Oil, gas, metal: business goes on
While Vladimir Putin is continuing the war in all brutality, Switzerland continues to supply him with foreign exchange through commodity trading.
By Sarah Schmalz
You can read it everywhere right now: Around eighty percent of Russian crude oil is traded through Switzerland. That flushes hundreds of millions into the Russian war chest every day.
Vladimir Putin’s invasion has put his oligarchs in distress. Sanctioned Putin confidants such as the former owner of Chelsea FC, Roman Abramovich, or Igor Sechin, CEO of Russia’s largest oil company, Rosneft, are trying to ship their yachts to safe havens and change their money parked in the west. However, the following applies to commodity trading: although it is linked to the Russian oligarchy, the sanctions hardly have any effect here. There are several reasons for this. The important one: nobody knows who is involved in trading in Russian raw materials on Swiss soil.
Swiss beneficiaries
The currently applicable sanctions do not primarily affect companies, but oblige them. If they work for a Swiss branch, you may not theoretically trade with them. “But if you’re clever, you use straw men at the local subsidiaries,” says anti-corruption expert Mark Pieth. This is easy in Switzerland: In contrast to the EU countries, the beneficial owners of a company do not have to be entered in a public register. Ownership remains obscure. The opaque holding structures consisting of parent companies and subsidiaries in Cyprus, Geneva or on the Cayman Islands ensure additional lack of transparency.
Oil is by far the most lucrative Russian commodity business in Switzerland ahead of gas. But copper and zinc as well as coal and wheat are also traded here. The commodity world of traders, speculators and hedge funds appears complex, but in principle it is simple: If you want to ship commodities, you need a lot of money. The financial institutions in the Swiss banking center have been happy to grant this in recent years. The means of choice is the so-called letter of credit. Banks finance the traders’ transport and take the value of the freight as collateral. This remains in their possession – in the form of a goods document – until the trade is completed. For this, a buyer must already be determined when the goods are purchased.
In the early 1990s, after the collapse of the Soviet Union, Geneva became the main hub for Russian crude oil. After the old trade channels disappeared, criminal organizations and local rulers rushed into business. Here they found trade knowledge – and more important: capital.
When it comes to oil traders on Swiss soil, a distinction must be made between Russian oil companies such as Rosneft and Lukoil, each of which also has its own trading company in Switzerland, and the so-called “independent oil traders” who specialize in intermediate trade between producers and refineries. They are called Vitol, Trafigura, Mercuria, Glencore or Gunvor. Because so far only the USA and Great Britain have decided to stop imports of Russian oil and gas, trading in oil is still legal for these Swiss profiteers. The data on tankertrackers.com indicate that they have continued to earn money diligently since the beginning of the war. They show that since the outbreak of the war just as much oil has left Russian ports as in the month before – namely around three million barrels. Trafigura, Glencore and Co. leave the question of how much oil they have traded since the outbreak of the war unanswered.
Confiscate and occupy!
Switzerland has always directly supported Putin’s system with oil deals. Two names are particularly interesting: Gennady Timchenko and Igor Sechin, both old KGB buddies of Putin. In her book «Putin’s Net» Exactly the author Catherine Belton that both and Vladimir Putin’s inauguration ceremony in 2000 were present. Sechin is also something like Putin’s shadow; he was his personal secretary for a long time. After the breakup of what was once Russia’s largest oil company, Yukon, in 2004, Putin appointed him CEO of the state-owned Rosneft company, which was built on the ruins of the Yukon. A year earlier, the trading company Gunvor settled in Geneva, which quickly rose to become the actual Kremlin dealer. They were founded by the Swede Torbjörn Törnqvist and Putin friend Gennady Timtschenko.
Raw material trader Walter Zwald lives in Meggen, Lucerne. He says: “I’m more on the right, but in some things the links are right.” Zwald is an old school trader. He once did a commercial apprenticeship with a coffee dealer; he traded in coffee for most of his professional life. From 2008 to 2012 he also worked for the Zug trading company Metal Trade Overseas. The Russian group Nornickel is behind the company. Its owner is Vladimir Potanin, one of the richest men in Russia. Potanin is not yet on a sanctions list. Especially not the unknown Russian entrepreneurs that can be found in the Zug commercial registers. Not only the trading giant Glencore and the Russian natural gas company Gazprom are based in Zug. If Geneva is oil, Zug is metal. In addition to Nornickel, the aluminum manufacturer Rusal also has a trading office here. There are about forty Russian-related companies in the canton.
Zwald says: “Switzerland has not understood the dimension of this business at all.” The 73-year-old makes a bold suggestion: all Russian trading companies must now be confiscated and occupied. “It has to happen, and Switzerland has to set an example.” The commodity trader is getting on the nerves of the Zug government with his idea. “Finance director Tännler told me that he had to bundle more important businesses.”
Zwald says: “Switzerland has looked the other way long enough and ducked out of greed.” His idea is not limited to confiscation of the Russian metal companies; he demands that the existing sales channels must remain open to the industry. “There are enough commodity experts who could take over.” The income, Zwald demands, would have to be transferred to an account in trust. “With these funds, Russia could later pay for at least part of the war damage.”
The commodities trader is also demanding that the assets of all Russian companies, such as metal warehouses across Europe and broker deposits, be confiscated. In addition, the relevant central banks in Russia would have to confiscate foreign exchange reserves. “Until the Russian oligarchs paid off the last dollar in reparations after the war.”
If you call the State Secretariat for Economic Affairs (Seco), you end up with Fabian Maienfisch. The spokesman refers to the embargo law applicable in Switzerland. This law only allows politicians to take on international sanctions. “We can’t go ahead and take our own sanctions against Switzerland as a raw material location. That would require political advances and changes in the law.”
Who jumps in?
On March 18, the Federal Council decided to also adopt the EU’s fourth package of sanctions. This is targeting the raw materials segment a little more. But trading in raw metals remains unsanctioned. The EU also continues to refrain from an import ban on oil and gas, which would hit Russia the hardest. Germany, Hungary, Austria and Greece are responsible for this. Jo Lang, who has been fighting the raw material giants on the Zug square for centuries, says: “We could finally be brave, impose an oil and trade embargo and anger Germany with it.”
Mark Pieth, on the other hand, considers a coordinated international approach to be more realistic. He believes: “The longer this war lasts and the more brutal the images become, the greater the pressure to boycott Russia radically.” Pieth recalls the UN Security Council resolution following the Iraqi invasion of Kuwait. “At that time there was no longer any trade with Iraq.” Once comprehensive trade embargoes are in place, «certain people who help with circumvention could also be prosecuted after the war. About Swiss lawyers and trustees.”
It shouldn’t be Glencore and Co. with their business in Russia anymore. Many Swiss commodity traders hold stakes in Russian energy companies or oil production facilities. Now they are announcing that they will reconsider them. Gunvor split from co-founder Gennady Timchenko after the Crimean invasion. And the Swiss banks are also keeping their distance: both UBS and Credit Suisse announced that they had withdrawn from the letter of credit business.
If you look at the many oil tankers that are still sailing the world’s oceans, it becomes clear that there have been enough banks to fill the gap.