Switzerland rightly rejects EU sanctions on subsidiaries abroad

 

If the SP and the USA are dissatisfied at the same time, then something must have happened. Or something didn’t happen. The Federal Council decided this week to adopt large parts of the EU’s 14th sanctions package against Russia. But not completely.

Companies based in the EU should now ensure that their subsidiaries around the world also adhere to the sanctions – even if the subsidiary operates without involving the EU parent. This is a new regulation and it would also have applied to companies based in Switzerland and their subsidiaries abroad.

What sounds sensible may not be sensible

The Federal Council decided against this tightening – whereupon the SP spoke of a “scandalous decision”. The US ambassador, Scott Miller, said in the TX Group newspapers that he was “disappointed” in Switzerland.

The American government and the SP rarely have the hay on the same stage. The fact that they agree on this issue provides a first indication of the ambivalence of the controversial regulation. Because the Federal Council’s waiver is justified. Even if extending the penalties to foreign subsidiaries may sound sensible, in reality it is not.

To make it clear from the start: it is right and necessary that Switzerland has supported the EU’s punitive measures against Russia in the vast majority of cases to date and will hopefully continue to do so. The unjustified and unprovoked attack on Ukraine and its people violates international law in general and the security interests of the small state in particular.

Sanctions are needed – but the right ones

Switzerland cannot be concerned if the right of the strongest is exercised in Europe in such a devastating and inhumane way as Moscow does. Individual economic interests must take second place to this overriding interest of the country, be it of small mechanical engineering companies or of large raw material traders. Neutrality is not a license to do nothing.

Nevertheless, the new EU regulation is not effective. A state can impose rules on companies and citizens based in its own territory – for example, prohibiting them from doing business with a Russian arms manufacturer. The state has the power to enforce these rules within its own territory.

But a state has no means to impose this ban on companies based abroad. The laws of the other country apply there. The attempt to apply sanctions extraterritorially is legally problematic and politically sensitive.

There is no leverage abroad – unless you are in the USA

The EU is aware of this. Their purpose is deliberately vague. Without providing any details, it requires EU companies to make “best efforts” to prevent their subsidiaries from engaging in sensitive business relationships. Brussels seems to be more interested in sending a signal – which is understandable, since circumvention via third countries is a problem. But there is no leverage to take action against it in third countries.

Only one country in the world has this leverage and at the same time rarely cares about conflicts with the law applicable in third countries: the USA. Because many business transactions, especially in raw materials trading, are carried out in dollars. They inevitably run through financial infrastructure located in America.

The threat of excluding a company from this US infrastructure is a powerful means of pressure to enforce one’s own rules extraterritorially. With such an understanding of the law, the American ambassador probably finds it easy to be “disappointed” in Switzerland.

Bern’s arm needs to get stronger

But Bern is not Washington, and Bern’s arm does not extend to Dubai, but to Zug and Geneva. But that doesn’t mean the arm is weak. He can take action if there is a definite connection to Switzerland: The State Secretariat for Economic Affairs (Seco) must already investigate if attempts are made from or involving Switzerland to circumvent the sanctions through a subsidiary in a third country. Seco does that too.

Instead of overstretching the Swiss arm, it is therefore appropriate to strengthen it where it can have an impact – on Swiss territory. The Seco needs the necessary resources to track down shady dealings. The other side does not lack resources either. And she would be happy if her pursuers got lost.