Authorities in Switzerland are conducting an investigation into the legal arrangements of a prominent Geneva-based oil trader, raising concerns about possible violations of Russian sanctions. The move signifies Switzerland's active scrutiny of its significant commodity industry's ties with Moscow. The inquiry, directed at Paramount Energy & Commodities SA, was initiated through a letter sent in April. This represents one of the first instances of a European authority examining compliance with Western sanctions on Russian oil.

Switzerland, known as the global hub for commodity trading, has implemented sanctions against Russia that mirror those of the European Union. These sanctions impose a $60 per barrel limit on all trade involving Russian crude. However, Swiss regulations stipulate that overseas subsidiaries of local companies are largely exempt if they can demonstrate legal independence.

Paramount Energy & Commodities SA, founded by experienced commodities trader Niels Troost and based in Geneva, employed this provision by transferring its Russian oil trading operations to a company with a nearly identical name in the United Arab Emirates (UAE) last year. The Dubai-based subsidiary, Paramount Energy & Commodities DMCC, continued to export ESPO-blend crude from eastern Russia, consistently trading above the $60 per barrel cap set by the G7 in December.

Following a report by the Financial Times, Switzerland's State Secretariat for Economic Affairs (SECO), responsible for enforcing sanctions, contacted Paramount SA regarding its relationship with Paramount DMCC and its Russian oil trading activities. The sanctions were initially designed to allow Russian oil to reach markets beyond Europe and the US while limiting revenue for the Kremlin. Western governments have encouraged traders to keep the flow of Russian oil moving, even under the price cap, to minimize supply disruptions.

Consequently, there has been a substantial shift in oil trading activities from former European centers like Geneva to jurisdictions such as Dubai, where Western rules are not enforced. While some traders in the UAE have chosen to comply with the price cap to maintain access to Western services, others have apparently bypassed the limit by utilizing non-European shipping and financial service providers.

In the letter sent in April, SECO posed several questions to Paramount SA, including confirmation of any Russian oil sales since December and the price at which these transactions occurred. SECO also inquired about share ownership between Paramount SA and Paramount DMCC, as well as any financial flows, such as loans or dividend payments, between the two companies since March 2022.

Paramount SA responded to SECO's questions by stating that it had ceased all transactions involving Russian oil "long before any price cap was in place." The company emphasized that Paramount DMCC is a subsidiary of Paramount SA, but the two entities are legally independent and do not share directors. However, SECO explained that separate legal structures and directors do not automatically guarantee that Swiss courts will consider a subsidiary as independent and beyond the reach of Swiss law.

SECO clarified that Swiss authorities evaluate on a case-by-case basis whether acts committed abroad fall under Swiss jurisdiction and thus fall within the scope of Swiss sanctions provisions. Fabian Maienfisch, a spokesperson for the department, emphasized that potential points of contact with Swiss jurisdiction exist if payments or instructions originate from Switzerland.

While SECO declined to comment on specific cases or ongoing investigations, the Paramount situation raises questions about the level of control exerted by parent companies over their foreign subsidiaries and the extent of Switzerland's sanctions enforcement. It also sheds light on the measures that European commodity traders have adopted to protect themselves from potential sanctions breaches while continuing to trade Russian oil.

Paramount DMCC was registered in the UAE in 2020 by François Edouard Mauron, a Swiss national based in Dubai. Mauron, who was the sole director and shareholder upon incorporation, transferred his shares to Paramount SA in April of the following year but retained his directorship. Paramount SA stated that Troost, the Dutch citizen and ultimate beneficial owner of Paramount SA, had no involvement in establishing Paramount DMCC or any management role in the company.

However, a nominee agreement signed by Troost in February 2022 described Mauron as a "nominee director" obligated to act according to the instructions of the shareholder, Paramount SA, in return for a nominee fee. Paramount SA terminated this nominee agreement in November 2022, one month before the introduction of the price cap, in order to ensure that Paramount DMCC met the requirements of a legally independent subsidiary under Swiss law. The company emphasized that all payments and instructions related to the trading activities of Paramount DMCC were conducted independently of Paramount SA.

Mauron has since stated that he is no longer a director or manager at Paramount DMCC.