GLENCORE

Swiss commodities traders help fill Putin's war coffers

The war in Ukraine has put Switzerland's commodities sector in the spotlight. The country makes billions trading raw materials but prefers to not look too closely into the details.

Russian oil may not flow through Switzerland, but the money it generates does

Switzerland is known for being an important financial hub. What is less in the limelight is its much more significant commodities sector.

Despite the country being far from all the global trade routes and without access to the sea, without former colonial territories and without any significant raw materials of its own, it is one of the most important trading hubs for raw materials in the world.  Oliver Classen, media officer at the Swiss NGO Public Eye, says that "this sector accounts for a much larger part of the GDP in Switzerland than tourism or the machinery industry."

Hidden from view, huge profits are made in this sector. According to a Swiss government report from 2018, the trade volume reaches almost $1 trillion ($903.8 billion). The five largest firms in Switzerland according to annual turnover are not banks or pharmaceuticals but commodity traders. Most of the 900 companies that trade raw materials are based in Geneva, Zug or Lugano.

Glencore is one Swiss raw materials giant

80% of Russian raw materials traded via Switzerland

About a third of the oil that is traded globally is bought and sold in Geneva.

 Two-thirds of the trade in base metals such as zinc, copper and aluminum are conducted in Switzerland, as are two-thirds of the trade in grain. Russia also benefits. Some 80% of Russian raw materials are traded via Switzerland, according to a report by the Swiss embassy in Moscow. Russian oil and gas flows largely thanks to deals signed on Swiss desks.

Gas and oil exports are the main source of income for Russian President Vladimir Putin. They account for 30 to 40% of the Russian budget. In 2021, Russian state corporations earned around $180 billion (€163 billion) from oil exports alone. This is money now being used to finance the war in Ukraine.

Loopholes in Swiss legislation

At a recent anti-war demonstration in the Swiss capital, Bern, Angela Mattli, joint managing director at Public Eye, said that Swiss commodity traders continued to turn a blind eye to what the Russian state was doing with this money. She deplored the fact that all of this was "quite legal within the framework of Swiss legislation, which had huge loopholes for commodity traders."

There has also been criticism from politicians: "Switzerland has to turn off the tap to the Russian war chest, " said Cedric Wermuth from the Swiss Social Democratic Party on public radio. He said that Switzerland had effective leverage — the commodities trade and the assets of rich Russians. So far, the sanctions imposed by the EU and the US do not concern the trade in raw materials, even if the US has said that it no longer wants to import Russian oil.

Switzerland has also seen anti-war demonstrations like this one in Zurich

Because of its historical status of neutrality, Switzerland does not impose sanctions of its own. Through its Embargo Act, it can only enact sanctions that have been ordered by others, for example, major trading partners or the UN Security Council.

Switzerland has capital

And so far, Switzerland has handled its golden calf, the commodities trade, with kid gloves.

Raw materials are often traded directly between governments and via commodities exchanges. However, they can also be traded freely, and Swiss companies have specialized in direct sales. One important reason is that in Switzerland there is certainly enough of the most important raw material for the commodities trade — capital. 

Depending on the current price of crude oil, a tanker load can cost $100 million — money that most companies do not have to hand. Certain instruments for handling such business have been developed in Switzerland.

In raw materials transactions, letters of credits or L/Cs are often used. A bank will give a loan to a trader and as collateral receive a document making it the owner of the commodity. As soon as the buyer pays the bank, the document and thus ownership of the commodity are transferred to him/her. The system gives traders more credit line without their creditworthiness having to be checked, and the bank has the value of the commodity as security.

Lack of regulation

This is an example of transit trade, where only the money flows through Switzerland. The raw materials usually do not touch Swiss soil but go directly from the country of origin to the recipient country. Thus, no details about the magnitude of the transaction land on the desk of the Swiss customs authority. The Swiss National Bank publishes certain details but no precise information about the flow of raw materials. What is clear is that everything is unclear.

"The whole commodities trade is under-recorded and underregulated," said Elisabeth Bürgi Bonanomi, a senior lecturer in law and sustainability at Bern University. "You have to dig around to collect data and not all information is available."

Who is buying what from whom at what price remains in the dark. The owners of unlisted commodity trading companies in Switzerland are mostly unknown. Apart from Glencore, which is a public company, they are all privately owned. "There are quite a few companies that fly under the radar of the authorities and whose actual beneficiaries are not known because, for example, they are managed in opaque offshore holdings," said Classen. This makes for a good investment opportunity for Russian oligarchs.

The lack of regulation is very appealing to commodity traders — especially because many raw materials are mined in non-democratic countries. "Unlike the financial market, where there are rules for tackling money laundering and illegal or illegitimate financial flows, and a financial market supervisory authority, there is currently no such thing for commodity trading," financial and legal expert at Public Eye David Mühlemann told the German broadcaster ARD.

"Commodity trading needs to be regulated," he said. "There has to be transparency of payments from traders to governments, especially to autocratic regimes that divert these funds into their own pockets, or even finance wars. And this is not only about Russia."

Oliver Classen from Public Eye explained that some commodity traders had become lenders to entire countries. Glencore, for example, had given over $1 billion to Chad as credit in return for access to the country's crude oil reserves.

The local population in Chad has not benefited much from profits from mining

Government relies on banks to police themselves

Even though the Swiss Federal Council acknowledges the problem, it continues to rely on the indirect monitoring of commodity traders by banks themselves, according to Amnesty International. These, however, are not obliged to take an interest in how their clients do business and where their money ends up, Amnesty says. "This seems to be enough for the government. In its eyes, there is no need for a commodities law or a special supervisory body," says the international human rights NGO.

For years, the Swiss NGO Public Eye has been calling for a supervisory body for the commodities sector based on the model of the one for the financial market. 

A Swiss Green Party proposal along these lines failed in parliament in 2015. The Greens now intend to make another such proposal.

But Thomas Mattern from the Swiss People's Party (SVP) has spoken out against such a move, insisting that Switzerland should retain its neutrality; "We do not need even more regulation, and not in the commodities sector either."

As long as politicians keep debating and Western countries do not impose sanctions on raw materials, Swiss commodity traders will continue making millions from Russian raw materials and help to fill Putin's war coffers.

This article was translated from German.