Disputes Insights #4: The Interplay Between Sanctions, Money Laundering, and Criminal Corporate Liability in Switzerland

Can a company be held criminally liable for violating international sanctions – even without an individual conviction? Under Swiss law, the answer is yes.

When sanctions violations rise to the level of a felony ("Verbrechen"), they not only trigger heightened penalties but also create the conditions for money laundering liability. If a company uses proceeds from such violations in a way that obscures their origin – through reinvestment, operational use, or other means – it may face prosecution in Switzerland, especially if it failed to implement adequate compliance controls.

The Swiss Sanctions Framework

Since the 1990s, the UN, the USA, and the EU have increasingly used sanctions as a foreign policy tool. US sanctions are particularly influential due to their global reach and extraterritorial enforcement.

As a neutral country, Switzerland does not impose sanctions independently. However, it is obligated to implement UN Security Council sanctions. To avoid becoming a hub for sanctions evasion, Switzerland increasingly aligns with international measures, especially those from key trading partners like the EU.

The Swiss Embargo Act of 2002 provides the legal basis for the Federal Council to enact coercive measures through ordinances. These can include asset freezes, trade bans, and service restrictions.

Following Russia's full-scale invasion of Ukraine in 2022, Switzerland adopted the EU's sanctions to reinforce their effectiveness. As of now, it has adopted 16 EU sanctions packages against Russia – one of the world's 11 largest economies. These measures significantly affect globally operating companies. Currently, Switzerland enforces 28 sanctions ordinances against various countries, individuals, and organisations.

The Ukraine Ordinance applies to individuals and organisations listed in its annexes, as well as any entities they own or control. Certain measures also target all Russian citizens or residents, the Russian Federation, and its Central Bank. More broadly, anyone conducting business with sanctioned parties or embargoed goods and services may be subject to sanctions. In complex ownership or control structures, identifying links to sanctioned individuals can be particularly challenging for companies.

Enforcement and Legal Risks

Sanctions violations are criminal offences under Swiss law. The State Secretariat for Economic Affairs (SECO) leads enforcement, though the Office of the Attorney General (OAG) may take over in serious cases. This dual role of SECO – as both regulator and enforcer – arises rule-of-law concerns.

The Ukraine Ordinance criminalises a wide range of conduct, including:

• Trade in restricted goods (e.g., defence, aviation, energy, luxury items)

• Provision of prohibited services

• Breaches of financial and travel restrictions

Penalties range from fines (up to CHF 100.000 for negligence) to imprisonment (up to five years in serious cases). Failure to report is also punishable.

Swiss sanctions apply only to conduct within Switzerland. However, foreign sanctions, especially US measures, may have extraterritorial effects, particularly in banking and finance. Companies must therefore integrate foreign sanctions into their risk frameworks.

Corporate Liability and Money Laundering Risks

Not only can individuals who violate embargoes be held criminally liable, but under Swiss administrative criminal law, executives may also face liability if they fail to act despite being aware of a violation (Article 6(2) Swiss Administrative Criminal Code).

Importantly, under Article 102(2) of the Swiss Criminal Code (SCC), companies themselves can be prosecuted independently of individual culpability. This applies when a listed offence, such as money laundering (Art. 305 bis SCC), is committed in the course of business, and the company has failed to take all necessary and reasonable organisational measures to prevent it.

Swiss law defines money laundering as any act intended to obstruct the identification, tracing, or confiscation of assets derived from a felony or a serious tax offence. A serious violation of sanctions qualifies as a felony due to the elevated penalties it carries – imprisonment of up to five years (Article 9(2) of the Embargo Act in conjunction with Article 10(2) SCC).

In practice, what constitutes money laundering is, however, often difficult to delineate. Actions such as breaking the paper trail through cash transactions or moving funds abroad are typical indicators. The Swiss Federal Supreme Court has even ruled that spending illicit funds for personal use may qualify as money laundering (BGE 149 IV 248).

Consequently, companies can be held criminally liable in Switzerland if they fail to implement all reasonable organisational measures to prevent the proceeds of serious sanctions violations from remaining undiscovered. The blurred boundary between lawful and prohibited financial flows presents significant compliance risks. For instance, a company may face prosecution if a business transaction results in a sanctions breach deemed "serious", and the resulting proceeds are reinvested or used operationally in a way that obscures their origin – making them difficult to trace and potentially triggering money laundering liability.

Beyond legal penalties, sanctions breaches can cause severe reputational harm. Business partners and employees may distance themselves to avoid secondary exposure. Confiscation of assets is possible even without conviction if lawful use cannot be guaranteed.

Mitigation Strategies

To reduce exposure to sanctions risks, companies should implement a comprehensive compliance framework that includes the following key elements:

• Robust Compliance Policies: Develop and maintain clear, well-documented sanctions compliance policies that align with international regulations and best practices.

• Continuous Monitoring and Due Diligence: Conduct ongoing monitoring of business relationships, transactions, and supply chains. Perform enhanced due diligence on high-risk counterparties, particularly those operating in or linked to sanctioned jurisdictions.

• Third-Party Screening: Screen all customers, suppliers, intermediaries, and other third parties against up-to-date sanctions lists (e.g., UN, EU, OFAC, SECO). Implement automated tools to ensure consistent and real-time screening.

• Whistleblower Channels: Establish secure and anonymous reporting mechanisms to allow employees and third parties to report suspected violations or unethical conduct without fear of retaliation. Promote a culture of integrity and accountability.

• Internal Investigations When Red Flags Arise: Promptly investigate any red flags or indications of non-compliance. Engage internal or external experts to conduct thorough reviews, document findings, and take corrective action where necessary.

By integrating these elements into daily operations, companies can significantly mitigate the risk of sanctions breaches and demonstrate a proactive commitment to legal and ethical compliance.

Conclusion

Failure to comply with sanctions obligations can lead to significant reputational harm and even criminal prosecution – for both companies and individuals acting on their behalf.

It is essential for businesses to clearly understand their sanctions compliance duties and the risks associated with engaging with sanctioned entities or individuals in sanctioned jurisdictions. If there is any indication of a potential sanctions violation, companies should promptly investigate compliance breaches and implement appropriate mitigation measures.