Swiss-owned company exposes gap in Western sanctions regarding gold trading by Russian companies

The Swiss subsidiary of an Abu Dhabi-based commodity trader was able to purchase Russian gold worth tens and millions of dollars despite Swiss entities being banned from doing so. This is the latest example of a loophole in Western sanctions against Moscow.

Switzerland in August last year, the EU banned “the direct import, purchase, or transfer” of Russian Gold, including its shipments to third countries. This was one of a number of measures taken by western nations as a response to Russian President Vladimir Putin’s attack on Ukraine.

A provision of Swiss law permits its overseas subsidiaries to trade Russian products as long as they’re “legally independent”, a term that the Swiss sanctions enforcement agency has declined to define.

Open Mineral Ltd., registered in Abu Dhabi one year ago, and owned wholly by Zug’s Open Mineral AG, imported 44mn dollars of Russian gold into the United Arab Emirates between August and the beginning of January.

Documents were verified using Russian customs statements provided by Free Russia Foundation, an anti-authoritarian group.

The UAE has established itself as a regional power that is neutral.

Open Mineral AG is backed up by the Abu Dhabi wealth fund Mubadala. It said that it “takes compliance extremely seriously and has taken all necessary steps to confirm Open Mineral Ltd didn’t break any applicable laws”.

Open Mineral’s UAE-based subsidiary has added to the evidence that some traders have adopted a playbook to keep Russian gold and oil flowing.

Open Minerals’ approach is similar to that of Paramount Energy & Commodities SA. This Swiss-based trader owns Paramount Energy and Commodities DMCC, a Dubai-based company.

Last month, it was reported that Paramount’s Dubai entity had traded Russian crude from the eastern oil port Kozmino. Cargoes were consistently assessed by price agencies as trading over the G7 cap designed to reduce Moscow’s oil revenue. Paramount denies breaching any sanctions, stating that its Dubai-based company is managed and operated “totally independent”.

The Swiss State Secretariat for Economic Affairs, Seco, has said that “legally independent subsidiaries abroad of Swiss companies are not subject to the EU sanctions”. . . “Swiss sanctions are not binding on them in general”.

This is because the “principle territoriality” applies to Swiss law only for nationals who reside in Switzerland and companies that are incorporated there.

The EU, on the other hand, does not allow its overseas subsidiaries to trade in Russian goods that are prohibited. This is because all of its sanctions include a clause called “non-circumvention”, which ensures companies follow both the letter and spirit of the law.

Seco refused to specify any conditions that would prevent two entities from being considered “legally separate”.

Such questions will be examined on a case-by-case basis. “There is no general policy,” the statement said.

Open Mineral AG stated that the UAE entity has its own office in the UAE, directors and employees based there, as well as bank accounts and credit cards. It also said it had not paid any dividends to Swiss parent. Open Mineral AG responded to questions about whether the Swiss entity exercised control or overseen the UAE entity by saying that Open Mineral Ltd. “operates in the usual manner as a separate business”.

The Swiss, who have historically been neutral during conflict and have fostered a system of regulation that protects secrecy in the banking and commodity sectors, shocked the international community by following the EU and imposing sanctions against Russia last year.

Agathe Duparc is a researcher with the Swiss NGO Public Eye. She said that Seco would do well to “examine the link between both entities in order to determine if the separation of legal entity exists only on paper, and in reality, the decisions are made in Switzerland.”

Open Mineral was established in 2017 by former Glencore executives.

Mubadala led the $33mn financing round for 2021. The Swiss company began as a metals marketplace similar to eBay, but has since made significant inroads into niche markets like copper and lithium concentrats. Mubadala declined comment.

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