Why is Switzerland delaying the confiscation of Russian assets?

Russia’s aggression against Ukraine has become a challenge even for a historically neutral country. Switzerland, which has always taken neutrality as its standard, strongly condemned the actions of the Russian Federation and froze nearly $8 billion in Russian assets under its jurisdiction. However, the seizure of Russian assets in Switzerland has yet to be initiated, as authorities in the Alpine canton fear the impact of such measures on their international standing. The Alpine state government openly acknowledges this. Such a step would severely blow Swiss banks, so passing such a decision would require detailed discussions – up to and including a referendum.

Photo: People hold banners and Ukrainian flags during an anti-war protest, after Russia launched a massive military operation against Ukraine, in front of the United Nations Office in Geneva, Switzerland, February 26, 2022. REUTERS/Pierre Albouy

A good start…

Historically, Switzerland is one of the global financial centers and a “quiet haven” for assets from different countries, especially Russia.

As of March 2022, the Swiss Bankers Association estimated the wealth of Russian clients in Swiss banks at 150 billion Swiss francs ($160 billion).

This figure applies only to financial and banking assets owned by citizens of the Russian Federation. Assets such as real estate, shares of non-listed companies, works of art, vehicles, and yachts do not belong to bank assets and are not included in this amount.

Since the Russian Federation began its full-scale war against Ukraine, Switzerland has taken steps that contradict its longstanding policy of neutrality. In particular, the country joined the sanctions regime and significantly stepped up efforts to identify and freeze private Russian assets.

Ignazio Cassis, then President of the Swiss Federal Council, said last March that the country would immediately freeze the assets of Russia’s President, prime minister, and foreign minister, along with 367 other people whom the European Union imposed sanctions on in February. The President added that because of the unprecedented and unprovoked aggression of the Russian Federation, the country is turning away from its tradition of neutrality to establish justice.

There is also support at the parliamentary level: In May, the foreign affairs committee of the lower house of the Swiss parliament — the National Assembly — called on the government to impose sanctions on individuals and states for violations of international humanitarian law.

The Social Democratic Party has proposed a draft proposal to confiscate the assets of sanctioned Russian citizens and companies and transfer them to Ukraine. Still, the proposal has stalled during the discussion stage.

As of November 25, 2022, 15 private Russian properties have been blocked.

Russian financial assets worth nearly $8 billion were also frozen.

Swiss banks are also banned from accepting deposits in accounts from Russian citizens with more than 100,000 Swiss francs ($106,000). Henceforth, all Russian deposits must be reported to the State Secretariat for Economic Affairs.

A total of 123 Russian companies, including individuals and legal entities, reported 7,548 deposits with Swiss banks worth 46.1 billion Swiss francs ($47 billion) to the agency.

However, further steps to seize these assets have met political and legal resistance. Since the summer, Swiss leaders have been speaking more positively about the negative phenomenon of the misappropriation of Russian assets.

For example, Ignazio Cassis repeatedly reiterated that confiscating Russian assets may contradict the principles of protecting property rights in a liberal democracy, saying it is the first step toward authoritarianism and the disempowerment of the people.

Cassis voiced these concerns at the prestigious Lugano Ukraine reconstruction conference. Seizing Russian assets would set a dangerous precedent for Switzerland.

That is why, in his view, such a step requires an impeccable legal basis.

“We can’t take money that doesn’t belong to us just because we think it’s morally right. Ownership is fundamental,” Cassis said.

Franz Grüter, the chair of the foreign policy committee of the Swiss parliament, is likewise opposed to the seizure of Russian assets. He thinks Switzerland should keep its commitment to the fundamentals of the rule of law and consider the long-term effects of the confiscation decision.

The lack of a particular mechanism that would enable it to be carried out in connection with Russian aggression in favor of Ukraine is the most significant barrier to confiscating Russian assets in Switzerland.

A unique mechanism for the confiscation of Russian assets as retaliation for the aggression against Ukraine has never been considered or approved since the commencement of the Russian assault in Switzerland.

Even though Ignazio Cassis stated at the World Economic Forum in May that confiscation is a global issue and that Switzerland will announce its position at the appropriate time, he said at the current Davos that he does not rule out opportunities; no specific initiatives were developed in Switzerland.

The government now avoids participating in international coordinating agencies like the REPO Task Force, and the nation needs a dedicated task force to actively track people’s assets subject to sanctions.

Therefore, confiscation can only take place within the confines of criminal proceedings where it can be proven that the property’s owners committed or assisted in illegal activity.

Additionally, the 2016 Law “On Foreign Illegal Assets” permits the seizure, freezing, and return to the country of origin of only foreign officials’ assets acquired by corrupt practices. To investigate and establish these procedures in court takes a lot of time and money.

The recent decision by the Swiss judiciary to revoke sanctions and return the property to Russian owners who are the subject of an investigation in the Sergei Magnitsky case raises questions about the outcome.

After all, the government has an efficient and “very Swiss” option to conceal the issue – it could put it up for a national vote. Ignazio Cassis has already articulated this requirement.

This stance of the Swiss government has an apparent justification: the country’s financial sector will be negatively impacted by the freezing of tens of billions of dollars in Russian oligarchs’ Swiss bank accounts, especially if they are apprehended and taken into custody.

Switzerland, well known for its financial system, is upset about how private property is used for political ends.

According to the Association of Swiss Private Banks, it would be contradictory if Switzerland’s property and procedural rights were no longer upheld due to the seizure of Russian assets.

Some worries taking actual action to seize these assets will indeed have a long-lasting effect on foreign investors’ faith in Switzerland’s financial system, including Russian investors.

The economic case for this is also made by the $7 billion decline in the Swiss financial account of foreign financing’s asset volume as of the third quarter of 2022. A more significant drop in these indices may result from an ill-conceived wealth confiscation.

Switzerland has had experience seizing property that belonged to another country at one point in its history.

Switzerland agreed to the so-called Washington Agreement in 1946, transferring assets worth 250 million francs to the Allies and eventually paying an additional 121.5 million francs, or $1.28 billion at the time.

The adoption of sanctions by Switzerland resulted from pressure from the winning states and came dangerously close to isolating the nation from the rest of the world.

Switzerland will consider this experience and the importance of the Geneva Conventions, the custodian during this biggest war since 1945, and join the international cooperation on reparations to Ukraine. Switzerland will reflect on this experience and the significance of the Geneva Conventions, the custodian during this largest war since 1945, and join the international collaboration on Ukraine’s reparations.

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