A Swiss-based trading company receives a purchase order from a counterparty in a third market. The payment instruction routes funds through a correspondent bank in Zurich. Before the wire is released, the bank's compliance team flags a beneficial owner against the SECO (Switzerland's State Secretariat for Economic Affairs) consolidated sanctions list. The deal is on hold. Can the escrow proceed? Must the funds be frozen? And what does the Swiss ordinance require next?
Payment and escrow structuring under SECO requires a business to screen every party in the payment chain – payer, payee, intermediary, and beneficial owner – against the applicable Swiss sanctions ordinances before funds are released or held in escrow. Where a match arises, Swiss law imposes an immediate freeze obligation, a reporting duty to SECO, and a prohibition on providing funds or economic resources to listed persons. As of January 2026, Switzerland maintains autonomous sanctions that track, but in several respects diverge from, the EU and UK regimes.
This guide walks through the governing authority, the compliance procedure, the cross-regime comparison with OFAC, OFSI, and the EU, the risk flags that most commonly cause problems, and when to involve specialist sanctions counsel.
Who administers Swiss sanctions and what is the legal basis?
Switzerland's sanctions regime is administered by SECO under the Federal Act on the Implementation of International Sanctions (the Embargo Act) and a series of country- and thematic-specific ordinances enacted by the Federal Council. SECO publishes the Swiss Consolidated Sanctions List, which incorporates United Nations Security Council designations and, increasingly, autonomous Swiss designations that run in parallel to – but are not automatically identical with – EU Council positions.
The Embargo Act establishes the legal basis for asset freezes, prohibitions on making funds or economic resources available, and prohibitions on specific financial services. Each sanctions ordinance specifies the exact scope of the prohibition for the relevant programme. In our cross-border practice, clients frequently assume that aligning with EU Council regulations automatically satisfies SECO requirements. It does not. Switzerland enacts its own ordinances; timing and scope can differ from Brussels.
Two institutions share operational responsibility. SECO enforces financial and trade sanctions. The Swiss Financial Market Supervisory Authority (FINMA) oversees compliance by supervised financial intermediaries – banks, payment institutions, and securities dealers – who have parallel obligations under Swiss anti-money-laundering rules. A payment-structuring question therefore sits at the intersection of both SECO's sanctions ordinances and FINMA's supervisory expectations.
Step 1 – Screen every party in the payment chain
Before any payment is released or any escrow arrangement is funded, the first step is systematic screening of every party with a role in the transaction: the ordering customer, the beneficiary, all intermediary banks, and the ultimate beneficial owners at each level of the chain. The Swiss Consolidated Sanctions List is the primary reference, but a complete screen also covers the UN Consolidated List and, for transactions with a US-dollar leg or a US-nexus, the OFAC SDN List (OFAC's list of Specially Designated Nationals and blocked persons).
Beneficial ownership creates the most consistent difficulty. Swiss sanctions ordinances, like their EU counterparts, are designed to reach entities that listed persons own or control. A counterparty may appear clean on a direct-name search while a listed person holds a controlling interest through intermediate holding companies. In our experience, the ownership question is where payment-compliance processes most often fail. The screen must map the full ownership structure, not only the contracting party.
What ownership threshold triggers the Swiss prohibition? The ordinances do not specify a single numeric threshold in the same way OFAC's 50 percent rule (the rule treating entities owned 50 percent or more by blocked persons as themselves blocked) operates. The Swiss test – consistent with the EU approach – extends to entities owned or controlled by a listed person. Control can be established through shareholding, board representation, contractual arrangements, or any other mechanism by which the listed person effectively directs decisions. This is a facts-and-circumstances assessment, not a mechanical calculation.
Step 2 – Apply the freeze and payment-hold mechanics
If screening produces a confirmed match, the obligation under Swiss law is immediate: freeze the assets and do not proceed with the payment or the escrow release. The prohibition on making funds or economic resources available to a designated person operates as a strict prohibition; there is no grace period to seek guidance before halting the transaction.
Escrow arrangements introduce a particular structuring question. If funds are already held in escrow and the trigger for release is met, but a beneficial owner of the beneficiary is subsequently designated, is the escrow agent permitted to release? The short answer is no. The designation of a party with an interest in the escrow proceeds creates a freeze obligation over the relevant economic interest, even if the release condition has technically been satisfied. Escrow agreements for cross-border transactions should therefore include explicit sanctions-event provisions – conditions that suspend the release obligation in the event of a designation affecting any party and that require notification to the escrow agent.
