EU sanctions quickly followed the interception of a Ryanair airliner to Belarus. A new wave of sanctions against Eastern European regimes is giving bankers headaches.

The EU only took a day. On Monday it banned all Belarusian airliners from its airspace and airports.

This followed Belarus Presiden Alexander Lukaschenko's order to intercept a Ryanair airliner with a fighter jet and divert it to Minsk with a known regime critic and his girlfriend on board, who were then arrested.

The U.S. Hits Back

This fresh round of sanctions has put another wave of steps against Russia on the table. According to media reports, the EU wants to discuss them in June. The current set of sanctions has been in place since the 2014 Crimean crisis while in April the US massively expanded the scope of its sanctions by targeting an additional 32 entities and individuals. As part of that, US banks were banned from trading Ruble-denominated bonds from June.

SWIFT Threat

Disconnecting Russian banks from the international SWIFT payments system is again in the air. That would essentially cut Russian banks off completely from the international economy. According to German newspaper «Handelsblatt», the Russians are taking the threat so seriously that they are planning a proprietary payments system together with China.

The tension is giving Swiss finance headaches. But things are not as bad as they were during Russia's annexation of Crimea. But the known specter of the security of domestic banking deposits is back as is the fear of being cut off from overseas assets and not having any access to them.

Outflows to the US?

Swiss banking has been a reliable partner of wealthy Eastern Europeans since the early 2000s. Clients appreciated the political stability, the fact that Switzerland was within easy reach and the quality of service. Numerous private banks have specialized desks with Russian-speaking client advisors and specialists.

These plus points still counted after the end of Swiss banking secrecy. Since 2018 Russia has participated in the automatic exchange of financial account information. Undeclared money has since flowed out of Switzerland, sometimes to the US, according to sources in Swiss finance.

Switzerland also did not follow the EU sanctions against Russia but the government does attempt to prevent them from being circumvented. It has had a number of sanctions in place against Belarus since 2006.

Iran as Example

There is nothing concrete indicating that a SWIFT disconnection is imminent but wealthy clients are nervous.

«Russians are scared that their money in Switzerland could be blocked», said Samuel Schmid, partner at Clarus Capital, to finews.ch. The Zurich-based asset manager specializes in Eastern European clients and has expanded services significantly in the past few years.

Although Schmid calls those fears «horror stories» there are historic precedents. Iran was disconnected from SWIFT in 2012 following pressure from the U.S. Payments in and out of the country have not been possible since then and money is sent by couriers.

Bank Nerves Tense

«It is very unlikely that overseas assets would be frozen or cut off», says Schmid, who just returned from a business trip to Moscow. Still, Eastern European clients are increasingly talking about it.

Harder sanctions against Eastern European regimes are making banks increasingly nervous. The major banks, in particular, want to know whether any of the assets of potential clients opening accounts are on any sanctions lists. They also have to check what counterparties they do business with at home.

Small Clients Investigated

As Schmid reports, even small clients are thoroughly reviewed and account opening processes can take months. The applications can be hundreds of pages long.

«The enormous compliance effort involved means that Swiss bank accounts only come into question for high amounts of wealth», reports Schmid on the basis of practical experience. «That can speak against Switzerland in the end.»