As Russia amasses 100,000 troops near Ukraine’s border, the Biden administration looks likely to target banks as part of a torrent of economic sanctions in the event of an invasion.
Increasing friction in the region comes eight years after Russia annexed Ukraine’s southern Crimea peninsula. In February, the US moved extra troops to Europe as tensions continued to rise. It follows the approval of an additional $200m military aid package for Ukraine by President Biden in December.
While precise sanctions measures are still being discussed, the Wall Street Journal reports that officials have said these could include targeting some of Russia’s largest government-owned banks, banning all trade in new issues of Russian sovereign debt, and the application of export controls across key sectors such as advanced microelectronics.
Russia was listed as one of the top three geopolitical hotspots firms are concerned about in our 2022 State of Financial Crime report. The report notes that Russia’s geopolitical ambitions and the EU’s dependency on Russia for its energy needs means governments need to strike a balance between national security, economic interests, and the use of sanctions in their dealings with Russia.
In December, Germany asked the US not to impose sanctions on the Nord Stream 2 gas pipeline, which carries gas from Russia to Germany, and which critics say would make Europe too reliant on Russian gas.
It is notable that the US has already discussed possible measures with allies – demonstrating a coordinated approach from the outset. As the New York Times notes, it is rare for a government to be so detailed about planned sanctions before they’re introduced, and advisers may well hope that proactive announcements by the US will act as a deterrent.
It is reported that the Biden administration has already briefed the US’s largest banks on possible sanctions. Citigroup currently has significant interests in Russia, though in 2021 it announced it would be leaving consumer banking in 13 countries including Russia.
There are also suggestions that the US could try to cut Russia off from the SWIFT system, the messaging network used by 11,000 banks in 200 countries to support cross-border payments. While this co-operative of banks, based in Belgium, aims to be politically neutral, in 2018 SWIFT dropped Iranian banks after mounting pressure.
Any sanctions imposed by the US and other countries may also not be as impactful as hoped. The New York Times notes that China and Russia could join forces to evade sanctions, or issue counter sanctions, highlighting the likelihood that as sanctions become a more popular foreign policy tool – and become more punitive – steps to evade them will also accelerate.
Firms should prepare for any sanctions against Russia by identifying their firm’s financial exposure to the country in order to effectively apply any freezing measures should the situation escalate further. They should also ensure that they have robust sanctions and adverse media screening systems in place to identify not only designated persons, but firms with direct exposure to designated persons and associates.
Uncover details about the State of Financial Crime in 2022, including more on the geopolitical situation and sanctions affecting Russia and Ukraine, in our new guide.
Originally published February 3, 2022, updated May 6, 2022
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