The United States unveils tougher sanctions on Russia on foreign banks

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The US Treasury has launched a major expansion of its secondary sanctions program on Russia, and will now treat any foreign financial institution that does business with a sanctioned Russian entity as if it were working directly with the Kremlin’s military industrial base.

A new set of measures would expand the scope of a White House executive order that in December gave the Treasury Department the authority to apply secondary sanctions on foreign financial institutions if they were found to be acting for or on behalf of any of the 1,200 entities designated by the Treasury Department. The United States government to be part of the Russian defense sector.

After the change announced this week, on Wednesday, that number will rise to more than 4,500 and will include almost all Russian entities that have already been sanctioned, even if for reasons other than direct support for the war in Ukraine. These include banks such as Sberbank and VTB, the country’s largest lenders.

The expansion of secondary sanctions reflects the US view that the Kremlin has turned Russia into a war economy two years after its all-out invasion of Ukraine.

“We are increasing the risks faced by financial institutions that do business with the Russian war economy, eliminating evasion pathways, and reducing Russia’s ability to benefit from access to foreign technology, equipment, software, and IT services,” said US Treasury Secretary Janet Yellen. Russia continues to mortgage its future to continue its unjust war of choice against Ukraine.

US officials believe that as a result of the December executive order, banks in third countries have become reluctant to do business with high-risk Russian clients.

The flow of war-related imports into Russia declined at the beginning of 2024, as financing cross-border trade in those goods became riskier, even for banks without ties to the United States.

“Secondary sanctions are intended to expand the ability of the United States to pursue fraud by actors that have no legal relationship with the United States. This means that the United States can, in effect, , impose its sanctions on people who are not subject to US law.

Russian President Vladimir Putin appointed technocrat Andrei Belousov as defense minister last month in a surprise shake-up of his security chiefs. The Kremlin said the reshuffle aims to make Russia’s record defense spending of 10.8 trillion rupees ($120 billion) more efficient and less vulnerable to Western sanctions.

By expanding the scope of secondary sanctions, the United States is increasing the risks faced by financial institutions in other countries that do business with Russia – especially China, which has moved closer to Moscow since invading Ukraine.

Putin asked his Chinese counterpart Xi Jinping to strengthen relations between the financial sectors of the two countries during his official visit to Beijing last month, according to people familiar with the matter.

Although China and Russia are discussing protecting a small number of Chinese banks that would do business with their Russian counterparts, the scope of the proposed ties remains short of Moscow’s requests, the sources said, a sign that fears of possible secondary US sanctions remain high in Beijing.

“You can see this as strengthening the legal basis on which the United States can apply sanctions to Chinese banks that aided the Russian war effort,” Kilcrease said. “The Treasury hopes they will take notice. But at some point it may need to actually step up and sanction one of them.”

Last month, US Deputy Secretary of State Kurt Campbell told reporters: “I think what we’re primarily focused on is Chinese companies that have been systematically involved in supporting Russia… We’ve also looked closely at financial institutions.

In addition to expanding secondary sanctions, the Treasury Department announced new sanctions. Newly listed companies include the Moscow Stock Exchange, which says it manages Russia’s largest equities, fixed income, derivatives, foreign exchange and money market products. According to the Treasury, this follows measures announced by Putin aimed at attracting capital to Russia from “friendly countries” through the stock exchange.

Additional reporting by James Politi