Switzerland – publishing the 10 fines for breaching sanctions imposed by SECO: Part 3 – cases 7-8

This is the third  instalment in our series of publishing the 10 final administrative criminal decisions reached by SECO in Switzerland. The examples below relate to Russian and Belarusian sanctions.

7.   Final administrative criminal decision dated 19 September 2023

Original: 2023-09-19 – I.60 – Strafbescheid

Translation: 2023-09-19 – I.60 – Strafbescheid_Translated to English

This final decision relates to a company which sought to export to Belarus an embossing roll used in the embossing of cigarette packaging. The value of the products was stated as €21,300. The products were stopped at Zürich airport customs and an investigation was commenced.

The company sought to argue that, while its product was covered by the customs code annexed to the Swiss regulation it was not “machinery” and so not covered by the wording of the export prohibition contained in art. 6 of the Belarus Ordinance.

SECO disagreed saying that if the product was covered by the customs code included in the Annex then it was covered by the prohibition in the Ordinance itself but invited the company to seek (if it wished) a ruling as to whether an embossing roll fell within customs code 8420.9120.

The company sought that ruling and the FOCBS confirmed that the rolls were properly covered by that number.

The company then communicated to SECO that based on the company’s own view that its product was a part and not itself machinery “the only criticism that can therefore be made of our company is its interpretation of the regulatory provisions“.

SECO disagreed and found that the company was in negligent, but not intentional, breach of the sanctions with the company having “a responsibility to carefully analyse the embargo orders imposed by Switzerland and to take the necessary measures to avoid contravening them [and that] additional checks on the classification of its products before the conclusion of new orders to Belarus were reasonably required“.

SECO, however, determined that the appropriate course was reliance on the provisions permitting a fine of CHF 5,000 or less in order to avoid a disproportionate investigation to determine individual culpability.

The company was also given credit for cooperation and was fined CHF 3,000 plus CHF 1,070 in costs.

Comment: Given that the company said it carefully analysed the regulations in question and that it sought to rely on what it saw as an inconsistency between the customs codes listed in the Annex which attached to their products, and the company’s narrow reading of the wording of the prohibition in the Ordinance, a regulator or prosecutor might have been entitled to conclude that the breach was intentional. The company knew that the product code attached to its goods was barred from export to Belarus.

There is also scope for querying the mitigation credit for cooperation in the circumstances of this investigation.

8.   Final administrative criminal decision dated 28 September 2023

Original: 2023-09-28 – I.71 Strafbescheid

Translation: 2023-09-28 – I.71 – Strafbescheid_Translated to English

The company sought to export 700 rubber seals (customs code 4016.93) and 3,750 valves (customs code 8481.20) to Russia. The products were stopped by customs at Geneva Airport in December 2022. The goods were valued at €69,315.

On 1 January 2022 the company had written to SECO to obtain advice on whether it could export its products to Russia. It was not until 2 June 2022 that SECO replied stating that the products were prohibited from export to Russia but that for contracts which pre-dated 28 April 2022 there was a sunset provision enabling export up until 29 July 2022.

Further, because the products were for use in prosthetic knees, there was a licence exception for medical goods that was available.

Nonetheless the company proceeded to try and export the products in December 2022 without applying for the available licence.

After the commencement of the investigation the company applied for, and obtained a licence permitting export of the goods.

SECO emphasized that “a request for a derogation must have been submitted to SECO prior to any sale, delivery and export, and SECO must have granted the necessary approval. It is not possible to legalize the sale, supply or export of goods listed in Annex 23 unlawfully by an authorization granted on a retroactive basis. … The fact that the goods in question were issued at the beginning of February 2023 for a use in accordance with the law is irrelevant to the question of the lawfulness of the sale, delivery and export of the goods in December 2022“.

Despite the company having been told in writing that the unlicensed export of the products to Russia would certainly be prohibited after July 2022, SECO proceeded on the basis that the breach was negligent and not intentional.

The company was fined CHF 1,000 with costs of CHF 1,270.

Comment: Practitioners will note the clarity of the view from SECO as to the impossibility of retrospective authorisation.

It is also seems likely, however, that the medical nature of the products in question played a role in the generous conclusion of a negligent rather than intentional breach in the circumstances of this case.



Switzerland – publishing the 10 fines for breaching sanctions imposed by SECO: Part 2 – cases 4-6

Below is the second in our series of publishing the 10 final administrative criminal decisions reached by SECO in Switzerland. The examples below relate to Russian and Belarusian sanctions.

The final instalment will be published on Tuesday.

