SWITZERLAND Law and Practice Contributed by: Philippe Reich, Meera Rolaz, Kaspar Projer, Samantha Salsench and Anna Zellweger, Baker McKenzie Switzerland AG
The Federal Supreme Court stated, without going deeper into the discussion, that the bank would have had the right under statutory law (ie, the CO) to refuse performance if it is unreasonable to expect the instruc - tion to be carried out due to the threat of penalties and possible exclusion from the US financial market. Thus, the applicability of sanctions is regarded by the Swiss Federal Supreme Court as rendering perfor - mance unreasonably onerous for a specific obligor due to the penalties threatening the non-compliance with such (foreign) regulations, such unreasonable - ness being subject to Article 119 CO on impossibility of performance. Judgment of 29 July 2024 of the Federal Administrative Court (B-3925/2023) This case concerns two money transfers with the reason for payment being “Deed of Gift” dated 12 March 2022 in the amount of USD10 million each, which were made on 14 March 2022 by a Russian national, who was listed in Annex I of Regulation (EU) No 269/2014 on 15 March, and on 16 March 2022 in Switzerland, in favour of a bank account in the name of his son-in-law. The corresponding financial institu - tion notified SECO on 6 April 2022 that these funds had been frozen. The Judgment of the Federal Administrative Court offers an interpretation of the following questions. The standard of proof in Article 16 paragraph 1 of the Ukraine Ordinance for the reporting obligations applying to those holding or managing frozen funds The Federal Administrative Court confirmed that a “reduced standard of proof” is applicable to the addressees of Article 16 paragraph 1 of the Ukraine Ordinance, namely, to the persons and institutions that hold or manage funds or know of economic resources that are likely to be subject to the freezing measures under Article 15 paragraph 1 of the Ukraine Ordinance. However, this is not the standard of proof applicable when the Swiss authorities review the legality of asset freezes that a financial institution has implemented on the basis of Article 15 paragraph 1 of the Ukraine Ordinance. According to the Federal Administrative Court, the standard of proof of the preponderance of
probability applies when reviewing restrictive meas - ures under the Embargo Act (considerations 5.3-5.4). Definition of “control” according to Article 15 paragraph 1 of the Ukraine Ordinance The Ordinance does not lay down any binding crite - ria for the definition of “control” within the meaning of Article 15 paragraph 1 and the legally non-binding criteria of the European Commission for assessing the existence of a control relationship apply, as it must be assumed that the Swiss legislature did not intend to create an exception to Article 2 of Regulation (EU) No 269/2014. The legislature has recognised the risk of circumventing sanctions in connection with transfers of assets to family members before or shortly after inclusion in the sanctions lists (considerations 7.2 et seq.). Investment activities as prohibited under the asset freeze The appellant had also requested that the blocked assets be invested in publicly tradable financial prod - ucts. The Federal Administrative Court therefore interpreted what is meant by “frozen funds” within the meaning of Article 15 paragraph 1 and Article 1 litera b of the Ukraine Ordinance and concluded that investment activities with frozen funds are unlawful for the following reasons: • Article 1 litera b of the Ukraine Ordinance allows “normal administrative acts of financial institu - tions”, which is understood in the industry as “pure custody acts (...) such as the crediting of interest and dividends and the debiting of bank charges”; • Article 20 paragraph 4 litera cbis of the Ukraine Ordinance refers to the “payment of fees or costs for the routine safekeeping or administration of frozen funds or economic resources” (systematic interpretation); • extensive normal transactions with frozen funds would not promote the desired change in behav - iour (teleological interpretation); and • Article 1 litera f of Regulation (EU) No 269/2014 includes in the definition of “freezing of funds” the “use of (…) funds (…), including portfolio manage - ment” (consideration 9.4.3).
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