For payment institutions and correspondent banks operating under FINMA supervision, the practical timeline for holding a payment pending a screening decision is governed by internal policy and FINMA expectations, as well as by the Swiss Anti-Money Laundering Act. A payment that cannot be cleared should not simply be returned without analysis; returning funds to a designated person may itself constitute making economic resources available. The correct step is to freeze, report, and await guidance – not to reverse the wire without checking where the funds would land.
Step 3 – Report to SECO and maintain records
Once an asset or payment has been frozen because of a sanctions match, Swiss law requires the holder to report to SECO without delay. The report must cover the nature of the asset or funds, the basis for the freeze, the identity of the relevant listed person or entity, and the estimated value involved. SECO publishes guidance on the required content of the report; the notification should be addressed to SECO's sanctions division.
Record-keeping obligations accompany the freeze and reporting duty. Businesses subject to Swiss sanctions ordinances must maintain records sufficient to demonstrate compliance. In our experience, firms that have invested in structured documentation – screening logs, decision rationale, freeze notices, and correspondence with SECO – are significantly better positioned when SECO or FINMA conducts a review. The records should be kept for a period consistent with both sanctions obligations and the applicable Swiss anti-money-laundering record-retention rules, which are set at a defined multi-year period under Swiss law (verify the current period before relying on it).
A specific licence from SECO may allow a frozen payment to be released or an escrow transaction to proceed where the ordinance provides a licensing pathway. Not all Swiss sanctions programmes include a general or specific licensing mechanism equivalent to that available under OFAC or OFSI. Where a pathway exists, the licence application must set out the legal basis, the transaction detail, and the sanctions justification. Obtaining a licence is a prerequisite, not a retrospective cure, for a payment that would otherwise be prohibited.
How does SECO compare with OFAC, OFSI, and the EU on payment structuring?
The four major regimes – SECO, OFAC, OFSI, and the EU Council – share the same core architecture: a list-based prohibition, a freeze obligation, and a licensing pathway. But the differences are material for anyone structuring a cross-border payment.
OFAC's 50 percent rule is mechanical and bright-line. Aggregate ownership at or above that threshold by blocked persons makes the entity itself blocked, without any further analysis of control. Swiss and EU rules add a control limb that captures entities not meeting the ownership threshold but nonetheless controlled by a designated person. That means a payment that passes an OFAC-only screen may still be prohibited under SECO if a listed person exercises effective control without majority ownership.
Secondary sanctions are an OFAC-specific feature. OFAC's secondary-sanctions programmes can expose non-US persons – including Swiss companies and Swiss financial institutions – to designation risk and market-access restrictions for engaging in transactions with certain designated parties, even where those transactions have no US-dollar leg and no US-nexus. SECO does not operate secondary-sanctions programmes of the same type. A Swiss trading house that concludes a transaction is outside OFAC's primary jurisdiction must nonetheless assess secondary-sanctions risk before proceeding. We regularly advise Swiss financial institutions on exactly this intersection.
OFSI in the United Kingdom applies a similar ownership-and-control test to the EU and, by policy, applies it in a manner broadly consistent with EU guidance on the control concept. OFSI also has a monetary penalty regime for financial-sanctions breaches. Switzerland's enforcement posture differs: SECO has criminal-law tools under the Embargo Act, and enforcement has historically concentrated on systemic or egregious failures rather than technical errors. That pattern should not, however, encourage complacency; the Swiss regime is capable of significant sanctions for deliberate breaches.
One divergence that directly affects escrow structuring is the treatment of payments for legal fees, humanitarian goods, or basic living expenses. OFAC provides specific general licences and OFSI licensing pathways for certain categories of payment to designated parties. Swiss ordinances vary by programme; some include comparable humanitarian or legal-fee exceptions, others do not. Confirm the applicable exception – if any – before assuming that a payment permitted under one regime is equally permitted under SECO.
The position above covers the standard cross-regime analysis. Your facts – the currency of settlement, the identity of the correspondent bank, the nationality of the beneficial owners, and the specific SECO ordinance in play – change the analysis materially.
For an initial assessment of your exposure across SECO and the interconnected regimes, contact Calder & Vance at info@caldervance.com.
What are the risk flags in cross-border payment and escrow structuring?
Six patterns repeatedly surface when payment transactions are examined after a compliance failure. Each is a risk flag that should prompt a deeper review before a payment is released.