4.   Final administrative criminal decision dated 15 May 2023

Original: 2023-05-15 – I.45 – Strafbescheid

Translation: 2023-05-15 – I.45 – Strafbescheid_Translated to English

The company in question sought to export a wrist watch valued at CHF275,766. The export was marked as being for a person with an address in the Russian Federation. The shipment was blocked at Geneva Airport as being potentially in breach of the Swiss prohibition against exporting luxury goods.

The company sought to argue that the sale had taken place in 2020, but could provide no evidence of this, and sought to argue that the customer was resident in Dubai, but the residency document dated several months after the attempted export.

SECO noted that the prohibition covers, “sale, delivery and export”, and so the fact of a sale in 2020 (even if that was the date) did not stop the offence having been completed by virtue of the blocked export.

SECO, however, accepted that the breach was not intentional but was rather negligent but that it was unable to determine whether the breach was the result of “non-compliance with internal guidelines by the responsible employee …, insufficient implementation of these guidelines in the internal process, absence of such guidelines, insufficient and inadequate compliance structures, lax application of internal guidelines by the employee in charge, insufficient control of that person by his or her supervisor or a combination of all of these”.

As with the other fines previously published SECO chose to use the mechanism of imposing a fine of CHF 5000 or less rather than seeking to investigate the responsible individuals. SECO imposed a fine of CHF5,000 with costs of  CHF 1,280.

Comment: Given the relatively high value of the watch in question, and the reliance on evidence that was not exculpatory, the company in question may have achieved a result at the lower end of the scale of what might have been expected. Under Swiss law a negligent breach can attract a fine of up to CHF 100,000.

5.   Final administrative criminal decision dated 22 June 2023

Original: 2023-06-22 – I.61 – Strafbescheid

Translation: 2023-06-22 – I.61 – Strafbescheid_Translated to English

The company sought to export 10,583.9 kg of food colouring valued at €47,000 to Russia. The goods were stopped at St Margrethen custom office and an investigation was commenced.

The company admitted the facts, but stated it “had assumed the sale of food colours to a company domiciled in the Russian Federation is permitted”. As stated by SECO: “It is not clear on what basis it came to that conclusion at the time”.

Nonetheless, SECO concluded that “the conduct of the accused constitutes imprudence in breach of duty and is to be qualified as negligent” rather than intentional conduct. SECO also noted that the “execution of the export transaction by the accused is due to a chain of unfortunate circumstances” but provides no further detail on this point.

SECO again used the mechanism of imposing a fine of CHF 5,000 or less noting that “it is hardly possible to reconstruct who ultimately authorized the transaction”. The fine was CHF 4,500 plus costs of CHF 1,260.

SECO noted the company’s co-operation and early admission of the facts.

Comment: one of the justifications cited by SECO for using the CHF 5,000 fine option and not conducting further investigations was that it would be “disproportionate in view of the penalty forfeited”. This is circular reasoning. The size of the fine should not be reason for the size of the fine.

Given that the company appears to have undertaken no due diligence or investigation of any sort before seeking to export to Russia it is, perhaps, a surprising result that SECO chose to impose the fine that it did.

6.   Final administrative criminal decision dated 4 September 2023

Original: 2023-09-04 – I.49 – Strafverfügung

Translation: 2023-09-04 – I.49 – Strafverfügung_Translated to English

This document takes a slightly different format as the company in question challenged the original penalty notice of CHF 7,810 and costs of CHF 1,290, which was then subsequently upheld.

The company was the authorized consignor for 10 shipments to Russia and one to Belarus. All but one of these were stopped by customs. After the opening of the investigation a further two shipments from this company which were due to be exported to Russia were stopped.

The total value of the goods was said to be CHF 15,619.18, but six of the exports were said to have the exact value of CHF 1,000 which permits some suspicion as to the declared values. The goods were a mixture of parts for luxury branded cars, and other luxury goods such as clothing, a musical instrument and a laptop.

The company sought to argue that no offence had been committed as all that it did was transport goods within Switzerland, and that at most all that could be said was that there was an attempt to export.

SECO disagreed and stated: “In order to complete the deed, it is not required that the goods must have reached the country of destination. Since consignments of goods destined for export and delivery to the Russian Federation or, in one case, to Belarus … constitutes prohibited transport within the meaning of” the respective regulations.

SECO alleged that the company had a “duty of care of a customs declarant to check whether there are any prohibitions, restrictions or conditions in relation to a consignment of goods” and that it had an “increased duty2 due to its status as a “Authorised Consignor”. Nonetheless, SECO did not alleged intentional breach of the regulations (even for those done after the commencement of the investigation) but rather negligent breaches. SECO also concluded that the breaches were not “outliers” as 12 of the breaches took place in just five months.

