The Biden administration is urging international banks not to help Russia circumvent sanctions and warning that companies risk losing access to markets in the United States and Europe if they support Russian companies or oligarchs who are facing financial constraints as a result of the war in Ukraine.
The admonition from a senior Treasury Department official highlights U.S. efforts to use American financial power to pressure the Russian economy and underscores the Biden administration’s broad view of its ability to enforce sanctions as it seeks to alienate Russia isolate from the global economy.
At private meetings with international bank officials in New York on Friday, Deputy Treasury Secretary Adewale Adeyemo outlined the consequences of helping Russians flout sanctions. He pointed to the “Material Assistance Provision,” which dictates that even if a financial institution is based in a country that has not imposed sanctions on Russia, the company still faces consequences for violating US or European restrictions can, including cutting off these financial resources systems.
“If you provide material support to a sanctioned person or entity, we can extend our sanctions regime to you and use our tools to take action against you as well,” Mr Adeyemo said in an interview on Friday. “I want to make this very clear to those local institutions and other countries that may not have sanctions in place: that the United States and our allies and partners stand ready to act when they do things in violation of our sanctions.”
The Biden administration has imposed sweeping restrictions on Russian financial institutions, oligarchs and their central bank. It has coordinated with allies in Europe and Asia to crack down on sanctions evasion; direct warning to foreign banks was part of this effort.
Financial institutions from China, Brazil, Ireland, Japan and Canada attended the meeting hosted by the Institute of International Bankers.
Mr Adeyemo said that US banks have been careful not to violate American sanctions, but that Russian individuals and companies are trying to set up trusts and use proxies as workarounds. He also pointed to firms that may support sanctioned oligarchs trying to move their yachts to other ports to avoid confiscation.
Most jurisdictions have complied with the sanctions, but some, like the United Arab Emirates, continue to provide a safe haven for Russian assets. The yachts of several Russian oligarchs are docked in Dubai.
“You’ve seen a number of Russian yachts pull out of ports, countries that have extended sanctions to countries that haven’t,” Mr Adeyemo said. “We want to make it clear to people that if you are a financial institution and you have a business that is a customer providing material support to one of these yachts, you, that business, could be subject to our material support.”
Referring to his message to foreign banks, he added: “You need to make sure that not only are you making sure you’re monitoring inflows into your financial institution, but you’re also helping by reminding businesses that you want to support them too.” not that they provide material support to Russian oligarchs or Russian companies.”
Banks and financial institutions around the world have grappled with how to comply with waves of new sanctions against Russia.
Citigroup, the largest US bank in Russia with about 3,000 employees there, is in “active dialogue” to sell its Russian consumer and commercial banking business, Jane Fraser, its chief executive, told Bloomberg this month.
Citigroup reduced its exposure to Russia to $7.9 billion in March, down from $9.8 billion at the end of last year, a filing shows. “This arming of financial services is a very, very big deal,” Ms Fraser said at a conference this month. She said she expects global capital flows to stall as nations develop new financial systems to avoid over-reliance on Western firms.
Foreign banks with US operations can find themselves caught between conflicting claims. In some cases, US sanctions have forced them to cut off long-time customers. Those who resisted learned how serious authorities could be about tracking down violators and imposing large fines.
In 2019, for example, the British bank Standard Chartered paid $1.1 billion to settle cases brought by the Justice Department, the Treasury Department, the New York State Banking Commission and prosecutors over transactions they made for Cuba, Syria, Iran and Sudan in violation of US sanctions. Two years earlier, Deutsche Bank paid $630 million after being caught helping Russian investors funnel $10 billion into Western financial centers. International giants HSBC and BNP Paribas have also paid billions to settle cases of sanctions violations over the past 10 years.
Lananh Nguyen contributed reporting.
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