When commodity traders get caught

Companies and/or individuals involved: Rosneft Trading S.A. (Switzerland), TNK Trading International S.A. (Switzerland)

Charges: Doing business with the Maduro regime, which the Unites States deem illegitimate

Swiss lawyers used: Daniel Richard (PRLEX avocats, Geneva)

Countries affected: Switzerland

Proceedings: United States (Office of Foreign Assets Control US Department of the Treasury)

Outcome:  Political decision: Inclusion in the United States sanctions list against Venezuela; freezing of assets in the United States

Asset recovery: No legal case

The case

The matter involving the Swiss commodity trading company Rosneft Trading S.A. (RTSA) never even came to court. There was no trial and no verdict. Rather, the United States imposed sanctions on the company, a purely political measure. Economically, however, this was a severe punishment.

RTSA is a Geneva-based subsidiary of Russian oil giant Rosneft Oil Company, founded in 2011 to oversee the parent company’s foreign operations. After the Russian annexation of Crimea in 2014, the United States imposed sanctions on both companies due to their ties with Moscow. Following Executive Order 13662, their assets in the United States were blocked.

Outside the United States, however, this was not a problem at first. RTSA stayed in business, focusing in particular on states that were well-disposed towards Russia and towards the annexation of Crimea.

In 2014, Rosneft granted the Venezuelan government a loan of USD 6.5 billion. The Venezuelan state oil company Petróleos de Venezuela S.A. (PDVSA) supplied crude oil in return, which RTSA sold on. As a result, RTSA saw its status elevated to the most important trader of Venezuelan crude oil. And to a very good taxpayer in Geneva.

However, Venezuela turned out to be a troublesome partner. Production output fell far below expectations and a joint venture between PDVSA and Rosneft soon had an inexplicable hole of USD 700 million in its balance sheet.

This came as no surprise. For years, Venezuelan oil trade had been in the focus of the global public. Since 2004, 164 criminal investigations have been opened in 29 countries into systematic corruption at PDVSA, including against companies in Switzerland. 

On 24th August 2017, the United States had had enough : It issued Executive Order 13808, thereby cutting off PDVSA’s access to the US capital market. On 28th January 2019, the United States froze PDVSA’s US assets under Executive Order 13850 and prohibited US entities and persons from doing any business with PDVSA.

But RTSA was not a US entity. It was business as usual. From August 2019 to January 2020 alone, a total of 60 million barrels of crude oil, about half of the amount produced by Venezuela during this period, passed through RTSA. According to the US authorities, RTSA would also have oil transferred from ship to ship in order to conceal its Venezuelan origins.

On 18th February 2020, the United States also designated RTSA and its chairman pursuant to Executive Order 13850 for supporting the “illegitimate Maduro regime”. A severe economic sentence.

Rosneft described this action as “illegal, unjustified, and an act of legal abuse” and transferred the business with Venezuelan oil to the Swiss subsidiary TNK Trading International SA in Geneva until the U.S. Office of Foreign Assets Control (OFAC) also designated this company.

RTSA, TNK Trading International and another subsidiary, Energopole S.A., are still registered in the Geneva Commercial Register. Rosneft is now also affected by European and Swiss sanctions in connection with the invasion of Ukraine.

Documents related to this affair

• Public Eye: Das Rosneft-Universum in Genf: ein Jahrzehnt völliger Freiheit

Timeline

Legislative loopholes

• Risk of violating non-Swiss sanctions entailing reputational risk and the risk that a Swiss company or individual could be directly targeted by sanctions
• No specific supervisory authority in the commodities sector and no appropriate due diligence obligations for traders