June 23, 2022 - Sanctions foreshadow the demise of Russian coal traders operating in Switzerland, but an NGO is worried that authorities in the banking hub are not equipped to properly enforce the measures.
Around three quarters of Russian-origin coal exports are traded in Swiss territory, according to a June 13 report by Public Eye, a Swiss non-profit that campaigns for regulation and accountability in the country’s commodities trading sector.
Those traders dealing in Russian coal have included giants such as Glencore and Trafigura, which have global coal trading businesses, but also lower-profile outfits controlled by Russian entities, including Russian coal producers who market the fuel source from offices in Switzerland.
Of the nine largest coal producers in Russia, eight have a physical presence in Switzerland, according to Public Eye, mostly in the canton of Zug. Those include Suek, SDS, Evraz and the Sibanthracite Group. In total, there are 18 Russian-owned traders operating in the country, says the NGO.
But a question mark was drawn above the industry after the Swiss government announced in late April that it will adopt the EU’s embargo on Russian-origin coal. New contracts have been prohibited since then, but legacy contracts can continue until August 29.
The ban includes brokering, financing and financial assistance for the export of Russian coal, similar to the provisions of the EU’s oil embargo announced in May.
After the sanctions were announced, “most of the offices of the Russian coal sellers are closed or seem to be running at idling speeds”, Public Eye’s report says. “This calm contrasts with the hectic administrative manoeuvres underway, as companies rush to remove their Russian directors and owners under sanctions and distance themselves from them.”
The NGO has criticised the Swiss federal State Secretariat for Economic Affairs (Seco) for underestimating the number of Russian-owned companies operating in the sector and being ill-equipped to enforce the unprecedented raft of sanctions being introduced in a country that has historically adopted a light-touch approach to regulation.
Seco tells GTR in response that the report “presents the role of Seco in a distorted way”, including its approach to the sanctioning of Suek’s owner Andrey Melnichenko, who transferred control of the company to his wife the day before he was sanctioned. Seco considered the move legal, although Melnichenko’s wife, Aleksandra, was sanctioned by the EU and Switzerland some months later.
“It gives you a hint on the lack of political will to apply the sanctions in an effective way,” says Adrià Budry Carbó, an author of the Public Eye report.
A spokesperson for Seco tells GTR that it has strengthened its resources to address the uptick in sanctions, including adding eight to 10 people to the unit dealing with sanctions against Russia.
Asked if the authority issues guidance on compliance with its sanctions, the spokesperson says that “Seco is in constant contact with all relevant stakeholders in Switzerland and abroad and is always available to provide advice”.
“Seco seeks regular, almost daily contact with associations, companies, compliance officers and other potentially affected bodies,” they say. “If the Swiss authorities receive indications of violations, they actively investigate them. Violations will be prosecuted and punished.”
Earlier this month Public Eye’s long-held wish of a standalone regulatory body to supervise the Swiss commodities trading sector was discussed in the federal parliament. But, after a couple of hours of discussion, Budry Carbó says, “it was clearly rejected”.
Rise of Smaller Traders
Switzerland will also implement the EU’s oil embargo on Russia, which includes bans on financing and insuring exports of oil from Russia to third countries.
Before that decision was made, Public Eye published a separate report which showed that in the two months following the invasion of Ukraine, a small Swiss trader called Paramount Energy & Commodities became the fourth-biggest buyer of Russian oil.
The company’s director told the NGO that the surge in volume stemmed from contracts negotiated well before February, but Budry Carbó says it’s an example of how smaller traders can benefit when larger ones, with shareholders or a public image to consider, scale back their dealings with Russian commodities.
“This is the trend – it’s moving from big trading houses to small trading houses,” Budry Carbó tells GTR, adding that the traders may be financing the purchases with private equity funds, rather than bank-led commodities finance.
Swiss trade and commodities finance banks will likely have to say goodbye to the Russian coal trading business once the sanctions are in place, although they will have less of an impact on diversified major traders.
Coal producers based in Switzerland – not only Russian firms – have raised almost US$2.7bn from 10 Swiss banks since 2016, according to Profundo data cited by Public Eye.