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Swiss authorities are investigating a major Geneva-based oil trader’s legal arrangements to avoid Russian sanctions, in a sign that the country has begun actively policing its major commodities industry’s ties to Moscow.

The regulatory questions for Paramount, raised in April in a letter seen by the Financial Times, are one of the first known attempts by the European authority to investigate compliance with the Western sanctions regime against Russian oil.

Switzerland, the world’s commodities trading capital, echoed EU sanctions against Moscow and set a ceiling of $60 a barrel on all trade in Russian oil. However, under Swiss rules, foreign subsidiaries of local companies are largely exempt as long as they are “legally independent”.

This provision was particularly exploited by the Geneva-based company Paramount Energy & Commodities SA, founded by veteran commodity trader Niels Troost, which last year transferred its Russian oil trading activities to a company with an almost identical name in the United Arab Emirates.

That company, Dubai-based Paramount Energy & Commodities DMCC, continued to export oil from eastern Russia under the name ESPO-blend. That has consistently traded above the $60-a-barrel limit imposed by the G7 group in December The Financial Times reported about it in March.

Following the FT report, the Swiss State Secretariat for Economic Affairs, the department responsible for enforcing sanctions, wrote to Paramount SA about its relationship with Paramount DMCC in the UAE and its dealings in Russian oil.

The sanctions were intended to allow Russian oil to continue to flow to markets outside Europe and the US, while limiting revenues seized by the Kremlin. Washington even encouraged western traders to keep the movement of Russian oil below the price ceiling to limit supply disruptions.

One consequence, however, has been a massive shift in oil trading from former European centers such as Geneva to jurisdictions such as Dubai that do not enforce Western rules.

While some traders in the UAE have chosen to adhere to the price cap to maintain access to Western services, others appear to be trading oil above the limit, using non-European shipping and financial service providers to do so.

In the April letter, SECO asked Paramount SA, among other things, to confirm whether and at what price it had been selling Russian oil since December and whether anyone owned shares – directly or indirectly – in both Paramount SA and Paramount DMCC. He also asked whether there had been any financial flows between the two companies since March 2022, such as loans or dividend payments.

Paramount SA told the FT that it had responded to SECO’s questions in full, telling the agency that the Swiss entity had ended all transactions involving Russian oil “long before any price cap was put in place”.

He said Paramount DMCC was a subsidiary of Paramount SA, but stressed the companies were “separate legal entities” and “do not share directors”.

However, separate legal structures and directors do not guarantee that Swiss courts will view the subsidiary as independent and therefore outside the reach of Swiss law, SECO told the FT in response to questions.

“Swiss authorities assess on a case-by-case basis the extent to which acts committed abroad fall under Swiss jurisdiction and thus under the sanctioning provisions of Switzerland,” said ministry spokesman Fabian Maienfisch. “Perhaps points of contact with Swiss jurisdiction exist, for example if payments or instructions are made from Switzerland,” he added.

The agency declined to answer specific questions about Paramount. “SECO does not comment on specific cases or ongoing investigations,” it said.

The Paramount case raises clear questions about the level of control exercised by parent companies over foreign subsidiaries and the reach of Swiss sanctions. It also provides a look at some of the measures some European commodity traders have taken to protect themselves from potential sanctions violations while continuing to trade Russian oil.

UAE corporate records, reviewed by the FT, show Paramount DMCC was registered in 2020 by Dubai-based Swiss national François Edouard Mauron, who was the sole director and sole shareholder at inception. Mauron transferred his shares to Paramount SA in April last year but remained a director.

Paramount SA told the FT in March that Troost, a Dutch citizen, had no role in setting up Paramount DMCC and no management role in the company.

However, the nomination agreement, signed by Troost in February 2022, described Mauron as a “designate director” bound to “act on the instructions” of the shareholder, Paramount SA, in exchange for an annual nomination fee of CHF 350,000 ($390,000). Troost is described in the February 2022 contract, which the FT believes is the ultimate beneficial owner of Paramount SA.

“The proxy shall report and consult shareholders on any matter concerning the company,” he said. “When in doubt, he will request written instructions.”

Paramount SA said the nomination agreement was terminated in November, a month before the price cap was introduced, to ensure Paramount DMCC met the requirements of a legally independent subsidiary under Swiss law.

This included giving Paramount DMCC management “full authority” to “develop and execute [its] international commodity trading,” according to minutes of Paramount SA’s board meeting on November 2, 2022, which the company shared with the FT.

Paramount SA added that “all payments and instructions relating to the relevant business activities were carried out by DMCC completely independently of Paramount SA”.

Mauron told the FT that he is no longer a director or manager at Paramount DMCC. He shared a letter dated May 18, 2023, in which he identified an Indian citizen as the sole current director of the company.

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