- Multi-hop payment routes. A payment routed through three or more correspondent institutions across multiple jurisdictions creates multiple screening obligations and multiple points at which a blocked party could enter the chain. Each intermediate bank applies its own home-regime sanctions list. A payment cleared by one intermediary may still be flagged or frozen by the next.
- Opaque beneficial ownership. Counterparties structured through multiple layers of holding companies in secrecy jurisdictions increase the risk that a designated person's interest is not visible in the first-level screen. Beneficial-ownership registers are not uniformly accessible or up to date; primary source verification is required.
- Currency of settlement. US-dollar payments clear through the US correspondent banking system and are therefore subject to OFAC jurisdiction regardless of the parties' nationalities. A Swiss company settling a trade in US dollars cannot rely solely on a SECO screen. Similarly, euro-clearing through EU institutions subjects the payment to EU sanctions obligations.
- Escrow trigger events tied to disputed performance. Where the escrow release condition is contested, a prolonged dispute creates the risk that a new designation during the dispute period affects the entitlement to the escrowed funds. Escrow agreements must anticipate this scenario.
- Government or state-owned counterparties. Entities majority-owned by a sanctioned state are, in most programmes, themselves caught by the prohibition. State-owned enterprises require enhanced ownership analysis, not just a name-match screen.
- Goods subject to export controls. Payments for dual-use goods or controlled technology may require a concurrent SECO export-control review and, where the exporter is US-connected, an EAR analysis. The payment obligation and the export authorisation should be aligned before funds are committed.
Is your screening process testing for all six of these? And does your escrow agreement contain language that addresses what happens on a designation event? In our experience, most standard commercial escrow templates do not.
The myth of alignment: does Switzerland automatically follow EU sanctions?
A persistent misconception among businesses operating between the EU and Switzerland is that Swiss sanctions automatically mirror EU positions. This myth leads compliance teams to conduct only an EU screen and assume SECO coverage is satisfied.
The reality is more nuanced. Switzerland does align its autonomous sanctions with EU positions in many programmes, and SECO has stated a policy of close coordination with the EU. But alignment is not automatic or simultaneous. Swiss Federal Council ordinances must be enacted separately. There have been periods – particularly following rapid EU designation rounds – when the Swiss list lagged the EU list by days or weeks. A transaction cleared on SECO's published list on a given date may have been prohibited under EU law at that same date, and vice versa.
More significantly, the scope of specific prohibitions within a given programme can differ between the Swiss ordinance and the corresponding EU regulation. The financial-services prohibitions, the goods-related restrictions, and the licensing pathways available under each instrument require individual analysis. Compliance counsel advising on a cross-border payment should confirm the SECO position independently and not rely on an EU analysis as a proxy.
If a transaction has already been flagged by a correspondent bank or a SECO notification has been received, an early review can preserve options that narrow with time. Contact us at info@caldervance.com to discuss next steps.
When should a business involve sanctions counsel?
Three situations require specialist input before, not after, a decision is made.
Before the transaction is signed. Where a payment involves a counterparty in a high-risk jurisdiction, a state-owned entity, or a multi-hop route through currencies subject to OFAC or EU jurisdiction, a pre-execution review maps the applicable prohibitions, identifies the licensing pathways, and flags any structural changes that would reduce exposure. An investment made at the drafting stage is considerably cheaper than an enforcement response.
When a screen produces an uncertain result. Screening tools generate potential matches that are not automatically conclusive. A match on name and country is not a confirmed designation. A confirmed designation does not automatically mean the counterparty is caught if the ownership analysis does not reach the threshold. Interpreting a match – and deciding whether to freeze, to proceed, or to seek a licence – requires legal analysis applied to the specific facts of the transaction and the specific text of the applicable ordinance.
When a freeze or a report has already been made. Once a freeze is in place and a report has gone to SECO, the next steps determine whether the business can recover its commercial position. A licensing application, a request for SECO's guidance on whether a specific transaction is caught, or an analysis of whether the designation event has affected the entire contract or only the relevant interest – these are time-sensitive questions. We have acted for financial institutions, trading houses, and payment intermediaries in exactly these situations, and the speed of the initial response has repeatedly determined the outcome.
Related practices
- Correspondent banking and de-risking under OFAC – US sanctions compliance for financial institutions managing correspondent relationships and payment-channel risk.
- Payment and escrow structuring under Singapore law – MAS sanctions obligations for cross-border payment and escrow arrangements involving Singapore counterparties.
- Payment and escrow structuring under UAE sanctions – UAE Executive Office framework for payments, escrow, and beneficial-ownership screening.