A trading company based in central Europe has built its regional distribution network over several years. It holds contracts, inventory, open receivables, and active service agreements with counterparties that have since been added to Switzerland's sanctions lists. Its banking relationships are under pressure. The question is not whether to exit – that decision has already been made – but how to wind down lawfully without triggering a further breach in the process of unwinding the first.
Winding down sanctioned exposure under SECO requires a sequenced, documented procedure governed by Switzerland's embargo ordinances and administered by SECO (the State Secretariat for Economic Affairs). No general permission to unwind exists as of right; the applicable ordinance defines what may be done without authorisation and what requires a specific derogation. The wind-down itself can constitute a prohibited transaction if not structured correctly, and parallel exposure under OFAC, the EU, or OFSI frequently applies alongside the Swiss rules.
This guide sets out the governing authority and legal basis, the step-by-step procedure a business should follow, the cross-regime questions that arise in almost every Switzerland-connected wind-down, and the risk flags that most commonly derail an otherwise lawful exit.
Step 1: Map the exposure before any action is taken
The first step in any SECO wind-down is a full inventory of all in-scope relationships, assets, and obligations – completed before any payments are made, contracts novated, or goods moved. Acting without this map is the single most reliable way to convert a compliance problem into an enforcement problem.
The inventory must cover direct contractual relationships and any entity that qualifies as sanctioned by reason of ownership or control. SECO's embargo ordinances apply Swiss autonomous sanctions alongside measures adopted under UN Security Council resolutions. Those two layers interact: a counterparty may be listed under the UN Consolidated List, under a Swiss autonomous programme, or both. The applicable test for captured entities varies between the UN-derived and autonomous measures, and the distinction determines what authorisation, if any, is available.
In our cross-border practice, the map at this stage regularly surfaces entities that were not initially flagged. Intermediate holding companies, silent partners, and trust arrangements are frequently used structures. Document every layer of the ownership and control chain for each counterparty. Where ownership is unclear, treat the entity as potentially in-scope until verified otherwise.
The inventory should also record the nature of each exposure: receivable, payable, inventory held, contractual commitment, guarantee, or security interest. The legal characterisation of each item determines the applicable prohibition and, crucially, whether a transaction to unwind it is prohibited, permitted under an existing general authorisation, or requires a specific derogation from SECO.
Step 2: Identify the applicable ordinance and the prohibitions in force
SECO administers Switzerland's embargo measures under the Federal Act on the Implementation of International Sanctions (the Embargo Act) and the specific ordinances adopted for each programme. The prohibitions and available authorisations differ materially between ordinances; there is no single Swiss sanctions regulation that governs all programmes uniformly.
For each in-scope exposure identified in Step 1, the compliance team must identify which ordinance governs, what the specific prohibition covers, and whether the wind-down transaction falls within the scope of that prohibition. The relevant questions are:
- Does the ordinance prohibit making funds or economic resources available, or does it also prohibit receiving them?
- Does a general authorisation in the ordinance cover the type of unwind transaction contemplated?
- Is there a designated-person-specific exception or a humanitarian carve-out that applies?
- Does the ordinance impose asset-freezing obligations, and if so, has the asset been formally frozen or merely identified as in-scope?
A wind-down transaction that realises value for a designated person – for example, a payment of a genuine pre-existing receivable owed to a sanctioned counterparty – is typically a making-available of funds and is prohibited unless SECO has granted a specific authorisation. The fact that the transaction reduces rather than increases the sanctioned relationship does not make it permissible.
The position above covers the standard case. Your facts – the counterparty, the nature of the asset, the ordinance in play, and the jurisdiction – will change the analysis. For a structured review of your specific exposure, contact Calder & Vance at info@caldervance.com.
Step 3: Apply the cross-regime analysis – where OFAC, the EU, and OFSI intersect
Switzerland's sanctions exposure almost never arises in isolation. A business winding down a SECO-sanctioned relationship will in most cases hold bank accounts, employ staff, or conduct transactions in jurisdictions where OFAC, the EU Council regulations, or OFSI also apply. The stricter prohibition governs; satisfying the Swiss rules does not discharge the parallel obligation.
Several cross-regime divergences are operationally significant for a wind-down:
Ownership and control tests. SECO's approach to entities owned or controlled by listed persons broadly tracks the EU and UK position: both ownership and control are relevant, and the test is not purely mechanical. OFAC's 50 percent rule (the rule treating entities owned 50 percent or more in the aggregate by blocked persons as themselves blocked) is more precise but can produce different results than the Swiss or EU analysis for the same corporate structure. A counterparty that is not captured under the Swiss control test may still be blocked under OFAC, or vice versa.
General-licence equivalents. OFAC issues general licences (standing authorisations permitting defined categories of transactions without a separate application) that sometimes authorise wind-down activities within a defined window after designation. SECO does not have an equivalent general-licence programme; wind-down authorisations are granted case by case. EU Council regulations do contain transitional or wind-down provisions in certain programmes, but these are programme-specific and time-limited. Do not assume that a US wind-down authorisation extends to the Swiss position.
Reporting obligations. SECO requires the reporting of frozen assets. OFSI imposes reporting obligations on those who know or have reasonable cause to suspect that they hold or control funds or economic resources belonging to a designated person, and the reporting window under OFSI is defined in statute. The EU's framework similarly requires Member State authorities to be notified of frozen assets. These obligations run in parallel; a business winding down must discharge each separately.
