Fatal inaction: Swiss government has shied away from regulating the commodities sector since 2013

The Federal Council is due to release its latest assessment of the state of the Swiss commodities sector in the coming days, five years on from its “Background Report: Commodities.” Despite the countless scandals that have hit Swiss commodity trading companies, the government has failed to take effective measures to mitigate corruption and other risks. Public Eye is issuing an advance “shadow report” analysing the government’s “sins of omission” and outlining feasible ways in which Switzerland can and must fulfil its responsibility to help combat the resource curse.

In 2013, the Swiss Federal Council recognised that “as the industry […] increases in size it brings with it additional challenges that must be taken seriously”, especially in relation to respect for human rights, the environment of commodities exporting countries and combatting corruption. The report concluded that these challenges posed “reputational risks” to Switzerland. Nevertheless, the Swiss government ignored all recommendations to regulate the commodities trading sector in a bid to maintain the attractiveness of Switzerland as a business location. Since 2015, it has only recommended the adoption of eight parliamentary initiatives, opting instead to rely on the sector to “conduct itself responsibly, and with integrity”.

There is a particularly urgent need to act in terms of combatting corruption. A 2015 report by Switzerland’s interdepartmental coordinating group on combating money laundering noted that the activities of commodities trading companies make them particularly vulnerable to the risk of corruption abroad. Indeed, from dodgy deals with oligarchs from Congo to Kazakhstan, to the revelations of the Paradis Papers or the huge corruption scandal that enveloped the Brazilian oil company Petrobras: there have been repeated signs of the risks associated with the practices of Swiss commodity traders. These companies engage with dubious door-openers or enter into partnerships with politically exposed persons to gain access to lucrative markets. The lack of action from the Swiss authorities has not gone unnoticed: in its latest assessment of the country’s anti-corruption provisions, published in March 2018, the OECD recommended that the country introduce “suitable and binding regulations.”

Even the single legislative measure seen as worth examining in 2013 – the disclosure of payments made by commodity companies to the governments of producer countries – threatens to become a political farce. This is because the Federal Council is only imposing new transparency rules on the production of commodities, despite the fact that the overwhelming majority of Swiss commodity companies are involved in trading. The bill, which therefore essentially serves as an alibi, would only apply to four of 544 companies in the sector. Opacity will continue to surround the destination of the billions spent on purchasing commodities – above all oil – from state entities in countries where corruption is endemic, making it all the easier for authoritarian rulers and their entourages to help themselves. It is now up to the Council of States to remedy this disastrous oversight.

On the topic of human rights, recommendation no. 11 in the Background Report was to set up a multi stakeholder working group comprising representatives of trading companies, their lobby group, non-governmental organisations and the authorities. The group was tasked with providing guidance on implementing the UN Guiding Principles on Business and Human Rights in the commodities trading sector. Public Eye participated in this process. Following long discussions with the industry, which was more interested in burnishing its image than tackling the problems, a guidance was published. Yet here too the Federal Council opted for a voluntary approach: commodity trading companies are free to decide whether and how they wish to implement the UN Guiding Principles. In contrast, the Responsible Business Initiative would oblige companies to implement those Principles, with the guidance note informing them of how they could do so.

Click here for more information, or contact:

Oliver Classen, Media Director, +41(0)44 277 79 06, [email protected]
Andreas Missbach, Head of Commodities, +41(0)44 277 79 07, [email protected]
 

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Switzerland’s debate on commodity trading
In 2011, Glencore’s IPO and the book Commodities – Switzerland’s Most Dangerous Business, published by the Berne Declaration (now known as Public Eye), dragged a large and previously largely overlook business sector into the spotlight. A series of media investigations and parliamentary initiatives followed, leading the Federal Council to set up an interdepartmental working group under the auspices of Federal Department of Foreign Affairs (FDFA), the Federal Department of Finance (FDF), and the Federal Department of Economic Affairs, Education and Research (EAER). The group drafted the “Background Report: Commodities,” which was published by the Federal Council on 27 March 2013. In the meantime, three further reports have been released, evaluating the progress made in terms of implementing the 17 recommendations made in the Background Report. The Federal Council is due to publish its latest assessment soon.