Sanctions 2025

SWITZERLAND Law and Practice Contributed by: Philippe Reich, Meera Rolaz, Kaspar Projer, Samantha Salsench and Anna Zellweger, Baker McKenzie Switzerland AG

Judgment of 6 August 2021 of the Swiss Federal Supreme Court (4A_659/2020) This decision deals with the impact and implementa - tion of foreign sanctions in Switzerland. The appellant was a Panamanian company ultimately owned by an individual that was designated in 2018 by the US. In 2013, the company opened certain accounts with a Swiss bank. As part of the banking relationship, the parties signed a loan and a pledge agreement in 2013. In 2015, the bank granted the company a loan in the form of a fixed advance in the amount of USD160 million which was collateralised with deposited secu - rities. After the publication of the sanctions listing and shortly before the fixed advance fell due, the company instructed the bank to sell some of the USD securi - ties from the custody account and use the proceeds to repay the loan. The bank refused to carry out the instructions alleging that the beneficial owner of the company was an SDN and any transactions in USD in connection with the company were therefore pro - hibited. The bank demanded to remedy the existing shortfall or otherwise it would sell the shares that were not denominated in USD. In the first instance, the Commercial Court of the Canton of Zurich (in Judgment HG180215-O of 16 November 2020) held that OFAC sanctions were not directly applicable in Switzerland, but that the bank is obliged under Swiss banking supervisory law to refuse to carry out transactions that violate US sanc - tions laws. Furthermore, the company had no claim to fulfilment under contract law either, because the execution of the disputed instructions would make the bank’s position unreasonably difficult, as a result of the penalties that it could face. The Federal Supreme Court stated that the bank was able to rely on its General Terms and Conditions, thus on a contractual right of refusal, which author - ised the bank to refuse performance that was not in accordance with the regulations or practices of stock exchanges or other trading venues, which was to be interpreted broadly, thus also including OFAC regula - tions.

• the current founder is also a former member of the board and the current director of the school had also been appointed by the designated person; • the new appointments took place on the date of filing the application to SECO; and • there was no guarantee of the independence of the audit conducted on the school, given that the auditing services were done free of charge as the provision of services without compensation sug - gest that the auditors may have close relationships with the designated person and do not act inde - pendently (consideration 7). Scope of Article 15 paragraph 2 of the Ukraine Ordinance regarding “the making available of economic resources” SECO had argued that the financing of the public school promotes the philanthropic reputation of the designated person and therefore benefits him indi - rectly. The Federal Administrative Court held that, even if one’s reputation is considered an intangible asset, from a teleological and systematic perspective, the subsumption of reputation under the sanctions law concept of “economic resources” would overstretch the scope of the prohibition. It cannot be assumed that the designated person can acquire funds, goods or services solely through his reputation as a patron of the public school, which he could use to financially support the war (consideration 6.5). Licensing ground of Article 15 of the Ukraine Ordinance for “avoidance of hardship cases” The Federal Administrative Court interpreted the undefined legal term “case of hardship” by reference to the equivalent Article 4 paragraph 1 let. a of the EU Regulation due to the coherent implementation of Russia sanctions. As such, hardship cases shall be understood as those necessary to satisfy basic exis - tential needs. The court noted that the financing of the public school, including the awarding of scholarships, serves neither to secure goods that are indispensable for human existence nor to pay public taxes, legal representation costs or the costs of compulsory insur - ance (consideration 8).

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