Expropriation of oligarchs: the Swiss financial center’s fear of the big taboo break British Prime Minister Sunak forgot something – now the police are threatened with a fine

Coinciding with the opening of the Davos World Economic Forum, Credit Suisse released a 30-page analysis early in the week that deals with the future of the global monetary system and the dollar as the global reserve currency. The coincidence of the two events was no coincidence.

Since the beginning of the Russian campaign against Ukraine, a term has made a name for itself, with which even business laymen should immediately understand why the hegemony of the dollar and the development of the currency areas are also hot topics in Davos: “The Weaponization of Finance”, money flows as a weapon in geopolitical conflicts. The war in Ukraine has also reached a new high in this respect.

Shortly after the Russian invasion, the G7 states, under pressure from the US, agreed to freeze the Russian central bank’s foreign exchange reserves of more than USD 600 billion. Similar actions had taken place before, for example in connection with international economic sanctions against Iran. But the sheer scale of the measures taken against Russia has virtually led to a new discipline of economic sanctions.

Escape the dollar

A 2016 statement by former US Treasury Secretary Jack Lew, quoted in the Credit Suisse study, places such sanctions regimes in a global context: “The more we make the use of the dollar and our financial system dependent on compliance with the US foreign policy, the more the risk of migration to other currencies and financial systems will increase in the medium term.”

A politically motivated shift of foreign exchange reserves to other currency areas is barely perceptible. Nevertheless, financial market observers recorded the highest gold purchases by central banks in 50 years last year. Among the biggest known buyers are several countries that abstained from the April 2022 UN vote condemning Russia.

However, it seems undeniable that the control of international money flows has acquired an unprecedented political importance with the war in Ukraine. The confiscation of Russian citizens’ assets on international sanctions lists was a major topic at the Davos Economic Forum. There is great international pressure for all states to participate in such an expropriation campaign, Swiss Foreign Minister Ignazio Cassis said in an interview.

International customers on the run?

Switzerland has blocked assets of the likes of Viktor Vekselberg and other oligarchs worth 7.5 billion francs. In the EU, blocked funds amount to EUR 17 billion and in the UK £ 18 billion. Ukraine would like to confiscate these funds so that they can be used for the reconstruction of the country after the war.

The expropriation of these assets would amount to a fatal breach of the taboo, warns a representative of the Swiss banking sector who does not want to be named. Only illegally obtained assets can be lawfully expropriated. To what extent this applies to the assets of the sanctioned oligarchs, no one can know without proper legal process. Swiss government officials and exponents of the financial center are watching “the dangerous game” with growing uneasiness.

Banks are clearly concerned that a politically motivated expropriation of client assets could drive large segments of their international clientele to flight. Similar fears existed in March 1986, when the Swiss government first decided to freeze the assets of a deposed foreign president in Switzerland as a precaution. It was Philippine dictator Ferdinand Marcos who was prevented from transferring more than $600 million to his getaway home in Hawaii.

It is becoming increasingly difficult for the financial center

This marked a “paradigm shift” in Switzerland in dealing with the money of potentates, argues critical observer of the financial center and former journalist Balz Bruppacher in his book on “The Treasury of Dictators” (NZZ Libro, 2020). Bruppacher writes that the turnaround stemmed from concerns about the country’s good reputation, after Switzerland was labeled a haven for money in the world press following the fall of Marcos.

However, the expropriation of Marcos was only finally decided after more than twenty years of legal proceedings, first in Switzerland and then in the Philippines. A senior foreign ministry diplomat quoted Bruppacher as saying that Switzerland could make a virtue of the then-current need to save the financial center’s good reputation.

Such a balancing act could become more difficult in the future. “The more money flows are weaponized and the more blockages result, the more difficult it will be for Switzerland and its financial center to stay out of it,” a bank representative explained his concern. (bzbasel.ch)