that in addition to planes grounded due to sanctions in Europe and those continuing to fly to Russia, about 20% of Russian-registered business jets travel between destinations such as Turkey, the United Arab Emirates States and Kazakhstan. “We are monitoring the movement,” he added.

Two planes, including an Aeroflot plane, would beExternal link stuck in Geneva right now.

Edited by Virginie Mangin

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