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EXPLAINED: Why Switzerland is a magnet for Russian money

For Russia’s elite, Swiss banks have long been a safe haven for their wealth. Here’s why.

EXPLAINED: Why Switzerland is a magnet for Russian money
This is just a tiny drop in a bucket of overall Russian assets in Swiss banks. Photo: Pixabay

Like wealthy citizens of many other countries, Russian oligarchs have been parking parts of their assets in Swiss banks and other financial institutions for many years.

Even despite low interest rates and moves towards more transparency in the financial sector, Switzerland remains an appealing destination for the ultra-rich, mostly due to the country’s longstanding political and economic stability.

In fact, according to a study by Deloitte released in October 2021, Switzerland is the world’s largest wealth manager, managing 2.4 trillion in international assets; Russian money is part of the overall wealth.

Why is the Russian elite attracted to Switzerland?

As reported by Neue Zürcher Zeitung (NZZ) on March 2nd, “Switzerland has seen a strong uptick in wealthy clients from Russia in recent years”.

“Net transfers from Russia to Switzerland made by private tax residents hit a five-year high in 2020”, according to the Swiss Embassy in Moscow in 2021, as reported by NZZ.

“Key reasons for these flows included Switzerland’s legal certainty, stability and neutrality”.

Russia’s financial sector, on the other hand, “has a contentious history that has led to much distrust for banks among the local population”, according to the website for Russia’s foreign nationals.

READ MORE: OPINION: Why Switzerland is failing in its fight against money laundering

While the exact sum of what is commonly referred to as “Russian money” in Switzerland is not known at this point, according to the Bank for International Settlements, it amounted to $23 billion in the third quarter of 2021

Who are the major Russian clients of Swiss banks?

A significant portion of the money hoarded in Swiss banks belongs to oligarchs believed to have close connection to Russia’s president Vladimir Putin.

Switzerland has followed EU’s lead in freezing assets of hundreds of these oligarchs as part of sanctions against Russia  for invading Ukraine.

READ MORE: Neutral Switzerland’s economy shaken by sanctions on Russia

For its part, the Swiss Bankers Association reacted to the sanctions by saying that Russia was “not a priority” market, and excluded the Swiss subsidiaries of Russia’s Gazprombank and Sberbank from its ranks. 

However, this is not the first time that Swiss banks freeze Russian money.

In 2013, Swiss prosecutors froze bank accounts  as part of a widened probe into a Russian money laundering case linked to lawyer Sergei Magnitsky, whose death in a Russian prison sparked a row between Moscow and Washington.

And in August 2018, Credit Suisse blocked roughly 5 billion francs linked to Russia to comply with US sanctions against Moscow.

READ MORE: Gold, secrecy and wealth: Six Swiss bank myths that need to be busted

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‘Limited capacity’: How the Swiss right wants to shut out western Ukrainian refugees

With about 51,000 refugees from Ukraine currently in Switzerland, right-wing politicians argue in favour of introducing geographic vetting in regards to who can qualify for Status S, saying Switzerland has "limited capacity" for refugees.

'Limited capacity': How the Swiss right wants to shut out western Ukrainian refugees

After Russia invaded Ukraine on February 24th, the Federal Council activated, for the first time ever, the ‘S status’ authorising Ukrainians and Ukraine residents fleeing the war to live temporarily in Switzerland.

The special status is initially valid for a year, but can be extended. Anyone who is still in Switzerland after five years receives a B permit.

Included is also the right to work, as well as free health care and language courses. The refugees also have the right to free public transportation, but this perk will end on May 31st, with no word yet whether it will be renewed.

READ MORE: Switzerland’s special ‘S permit’ visa program: What Ukrainians need to know

Now, however, “the great solidarity with refugees from Ukraine is cracking”, according to SonntagsZeitung, which reports that rightwing politicians in Switzerland are “beginning to question our country’s culture of hospitality”.

The right-wing Swiss People’s Party (SVP), which has consistently opposed sanctions on Russia, is calling on the government to limit the S status  only to Ukrainians who come from the eastern part of the country, which is currently most impacted by Russia’s invasion.  

This movement is spearheaded by MP Martina Bircher, who argues that Switzerland is reaching its limits in terms of the number of refugees it can accommodate and support, and it should therefore grant S status only to those fleeing the most conflict-ridden regions of Ukraine, like the eastern part.

Other right-of-centre groups are in favour of this “regionalisation” as well. Andrea Caroni, president of the centre-right Liberal Party, supports the idea of granting the special status based on the geographical evolution of the Ukrainian conflict, saying Switzerland “ultimately has limited capacity” to absorb refugees from Ukraine. 

He said, however, that such a measure “must be coordinated at the European level.”

Not everyone, however, agrees with Bircher’s proposal.

According to Gerhard Pfister, president of the Centre Party, adopting geographical limitations “would create two classes of Ukrainians. This is not right”.

It is unclear how the SVP would seek to draw barriers to distinguish between the east and west of the country. 

As for the Conference of Cantonal Directors of Social Affairs, vice-president Marianne Lienhard said the organisaton will discuss the proposal at its next meeting at the end of May.

Cantons are directly affected by the influx of Ukrainians, as they will eventually bear the cost of supporting the refugees — the cost which is currently borne mostly at a federal level.

The “NZZ am Sonntag” calculated that in 2022, the costs of housing, health insurance, and general support will amount to between 1.25 and 2.25 billion francs. In 2023, these expenses could climb to 7.5 billion.

“Fake” refugees

In an article she wrote for the SVP website, Bircher also argued that some refugees pretending to be Ukrainian actually aren’t.

As an MP from Aargau, she claims that out of 12 people who received the S status in a small town in her canton, only seven were Ukrainian nationals. The other five came from Africa.

Among them are  “Kenyan and Lebanese men who claim to have lived in Ukraine or who actually lived there before the war, but who do not have a Ukrainian passport”.

The S permit scheme does not only provide protection for Ukrainian citizens, but also citizens of other countries who live in Ukraine. 

While reserved predominantly for Ukrainians, the S status has also been occasionally granted to citizens of other countries. 

According to the State Secretariat for Migration (SEM), about 1,000 “other” refugees received this status as well, including 238 Russians, and  people from Germany, France, Italy, the United States, Canada and Australia.

In such cases, children have a different passport from their parents, but it is the parents’ nationality and place of residence that defines whether the status is granted.

So it could happen that the parents have Ukrainian passports, while their children are citizens of other nations.

READ MORE: Swiss MPs call for Russian money to be used to reconstruct Ukraine