US: Threatens Countries Hosting Russian Banks with Sanctions – Al-Mareeq Al-Iqtisadiah

Deputy Treasury Secretary Wally Adegimu reiterated the United States’ clear warning that countries doing business with Russia risk sanctions.

He even said Washington would “go after” the branches Moscow uses to circumvent trade restrictions.

Sanctions on Russia: Who are the mysterious middlemen helping Putin?

In particular, the United States is warning countries that do business with Russia that they risk secondary sanctions if they allow Russian banks to set up local branches to finance supplies of goods to Vladimir Putin’s war machine.

The move aims to close off alternatives Russia has used to circumvent sanctions, in particular finding dubious means of paying for dual-use goods needed to make weapons for its invasion of Ukraine.

Wally Adegimu noted in the Financial Times that Washington is now prepared to go after countries that allow Russian banks to set up branches in their jurisdictions to avoid Western sanctions – even if the bank itself is not subject to sanctions.

“We will look into the branch they have established, as well as other entities and companies under their jurisdiction that work with them,” the US Deputy Treasury Secretary explained.

USA: Longer List

“It’s not just a warning about dealing with subsidiaries or branches of an organization that is already under sanctions,” he added, stressing that countries should stop establishing any Russian branch or subsidiary “because it will be used to circumvent the sanctions imposed on us by the coalition.”

The moves are the latest in a series of rule changes designed to block Russian imports of sensitive war-related goods, making banks around the world wary of getting involved in trade finance.

A White House executive order issued in December 2023 warned foreign financial institutions that they risked secondary sanctions if they conducted or facilitated transactions related to Russia’s military-industrial complex. The entities covered were expanded in June to include any Russian entity subject to sanctions.

Exports to Russia fall

The threat is credited with causing major problems for Russia in financing imports of sensitive species. Official trade figures show that exports to Russia from China and Turkey of key war-related goods fell sharply after the warning.

China’s exports of so-called “high priority” goods, a group of exports that the United States and its allies have made special efforts to stop, fell from $421 million in December to $212 million in February.

The US Deputy Treasury Secretary said Russia continues to struggle to find payment channels for goods after recent US sanctions against companies such as VTB Bank Shanghai, the only representative office of a Russian bank in China, which the US blacklisted in June.

Speaking after the US decision, Andrey Kostin, CEO of VTB Bank, admitted that Russia was struggling to find new loopholes before the US could close them.

“We noticed that whatever measures we take, the reaction of the West is very fast,” Kostin said at a conference in July. “As soon as we do anything anywhere, a delegation of 10 people comes and starts hitting the local authorities on the head to stop us.”

“The situation is getting worse every day, but we are still solving it and the goods are flowing in,” Andrei Kostin said.

The moves are the latest in a series of rule changes designed to block Russian imports of sensitive war-related goods, making banks around the world wary of getting involved in trade finance.

List of 400 additional “targets”

The United States is shifting its focus to smaller banks in new countries after a previous round of pressure prompted big lenders in countries such as China, Turkey and the United Arab Emirates to abandon their Russian counterparts, Adjemo said.

Russia is working to create alternative payment systems strong enough to withstand Western pressure, as countries like China and Iran share resentment of American financial dominance.

Chinese Premier Li Keqiang and Russian Prime Minister Mikhail Mishustin pledged to “ensure that settlement channels operate smoothly and properly” after their meeting in Moscow on Thursday.

This includes using the renminbi and ruble for more transactions, opening more correspondent accounts in their countries, and supporting closer links between their financial systems.

But the US deputy treasury secretary noted that Western dominance of global finance meant that most major banks had bowed to Western pressure. “They do much more business with the US, the EU, the UK and the rest of our alliance than they do with Russia,” he said. “They don’t want to lose access to the dollar, the euro, the pound or the yen.”

The US Treasury Department on Friday also added 400 individuals and entities “whose products and services enable Russia to continue its war effort and evade sanctions” to its sanctions lists.

These include companies accused of supplying ammunition, laundering gold, obtaining machine tools and helping oligarchs evade sanctions.