(Bloomberg) -- The central Swiss city of Zug isn’t given to political protests, but last week residents took to the streets carrying placards saying “No to Putin’s War” and “Blood Money” as they decried the town’s role as host to one of the largest concentrations of Russian businesses outside Russia. 

“We ask Switzerland to support Ukraine and stop doing business with Russia,” Tetiana, a Ukrainian now living in Switzerland whose family is still stuck in Kyiv, said as she addressed a crowd at dusk in the city’s old center. She didn’t want her last name published for fear of reprisal. 

About 80% of Russia’s commodities are traded through Switzerland, making it critical to Russian exports. Switzerland last month set aside its famed neutrality, deciding to join the European Union’s sweeping sanctions against Russian individuals and entities. But with commodity trading desks largely spared, it’s business as usual for Russian companies in Zug, a city tucked between Zurich and Lucerne.

Above Zug’s main shopping center sits Metal Trade Overseas AG, a sales unit of Norilsk Nickel, whose biggest investor is Vladimir Potanin, Russia’s richest man, according to the Bloomberg Billionaires Index. A few doors down, across from the train station are Rusal Marketing GmbH and Rusal Products GmbH, the main trading arms of United Co. Rusal International that supply aluminum to hundreds of clients around the world. Rusal’s holding company was once controlled by Oleg Deripaska, who was sanctioned by the U.S. in 2018.

Not far away are the headquarters of EuroChem, a producer of mineral fertilizers and agricultural products, whose founder Andrey Melnichenko resigned from the company’s board and withdrew as its controlling shareholder on Wednesday, after being included in the new wave of EU sanctions. Melnichenko has “no relation to the tragic events in Ukraine” and has “no political affiliations,” his spokesman said.

A kilometer up Baarerstrasse is East Metals AG, the primary steel-trading operation outside Russia for Evraz Plc. Its largest shareholder is Roman Abramovich, the owner of Chelsea Football Club who -- together with Deripaska -- was added to the U.K.’s sanctions list on Thursday. 

Sanctioning Abramovich, the U.K. government said that Evraz is or has been involved in activities that have aided President Vladimir’s Putin’s war against Ukraine, including “potentially supplying steel to the Russian military which may have been used in the production of tanks.”

But none of these metals magnates or their companies have made it to the EU’s, and hence Switzerland’s, sanctions list  -- a fact that rankles Manuela Weichelt, a Swiss member parliament for Zug. The city is indirectly contributing to Putin’s war economy, she alleges. With her colleagues from the Green Party she’s pushing the Swiss Parliament to sanction the commodity trading houses. 

‘War Chest’

“We have to go further,” said Weichelt. “Putin filled his war chest with funds from Zug companies and now funds from Zug are flowing into the war against Ukraine.”

The companies deny they’re playing any role in Russia’s invasion of Ukraine. 

“We can assure you that East Metals AG neither works with nor supplies goods for Russian military purposes,” Evraz said in an email, adding that it doesn’t provide financing to “anyone outside Evraz.” 

A Rusal spokesman said in an email that the company is “not related to governments, nor do our trading activities fund any form of warfare.” It provides “monthly certification that it’s independent of any sanctioned individuals,” he said.

A receptionist at Metal Trade Overseas said no one was available to comment, while its parent company Norilsk Nickel didn’t return messages seeking comment. 

Zug looks to federal government guidance on sanctions and will implement any new measures, said Silvia Thalmann-Gut, head of the department of economic affairs. Beyond that, “we don’t have the information to decide” on which local companies should be sanctioned, she said. 

The true scale of Russian operations in Zug is hard to determine because Swiss registration rules demand limited information from companies looking to do business there. Local officials estimate that there are at least 40 companies connected to Russia that employ about 900 people in the canton, although Thalmann-Gut accepts there could be many more.

Twenty firms identified as Russian by the canton paid 31 million Swiss francs ($33 million) in cantonal and municipal taxes in 2020. That might not seem like much. But its Zug’s low-tax regime that catapulted the one-time sleepy village into a global commodities hub over the past half-century, becoming a base for controversial figures like Marc Rich. With a population of 127,000, Zug, which has nearly one registered company for every two taxpayers, has the lowest corporate tax rate of any Swiss canton. 

Nord Stream 2

So far Zug’s main economic casualty from western sanctions is the company operating Nord Stream 2, the Kremlin-backed gas pipeline connecting Russia directly with Germany. Zug considers it to be in “de facto” insolvency since its 106 employees have been laid off, said Thalmann-Gut. Nord Stream 2’s Zug headquarters, where no one was willing to discuss its current status, no longer has a Russian flag flying in its forecourt. Its logo has been cut from the jerseys of players who lace up for Zug’s pro ice-hockey team.  

The city’s finance director Heinz Taennler downplays the Russian companies’ contributions. If they left town, it wouldn’t “put us in financial distress,” he says. 

But the companies don’t seem to be going anywhere anytime soon, and that angers locals like Michael Kalauz. 

“I was born and raised here in Zug and everybody knows about the dark side of the economy here,” says the 35-year-old security specialist at a local bank. “It’s obvious that it is -- not that it could be -- financing this war.”

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