The Swiss Times - Swiss News in English

How sanctions are squeezing the Swiss luxury market

  • By Paige Baschuk
  • 6 June 2022

After Western countries mounted sanctions against Russian assets abroad in response to the war in Ukraine, a cat-and-mouse game regarding that wealth started in Switzerland between regulators and oligarchs. The luxury sector is feeling the chill. Paula Dupraz-Dobias of SWI swissinfo.ch investigates.                           

How sanctions are squeezing the Swiss luxury market

The highest concentration of wealth in Switzerland is in Zug, pictured above. Swiss officials have seized a number of Russian oligarchs’ lakeside villas throughout the country since the start of war.

“You just can’t reach them by phone these days,” an investigator working on international asset recovery said about Swiss financial advisers working with targeted Russian clients. “They are working round the clock.”

Since the Russian invasion of Ukraine, Switzerland has aligned itself with European economic measures, including the freezing of assets owned by the Russian oligarchs who have benefitted from relations to president Vladimir Putin, as well as prohibiting financial transactions in businesses linked to the vital Russian energy sector and commodity trading.

Swiss investigators seeking assets liable to be frozen certainly have their work cut out for them. As multiple investigations into offshore wealth have demonstrated over the years, wealthy individuals, not just Russian oligarchs, have long employed complex legal structures to transfer assets in companies whose ownership has often been referred to as Russian stacking dolls: one legal entity being owned by another and so-forth.

“Reports on the assets of sanctioned persons are constantly coming in to SECO,” said Florian Maienfisch, a spokesperson from the State Secretariat for Economic Affairs (SECO), which runs the government’s oligarch taskforce. “Since this process is still in full swing, reports that have already been received only represent an incomplete, changing intermediate status.”

An example of the challenges Swiss regulators are facing getting their hands on Russian assets in the country, include those of the Rotenberg brothers. According to a report in the Swiss newspaper Le Matin Dimanche, Arkady Rotenberg and his brother and Boris, whom British prime minister called “cronies” of the Russian president, had employed structures set up by a Geneva bank to obscure the ultimate holder of funds. The brothers had been forced to sell their private jets after Credit Suisse terminated leases, according to the Financial Times.

How sanctions are squeezing the Swiss luxury market

The Swiss National Bank estimates that there is roughly $25 billion in Russian assets in Switzerland. Other financial institutions say that figure is much higher.

Wealth kept out of sight

While estimates have varied widely, the value of Russian assets in Switzerland has ranged from $25 billion by the Swiss National Bank, to up to $209 billion according to the Swiss Bankers Association. The government announced earlier this month that $6.3 billion in funds had been frozen, down from $7.5 billion after some funds were released due to “insufficient grounds.”

Some assets are easier to track than others. More than 1,000 Russian individuals are currently on Switzerland’s sanctions list, including a fistful of residents in Switzerland (roughly 16,500 Russian nationals reside in Switzerland), who are said to have benefitted from authorizations linked to their wealth. One such oligarch is Petr Aven, said to be a Putin confident, whose Bernese holiday home was seized in March.

How sanctions are squeezing the Swiss luxury market

Despite their military neutrality, Swiss citizens have been outspoken against Russia’s invasion of Ukraine since the start. Here, Swiss people gather in Bern to protest.

Slipping through the cracks

Since the introduction of sanctions, the concern though is that similarly to liquidity, other tangible assets such as art may be difficult to track. For Mark Pieth, a Swiss-based anti-corruption expert, Switzerland’s record overall to confiscate Russian assets has been spotty.

“Switzerland did not follow EU sanctions after the Crimean annexation, therefore it was considered by many Russians as a safe haven,” Pieth said.

One of the issues in Switzerland was a failure to subject financial advisors to anti-money laundering legislation, according to Pieth. He added the Financial Action Task Force, an intergovernmental organization that assesses countries’ performances on combatting money-laundering, should “certainly discuss this matter” during its next evaluation of the Alpine country.

Art has certainly been one of the sectors where oligarchs have been able to benefit from loopholes. There is concern among global experts that the sector may continue to benefit from the lack of regulation, including through the use of non-fungible tokens (NFTs). British and American authorities have shared these concerns since the start of the war.

Recently, Geneva’s secretive freeports, where precious assets may be held duty-free, have been the focus of inspections by Swiss customs officials. But regulations of the locales mean that inspectors may themselves find it impossible to know which items to look for. While freeports are subject to Swiss law, meaning that they have the duty to maintain inventories, ultimately they do not ask for the names of the beneficiary owners, often hidden behind a web of lawyers and companies. But ultimately the decision of which assets should be frozen is left with the authorities.

“When we suspect that there is an asset that should have been frozen and was not frozen, we will investigate,” said Michael Wuethrich, also from SECO.

How sanctions are squeezing the Swiss luxury market

Geneva is a haven for wealthy Russians looking to invest in property, art and watches.

Toxic business

Nonetheless, as sanctions against the oligarchs endure, a Geneva fiduciary expert admitted that those who are targeted are feeling the chill as they scramble for advice on how to manage their many assets. Financial advisors are increasingly wary, he said, of maintaining relations with Russian clients who are seen as “toxic.”

“They are toxic not just for banks but also for people like us,” he said. The advisor shared that a certain client and a key target on the sanctions list who had a known residence in a Geneva suburb had resorted to consulting various consultants on specific issues, “making it impossible for any of them to have a global view of his financial situation.”

How sanctions are squeezing the Swiss luxury market

A Russian Aeroflot airplane sits at Geneva airport earlier this year.

Grounded jets in Geneva

In Russian luxury hotspots such as Geneva, the effect of sanctions is certainly being felt. In the real estate market for instance, the number of wealthy Russian clients have dwindled. One Geneva independent luxury real-estate agent said a Russian client decided to delay buying property, as “newspapers report when there is an important sale in Geneva, and they don’t want people to speak about them.” The agent did not reveal the name of the Russian buyer.

Elsewhere in the Swiss luxury market, the absence of wealthy Russians has also been noticed.

“It has been complicated,” Gabriela Pfulg at Jet Aviation, an aircraft services provider, said during a recent visit to the private jet terminal in Geneva, responding to a question about what the removal of Russian business has meant for the company.

Geneva, which had been a regular destination for private jet traffic from Russia, has seen a halt in those flights in recent weeks. As the Rotenberg case shows, at least one Swiss financial institution had been until recently servicing loans for private jets owned by oligarchs. According to WingX, a business aviation intelligence firm, last year, Geneva airport had a 5.17 % exposure to business jet traffic connecting to Russia and Ukraine, all but lost since the start of the war.

“Operators are suffering with the planes having been frozen. It’s a problem,” said Richard Koe, WingX’s managing director in Switzerland. He added that there are planes which continue to fly within Russia; about 20% of Russian registered business jets are moving between locations including Turkey, the United Arab Emirates and Kazakhstan.

“We are watching the movement,” he said.

Meanwhile, two airplanes, including an Aeroflot aircraft, are reportedly grounded at Geneva airport at this time.

Reprinted from SWI swissinfo.chThis article may be freely shared and re-printed, provided that it prominently links back to the original article.

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