Forget Londongrad: Switzerland in focus as sanctions target rich

Zurich

AS Europe targets wealthy Russians to pressure Russian President Vladimir Putin into ending the war against Ukraine, Switzerland is emerging as a key player after deciding on Monday to break with its historic neutrality and enforce European Union sanctions.

The country of 8.6 million inhabitants has long been attractive for wealthy Russians, lured by the discretion and light-touch regulation it offers.

While comprehensive figures are hard to come by, data from the Basel-based Bank for International Settlements showed Russian residents and companies held US$11 billion in Swiss bank accounts as of September, more than double the roughly US$5 billion in the United Kingdom.

Even that figure grossly understates the extent of Russian wealth in the country, because it doesn't include brokerage accounts, investments or assets held through offshore companies.

Private bankers at the country's biggest wealth managers estimate that rich Russians have in excess of US$100 billion stashed away across the country's lenders, with one person putting the figure at US$300 billion - equal to almost 40 per cent of the Swiss economy.

A portion of those assets will now be subject to freezes after the Swiss government put aside its long-held neutrality and adopted EU sanctions on hundreds of Russian officials and entities, including Putin.

The decision, more than a decade after the country was forced to dilute strict bank secrecy rules that had helped it become the world's biggest centre for private offshore wealth, aligns Switzerland further with its neighbours and could help ramp up pressure on the government in Moscow.

The Swiss government said on Monday that it would implement the EU sanctions with immediate effect, after a weekend in which it was criticised by opposition politicians and in editorials in leading Swiss papers as well as by other governments.

The EU earlier added 6 of Russia's wealthiest individuals to its sanctions list, including Alexey Mordashov, Mikhail Fridman, Petr Aven, Alisher Usmanov, Gennady Timchenko and Alexander Ponomarenko. Usmanov is one of Switzerland's richest residents and has a home along Lake Geneva, according to Swiss magazine Bilan's annual ranking.

He owns a major stake in USM, a Russian investment group, and controls Russian newspaper Kommersant. He has a net worth of about US$19.7 billion, according to Bloomberg's wealth index.

On Tuesday (Mar 1), he issued a statement, suspending his duties as president of the Lausanne-based International Fencing Federation, citing the EU sanction he now faces as "unfair" and based on "false and defamatory allegations".

Timchenko, worth about US$11 billion by Bloomberg estimates, has a home in Geneva's upscale Cologny neighborhood. He controls Volga Group, a Russia-based investment firm with interests in energy, transportation and construction, and has known Putin since the 1990s.

Timchenko is the co-founder of Geneva-based oil trading firm Gunvor Group, though he sold his stake just before being sanctioned by the US over Russia's 2014 annexation of Crimea.

Even beyond those extreme riches, the degree to which Russian is heard in the 5-star hotels and jewelry and watch boutiques on Zurich's Bahnhofstrasse and the Rue du Rhone in Geneva is striking. While that can also be said of cities such as London or Munich, cash has come to Switzerland whenever Russia went through turbulent times in recent history.

When Europe and the US imposed a third round of sanctions on Russia after its seizure of Crimea in 2014, there was a jump of more than 13 per cent in Russian deposits in Switzerland, the BIS figures showed. After a period of decline, there was another uptick in deposits in the past 2 years as relations again worsened.

Switzerland has had sanctions in place against rogue states including North Korea and Sudan for years, but none this sweeping. The Swiss government acknowledged the importance of this moment on Monday, saying Russia's "unprecedented military attack on a sovereign European country was the deciding factor" in its decision.

At the same time, officials tried to downplay their country's importance for Russian investors. The Russian Central Bank has less than 2 per cent of its assets held in Switzerland, Swiss Finance Minister Ueli Maurer told reporters on Monday. And Russian direct investment in Switzerland accounts for about 1 per cent of total foreign investment in the country, he added.

The one industry untouched by Monday's sanctions is the oil-trading businesses based primarily in Geneva and Zug. As much as 80 per cent of Russian commodities are traded through Switzerland, showed estimates from the Russian and Swiss governments. BLOOMBERG