Swiss-owned company’s Russian gold trades expose gap in western sanctions

Open Mineral Ltd, registered in Abu Dhabi a year ago and wholly owned by Zug-based Open Mineral AG, imported $44 million of Russian gold to the United Arab Emirates in six shipments between August and January, according to documents obtained by the Financial Times and confirmed by the Swiss commodity trader. Keystone / Martin Ruetschi

A Swiss commodity trader’s Abu Dhabi subsidiary has been able to buy tens of millions of dollars of Russian gold despite a ban on Swiss entities undertaking such activity, the latest evidence of a gap in western sanctions against Moscow.

Switzerland last August adopted the EU’s prohibition of “the direct or indirect import, purchase or transfer” of Russian gold including shipments into third countries, which was among a raft of western measures introduced in response to Russian president Vladimir Putin’s assault on Ukraine.

But a provision in Swiss law allows its companies’ overseas subsidiaries to trade Russian commodities as long as they are “legally independent” — a term the Swiss sanctions enforcement agency declined to define.

Open Mineral Ltd, registered in Abu Dhabi a year ago and wholly owned by Zug-based Open Mineral AG, imported $44 million of Russian gold to the United Arab Emirates in six shipments between August and January, according to documents obtained by the Financial Times and confirmed by the Swiss commodity trader.

The documents were corroborated using Russian customs declarations supplied to the FT by the Free Russia Foundation, a pro-democracy group.

The UAE, the Middle East’s main trade and financial hub, has positioned itself as a neutral regional power.

Open Mineral AG, which is backed by Abu Dhabi wealth fund Mubadala, said it “takes compliance very seriously and took all appropriate steps to confirm that Open Mineral Ltd did not break any applicable law”.

The transactions by Open Mineral’s UAE subsidiary add to evidence of a playbook adopted by some traders to keep Russian oil and gold flowing.

Open Mineral’s approach has similarities with that of Paramount Energy & Commodities SA, a Swiss-based trader that owns Paramount Energy and Commodities DMCC in Dubai.

The FT reported last month that Paramount’s Dubai-based entity had continued to trade Russian crude out of the eastern oil port of Kozmino, where cargoes have consistently been assessed by pricing agencies as trading above the G7 price cap that is designed to cut Moscow’s oil revenues. Paramount has denied breaching any sanctions on the basis that the Dubai company is operated and managed “totally independently”.

While Switzerland has mirrored the EU’s sanctions, the country’s State Secretariat for Economic Affairs (Seco) said “legally independent subsidiaries of Swiss companies abroad . . . [are] generally not bound by Swiss sanctions provisions”.

It said this was because of the “principle of territoriality”, which means Swiss law applies only to nationals residing and companies incorporated in the country.

By contrast, the EU does not allow overseas subsidiaries to continue trading prohibited Russian goods because a “non-circumvention” clause, designed to ensure companies comply with both the spirit and letter of the law, is embedded in all its sanctions.

Seco declined to outline any conditions under which two entities would not be considered “legally independent”.

“Such questions will be analysed from case to case. There is no general policy,” it said.

Open Mineral AG said the UAE entity had its own office, UAE-based directors, employees, bank accounts and credit lines, adding that it had paid no dividends to the Swiss parent. In response to queries on whether the Swiss entity exerted control or oversight over the UAE entity, Open Mineral AG said Open Mineral Ltd “operates as a separate company in the usual way”.

Switzerland, which has historically valued neutrality during conflicts and has fostered a regulatory system that protects secrecy for the banking and commodity trading sectors, surprised the international community last year by following the EU in imposing sanctions on Russia.

But Agathe Duparc, a researcher at Swiss NGO Public Eye, said that if Seco had concerns about any such business arrangements, it would be well advised “to examine the link between the two entities to understand if the legal separation exists only on paper and that in reality the decisions are taken in Switzerland”.

Open Mineral was founded in 2017 by a group of former Glencore executives.

Mubadala led a $33 million funding round in 2021 for the Swiss company, which began as an eBay-style marketplace for metals but has made inroads in niche markets such as copper and lithium concentrates. Mubadala declined to comment.

Copyright The Financial Times Limited 2023

Additional reporting by Henry Foy and Sam Fleming in Brussels and Polina Ivanova, David Sheppard and Tom Wilson in London