The case

On 8 April 2022 the EU adopted a fifth package of sanctions on Russia, which comprises a number of prohibitions imposed on goods originating from Russia and designates further individuals and entities associated with the regime of Vladimir Putin. For more see link and link.

Yesterday, the Federal Council took the decision to adopt the new EU sanctions against Russia and Belarus. Amendments to the corresponding ordinances are being prepared. Furthermore, the Federal Department of Economic Affairs, Education and Research (EAER) has imposed financial sanctions and travel restrictions on a further 200 individuals. (…) The EU also imposed a ban on the participation of Russian companies in public procurement, new financial sanctions, particularly with regard to trusts, and a ban on financial support for Russian public institutions. For more see link.

New financial sanctions, particularly with regard to trusts: What does that mean?

New EU Regulation:

Further restrictions in connection with the financial sector
Article 5b of Regulation (EU) No 833/2014 already set out a prohibition to accept any deposits from Russian individuals or companies if the total value of deposits exceeds EUR 100,000. This existing prohibition is now supplemented in Article 5b para. 2 by another prohibition to provide crypto-asset wallet, account or custody services to Russian individuals or companies if the total value of crypto-assets per wallet, account or custody provider exceeds EUR 10,000. This prohibition therefore already applies to a much smaller sum.

Pursuant to the newly inserted Article 5l of Regulation (EU) No 833/2014, it is prohibited to provide support, including financing and financial assistance or any other benefit under a Union, Euratom or Member State national programme and contracts within the meaning of Regulation (EU, Euratom) 2018/1046, to any legal person, entity or body established in Russia with over 50 % public ownership or public control. It is not entirely clear from the wording of the provision which exact conduct is prohibited. However, due to the reference to public budget funds, the provision is, in our view, to be understood as being directed only at institutions that administer such funds. As long as this understanding is not confirmed by the EU Commission, there remains a legal uncertainty regarding the scope of this provision. Article 5l contains an exemptions clause that covers different circumstances such as phytosanitary and veterinary programmes, intergovernmental cooperation in space programmes, the safety of civil nuclear capabilities as well as civil nuclear cooperation, or climate and environmental programmes.

Finally, new Article 5m of Regulation (EU) No 833/2014 provides for a prohibition to register a trust (or to provide a registered office, business or administrative address as well a management services to a trust) having as a trustor or a beneficiary either (i) a Russian individual or company, or (ii) a natural or legal person that is owned or controlled by a Russian individual or company, or (iii) a natural or legal person acting on behalf or at the direction of a Russian individual or company. In addition, it is prohibited as of 10 May 2022 to act as, or arrange for another person to act as, a trustee, nominee shareholder, director, secretary or a similar position, for such a trust. However, these prohibitions do not apply when the trustor or beneficiary is a national of a Member State or a natural person having a temporary or permanent residence permit in a Member State. Pursuant to the grandfathering clause in Article 5m para. 3, the above prohibitions do not apply to the operations that are strictly necessary for the termination by 10 May 2022 of contracts which are not compliant with this Article concluded before 9 April 2022. Where humanitarian issues are concerned or democratisation processes in Russia are at stake, Member States may grant authorization for the above actions on a case-by-case basis.

Swiss Regulation: Yesterday, the Federal Council made it clear that the amendment to the ordinance is in preparation. Consequently, this mean that the yellow areas of the EU regulation are not (yet?) in force in Switzerland.

The commentary

Should the mentioned article, especially the yellow highlighted part (article 5m) be adopted mutatis mutandis by Switzerland, the Swiss financial industry may have a problem. A Swiss solution could be to extend the exemptions to citizens of the EEA and the UK. Also, only new trusts should be affected. According to my information, in other EU countries only trusts are affected, but not companies.

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