The United States and secondary sanctions

Why American law reaches Lugano

Neither Switzerland nor Italy is bound by American sanctions law. A Lugano trader that has no American employee, no American customer and no American goods might believe that the rules of the Office of Foreign Assets Control (OFAC) do not concern it. That belief rarely survives contact with practice. American sanctions reach a Swiss company through four channels. The first is the dollar: a payment in United States dollars is in most cases cleared through a correspondent bank in New York, which is an American person bound to block or reject transactions involving blocked persons. The second is personnel, because American citizens and green card holders are bound wherever they work. The third is goods, since the Export Administration Regulations of the Department of Commerce follow American-origin items and items produced abroad with American technology. The fourth is the doctrine under which a foreign person who causes an American person to violate the sanctions is itself liable.¹

To these channels of primary jurisdiction the United States has added secondary sanctions. These do not prohibit conduct of foreign persons as such. They threaten foreign persons who engage in specified transactions with designation as blocked persons themselves, or with restrictions on their access to the American financial system. For a Swiss bank or trading house the threat is existential, because a designation cuts it off from dollar clearing and in practice from every bank that wants to keep its own American relationships. The Swiss and Italian legal orders contain no defence against this mechanism. Sanctions of third states have in principle no direct effect in Switzerland, yet Swiss banks take American sanctions into account as a matter of business policy, and SECO has made clear that it can neither authorize nor instruct a Swiss financial intermediary to disregard them.²

The 50 per cent rule and the European control test

The rules on ownership show how close the regimes are and where they differ. Under OFAC's revised guidance of 13 August 2014, an entity is blocked if one or more blocked persons own, directly or indirectly, 50 per cent or more of it in the aggregate. OFAC illustrated the aggregation with an example: "If Blocked Person X owns 25 percent of Entity A, and Blocked Person Y owns another 25 percent of Entity A, Entity A is considered to be blocked." The rule "speaks only to ownership and not to control". An entity that is controlled but not majority-owned by blocked persons is therefore not automatically blocked, although OFAC advises caution because such an entity may be designated later.³

The Swiss approach adds a second test. SECO's guidance also uses a threshold of 50 per cent or more and in principle adds together the holdings of several listed persons, so that a Lugano company owned in equal shares by two unrelated listed persons is frozen in Switzerland just as it is blocked under American law. Beside ownership, Swiss practice looks at control by other means, such as the right to appoint or remove the majority of the board, a dominant influence under a contract or the articles, or the power to dispose of the company's funds, and it presumes control once one of these criteria is met.⁴ European law likewise extends the freeze to entities that listed persons own or control. A company owned 40 per cent by a listed person who appoints the whole board may be frozen under Swiss and European law and not under American law. A compliance programme that applies only one of the tests will miss cases that fall under the other.

Notes

1. International Emergency Economic Powers Act, 50 U.S.C. § 1705(a) ("It shall be unlawful for a person to violate, attempt to violate, conspire to violate, or cause a violation of any license, order, regulation, or prohibition issued under this chapter"), https://www.law.cornell.edu/uscode/text/50/1705; Export Administration Regulations, 15 C.F.R. § 734.9 ("Foreign-Direct Product (FDP) Rules", including the Russia/Belarus FDP rules in paras (f) and (g)), https://www.ecfr.gov/current/title-15/subtitle-B/chapter-VII/subchapter-C/part-734/ section-734.9. ↩
2. SECO, "FAQ – Sanktionen der Schweiz" (above) ("Sanktionsmassnahmen von Drittstaaten entfalten grundsätzlich keine direkte Wirkung in der Schweiz"); SECO, Auslegungshilfe Sanktionsmassnahmen (above), section 1.14 ("Die Einhaltung ausländischer Sanktionen (z.B. der USA oder Grossbritanniens) fällt hingegen nicht in den Zuständigkeitsbereich des SECO [...]. Insbesondere kann das SECO einem Schweizer Finanzintermediär keine Bewilligung oder Auflage erteilen, ausländische Sanktionen nicht zu befolgen"). ↩
3. U.S. Department of the Treasury, OFAC, "Entities owned by blocked persons (50% rule)", FAQs, https://ofac.treasury.gov/faqs/topic/1521 (revised guidance of 13 August 2014). ↩
4. SECO, Auslegungshilfe Sanktionsmassnahmen (above), sections 1.10 ("50% oder mehr der Eigentumsanteile"; "Eigentumsanteile von mehreren sanktionierten natürlichen Personen, Unternehmen oder Organisationen werden dabei grundsätzlich zusammengerechnet") and 1.11 (criteria of control and presumption); Regulation (EU) No 269/2014, Art. 2 (above) (funds "owned, held or controlled" by listed persons). ↩

For general information only. This article does not constitute legal or tax advice, does not replace advice on an individual case and creates no lawyer-client relationship. It reflects the legal position as of August 2025.