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The US risks secondary sanctions on countries that trade with Russia if they allow Russian banks to set up local branches to finance supplies for President Vladimir Putin’s war machine It warns that there is.
The move is aimed at finding workarounds that Russia has used to circumvent sanctions, particularly obscure means to pay for munitions needed to manufacture weapons for the invasion of Ukraine.
U.S. Deputy Treasury Secretary Wally Adeyemo told the Financial Times that the U.S. government is currently forcing Russian banks to move within its jurisdiction to avoid Western sanctions, even if the banks themselves are not sanctioned. He said he is prepared to go after countries that allow him to set up branches.
“We will not only go after the branches they are setting up, but also other organizations and companies in our jurisdiction that are working with them,” Adeyemo said.
“This is not just a warning against doing business with subsidiaries and branches of institutions that are already sanctioned,” he added, saying countries should block the establishment of Russian branches and subsidiaries. Our coalition has been launched. ”
The move is the latest in a series of rule changes aimed at warring banks around the world from getting involved in trade financing and preventing Russia from importing sensitive war-related goods.
An executive order issued by the White House in December 2023 warned foreign financial institutions that they risked secondary sanctions if they engaged in or facilitated transactions related to the Russian military-industrial complex. The list of companies targeted was expanded in June to include Russian companies subject to sanctions.
This threat is believed to pose serious problems for Russia in financing imports of sensitive items. According to official trade data, exports of the most important war-related goods from China and Turkey to Russia decreased dramatically in response to the order.
Exports from China of so-called “high-priority” products, which the U.S. and its allies are especially trying to block, fell to $212 million in February from $421 million in December.
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Mr. Adeyemo said Russia would find payment channels for goods following recent U.S. sanctions against companies such as VTB Bank Shanghai, the only Russian bank’s representative office in China that the U.S. blacklisted in June. He said he continues to struggle with this.
Speaking after the US decision, VTB CEO Andrei Kostin acknowledged that Russia had struggled to find new loopholes before the US managed to close them.
“We have noticed that no matter what measures we take, the reaction from the West is very quick,” Kostin said at a press conference in July. “As soon as we do something somewhere, a delegation of 10 people arrives and starts beating the local authorities over the head to stop us.”
“The situation is getting worse by the day, but we are still working things out and supplies are still flowing,” Kostin said.
Adeyemo said the U.S. is shifting its focus to smaller banks in new countries after previous pressures have prompted major financial institutions in countries such as China, Turkey and the UAE to withdraw from Russian trading partners. said.
Russia, along with countries such as China and Iran that share resentment of U.S. financial domination, is working to build alternative payment systems strong enough to counter Western pressure.
Chinese Premier Li Qiang and Russian Prime Minister Mikhail Mishustin pledged to “ensure that payment channels function seamlessly and properly” after talks in Moscow on Thursday. This includes using the renminbi and ruble for more transactions, opening more correspondent accounts in each country, and supporting closer cooperation between financial systems.
But Adeyemo said the West’s domination of global finance meant that most big banks had succumbed to Western pressure. “They do far more business with the US, the EU, the UK and other allies than they do with Russia,” he said. “They don’t want to lose access to dollars, euros, pounds and yen.”
The U.S. Treasury Department on Friday added to its sanctions list 400 individuals and entities whose “products or services enable Russia to continue its war effort and evade sanctions.” New entrants include companies accused of procuring ammunition, laundering money, acquiring machine tools and helping oligarchs evade sanctions.
