Tricky deals with raw materials
How Switzerland’s politics are helping Putin
07/24/2023, 07:45 am
Switzerland is holding back on sanctions against Russia and is maintaining its understanding of neutrality. Critics see it as support for Putin’s war of aggression. A large loophole to circumvent western sanctions are banks and commodity trading in the Alpine republic.
Switzerland has a problem. The western world wants to turn off Russia’s economy as much as possible because of the attack on Ukraine. But of course Moscow continues to do business worldwide, and right in the middle: Switzerland. A shadow falls on the Alpine country on two fronts: banking and commodity trading.
At a congressional hearing in mid-July, US senators accused Swiss banks of being Russia’s henchmen in circumventing western sanctions. Mark Pieth, retired Swiss law professor and chairman of the OECD working group on combating corruption for almost 25 years, says of the commodity trade: “I assume that people in Switzerland (Russian President Vladimir) are helping Putin and his cronies to circumvent the sanctions”. The problem: “The raw materials industry is completely uncontrolled.”
On Monday, the US Treasury Department wanted to make representations to the Commodity Trading Association (STSA, Suissenégoce) in Geneva. The association says the talk is about energy supply and the consequences of the sanctions on them. It is to be expected that the Americans will raise the issue of possible circumvention of the sanctions via Switzerland.
Most of the raw material trade runs through Switzerland
In addition to the export hits of watches, cheese and chocolate, the country is also one of the world’s most important hubs for commodity trading. Many of the world’s largest commodity traders pull the strings from Switzerland: Glencore, Vitol, Trafigura, Mercuria and Gunvor. Around 900 companies are active in the sector. In 2022, Glencore was almost as big in terms of sales as the largest German company, Volkswagen. Business with Russia has largely been scaled back since the attack on Ukraine in February 2022, everyone says. Some still trade in refined Russian petroleum products – all without violating sanctions against Russia, they point out.
“The war has tragically brought the close ties between the Swiss commodity trading center and autocratic regimes back into focus,” says Swiss Green MP Franziska Ryser. “Before the war, an estimated 80 percent of Russia’s commodity trade went through Geneva, Zug, Lugano and Zurich.” According to research by the organization Public Eye, which monitors companies based in Switzerland in their business dealings, it was 50 to 60 percent for oil: “That made Switzerland the main dealer in a Europe that was addicted to Russian oil.”
According to its own account, Switzerland is “one of the world’s largest trading centers for oil, metals, minerals and agricultural products. It is the world market leader in trading in sugar, cotton, oilseeds and grain,” according to government websites. There is also copper, cobalt, nickel, zinc, iron ore, natural gas and others. The authorities also praise the infrastructure: banks specializing in the financing of commodity trading, goods inspection companies, shipping companies and insurance companies.
Demand for supervisory authority
The Fractal company was founded on this breeding ground in February 2022 in Geneva. It has bought up a large fleet of old oil tankers in a very short time and, according to estimates by industry experts, is now one of the largest transporters of Russian crude oil. It transports it from Russian ports on the Black Sea, in the Baltic States or on the Pacific to China or India, for example. Totally legal. Despite their sanctions, the western industrial nations allow such transports if the companies stick to the maximum price of 60 dollars per barrel for Russian oil.
Fractal does not comment on its business when asked by dpa. Like Public Eye, the Swiss Greens are demanding a supervisory authority for commodity trading, but so far without success. So far, there have been no precautions against money laundering and no transparency about what kind of money goes to autocrats, says Ryser. The Greens want to make the next move in Parliament in late summer. Lobbyists have so far prevented supervision. “The problem isn’t just some form of greed,” Pieth said. “It’s also a strange understanding of neutrality that means support for Russia.”
To the annoyance of its western allies, Switzerland also cites neutrality as a way of preventing Swiss armaments from being passed on to Ukraine, as well as old German tanks that it had once bought as spare parts donors. At the hearing in the US Congress in mid-July, the founder of the Anti-Corruption Project (OCCRP), Drew Sullivan, described Switzerland as a “service provider for criminals”. According to him, banks, trustees and lawyers help to hide dirty money. “This system is still in place and allows Russia to bypass sanctions,” he said. Former investor in Russia and now Kremlin critic Bill Browder said: “The Swiss government wants to give the impression that it is doing something, but in fact it is doing nothing because so much money is being made from Russian black money.”
The government denies the allegations. “Switzerland implements the international standards for combating money laundering and tax evasion,” said the Ministry of Economic Affairs on request. “Switzerland last adjusted the legal framework of its system for the defense of funds of criminal origin at the beginning of 2023.” A law with further tightening is planned.