In our experience, the most operationally complex situations involve a Swiss-based entity with EU-law obligations (arising from EU law applied in the EU Member State where the counterparty or the bank is established) and a US-dollar transaction triggering OFAC's jurisdiction by reason of the dollar clearing step. All three regimes must be mapped before the wind-down timeline is set.
If a transaction has already been flagged by a correspondent bank or a payment has been blocked, an early review can preserve options that narrow with time. Write to info@caldervance.com to discuss the position.
Step 4: Seek authorisation where required
Where the intended wind-down transaction is prohibited and no general authorisation exists, the business must apply to SECO for a specific derogation before proceeding. A specific derogation is a case-by-case authorisation to carry out an otherwise prohibited transaction, typically on humanitarian, contractual, or judicial grounds defined in the applicable ordinance.
The application process involves submitting a written request to SECO with a factual description of the transaction, identification of the designated persons involved, the legal basis for the requested derogation, and supporting documentation. SECO may grant the authorisation subject to conditions – for example, requiring that the released funds be transferred to a blocked account rather than made freely available.
Prepare the application carefully. An incomplete or ambiguous application delays the response, and delays carry their own risk: a business that continues to perform contractual obligations while the application is pending may still be in breach. Seek counsel's input on the application before submission, not after a refusal.
Where the derogation is required because a court order or arbitration award compels payment to a designated person, the specific procedural rules of the applicable ordinance govern whether SECO has discretion to authorise payment or whether the order creates an overriding obligation. This interaction between civil-law enforcement and sanctions law is a recurring source of difficulty.
Step 5: Execute the wind-down with a documented compliance trail
Once the appropriate authorisations are in place, the wind-down transactions must be executed in a sequence that avoids creating new exposures at the point of settlement. Each transaction in the sequence should be recorded against the authorisation that covers it, with the date, the parties, the amount or asset description, and the authorisation reference logged in the compliance file.
Several operational points commonly cause problems at this stage:
Payment routing. A wind-down payment routed through a US correspondent bank will involve OFAC's jurisdiction even if both the payer and the payee are outside the United States. Where a US-dollar clearing step is involved, OFAC authorisation is required in addition to SECO's. Changing the currency of settlement is sometimes operationally possible; it is not always permissible to do so unilaterally under the contract.
Novation and assignment. Transferring a contract or receivable to a non-sanctioned party as part of a wind-down is a transaction that must itself be assessed against the applicable prohibitions. The novation relieves the original party of its obligation, but if the effect is to transfer value to, or realise a payment for, a designated person, it is prohibited absent authorisation. We regularly advise on the sequencing of novation, payment, and authorisation filing in this type of exit.
Inventory and goods. Physical goods held under a supply arrangement with a sanctioned counterparty present their own set of questions. Transfer, destruction, or return of the goods each engages different provisions of the applicable ordinance and may trigger export-control obligations under the Swiss export regime alongside the sanctions rules.
Record retention. Maintain full documentation of every step. Swiss law imposes record-keeping obligations; OFAC requires five-year retention of records relating to transactions under a licence; OFSI's record-keeping expectations are similarly substantial. Where multiple regimes apply, apply the most demanding standard across the board.
What are the principal risk flags in a SECO wind-down?
The risk flags that most reliably escalate a wind-down into an enforcement matter share a common feature: they arise from decisions taken before the legal analysis is completed. The following patterns appear repeatedly in our practice.
Acting on the assumption that unwinding is permissible as a matter of principle. Some businesses proceed on the basis that reducing sanctioned exposure cannot itself be prohibited. That assumption is wrong. The act of making a final payment, transferring an asset, or executing a closing step can constitute a prohibited transaction regardless of its purpose.
Relying on the counterparty's representations. A designated counterparty's assurance that a particular transaction falls outside the scope of the designation carries no legal weight. The firm conducting the wind-down bears the obligation, and only the regulator can authorise a departure from it.
Failing to identify the full ownership chain. A wind-down that exits the listed entity but leaves an ongoing relationship with a company it owns or controls at 50 percent or more is only a partial exit. Under OFAC the residual relationship is blocked; under SECO and the EU a control relationship may be sufficient even below that threshold.
Disregarding the parallel regimes. Securing SECO's authorisation and then executing the payment through a US correspondent without an OFAC licence is the most common multi-jurisdictional failure mode in Swiss-nexus wind-downs. Dual-track authorisation is not optional where the transaction touches both regimes.
Missing the reporting window. Where frozen assets must be reported to SECO, the obligation arises at the point of identification, not at the point of completing the wind-down. Late reporting is an independent breach.
A commonly held misconception deserves direct correction here. Many businesses believe that a winding-down of sanctioned exposure is, by its nature, a compliance activity that regulators will not penalise. In practice, enforcement actions have followed wind-down transactions precisely because the procedural obligations were not met. The regulator's concern is not the business purpose but the legal authorisation – or its absence.
Related practices
- Correspondent banking and de-risking under OFAC – assessing and managing OFAC exposure in banking relationships
- Winding down sanctioned exposure under Singapore's regime – procedure and cross-border comparison for Singapore-nexus exits
- Winding down sanctioned exposure under the UAE regime – how the UAE autonomous measures govern a structured exit