SECO imposed a fine of CHF 7,810 and costs of CHF 1,310.

Comment: The clarification on SECO’s views as to what constitutes “transport” and that this can be committed even through actions wholly internal to Switzerland is to be welcomed.

The lack of an allegation of deliberate breach is perhaps surprising in the circumstances, as is the giving of credit for cooperation given that conduct continued during the investigation and the initial fine was contested.

Germany – ISIS prosecutions and the meaning of “making funds or economic resources available”

In three decisions last year, the German Federal Court of Justice (Bundesgerichtshof) issued judgments dealing with persons charged with (amongst other crimes) making funds available to ISIS in breach of the relevant EU sanctions regulation.

One of the questions considered in the judgments is the extent to which transfers to individual members of the ISIS rank and file count as “making funds available” to ISIS itself.

Continue reading “Germany – ISIS prosecutions and the meaning of “making funds or economic resources available””

Germany – prosecutors seek confiscation of €720 million

It has been reported that Federal Prosecutors in Germany have applied to confiscate €720 million in frozen assets belonging to Russia’s National Securities Depository.

After the NSD had been designated it had sought to move the funds and made transfer requests to JP Morgan and Commerzbank which refused to proceed with the transfer. As such the prosecutors are seeking to have the funds treated as the proceeds of crime and so confiscatable under ordinary anti-money laundering rules.

UK – OFSI’s enforcement statistics for 2022-23

The UK’s Office of Financial Sanctions Implementation has today published its Annual Review for 2022-2023.

The report includes the following regarding enforcement activity:

“As of April 2023, OFSI’s Enforcement Unit had 172 cases under live investigation, many of which are complex and remain ongoing.

In 2022-2023, OFSI recorded 473 suspected breaches of financial sanctions (excluding oil price cap and counter-terrorism breaches). This is a significant increase on the 147 cases recorded in 2021-2022. This increase was expected given the scale of increased Russia sanctions, and OFSI’s increased enforcement capabilities. This data refers to the year in which a suspected breach is recorded, rather than the year in which the potential breach activity occurred. Recorded breaches includes cases which are self-reported, reported by a third party, and those independently generated by OFSI.

Over the course of the financial year, OFSI issued 7 warning letters in response to confirmed breaches which OFSI did not consider warranted public enforcement action, and 2 monetary penalties. 51 cases were closed with no further action, 44 of which related to Russia related sanctions breach reports. OFSI does not in all cases provide its view of whether a breach occurred or not, although many suspected breaches recorded by OFSI are considered not to be breaches of financial sanctions following further investigation. A number of cases in this period were referred to other agencies, including criminal and regulatory authorities. OFSI does not provide further breakdowns on referrals to criminal authorities”.

Latvia – raids and arrests for dual-use sanctions investigation

The Latvian State Security Service (VDD) has today announced a series of six raids and two arrests in Riga which took place on 4 December 2023 in relation to a criminal investigation into a Latvian company suspected of exporting electronic components to Russia.

The goods are reported to have been valued at €500,000.

The company was not named and nor were the individuals.

Netherlands – arrests and raids regarding Russian sanctions

It has been reported today that the Dutch authorities, after a tip-off from unnamed US “agencies” have conducted searches at homes and business addresses in Sluis and Rotterdam.

Related search and arrests took place in the Belgium (see our related post) at the same time, and in total across both countries six have been arrested.

The allegations relate to the export of products and technology to Russia.

Belgium – raids and arrests for Russian sanctions

It has been reported today that the Belgian authorities, after a tip-off from unnamed US “agencies” have conducted searches at homes and business addresses in Knokke-Heist and Eeklo.

The Belgian government announcement is here.

Related search and arrests took place in the Netherlands (see our related post) at the same time, and in total across both countries six have been arrested, four of whom were arrested in Belgium

The allegations relate to the export of products and technology to Russia.

Finland – charges coming for 6 for Russian sanctions breaches

It has been reported today that Finnish Customs are preparing to charge six with Russian sanctions offences.

The activities relate to two Finnish companies suspected of exporting microcontrollers and semi-conductors valued at more than €600,000 to Russia, as well as nearly 3,500 drones value at over €2 million.

The investigation is said to have also involved the authorities from the Netherlands, the UK, the US, as well as Europol and Finland’s Security and Intelligence Service.

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The opinions expressed on this blog are those of the author and are not to be construed as legal advice.

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