US banks slam Russian sanctions in fine print, worry about escalating restrictions

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A view shows a Russian ruble coin and a US dollar banknote in this illustration taken October 26, 2018. REUTERS/Maxim Shemetov

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WASHINGTON, Feb 24 (Reuters) – U.S. banks were well-prepared for Western sanctions announced so far over Russia’s aggression against Ukraine, but have yet to work out the specifics and fear further measures increase the cost and complexity of enforcing the new restrictions. , said lawyers and industry executives.

Russian President Vladimir Putin on Thursday authorized a military operation in eastern Ukraine in what appeared to be the start of a war in Europe following Russian demands to end NATO’s expansion towards ballast. Read more

US President Joe Biden said he would announce new sanctions against Russia on Thursday, in addition to the financial measures imposed this week.

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The United States, the European Union and Britain announced new sanctions against Russia on Tuesday after Moscow recognized two breakaway regions in Ukraine. At the forefront of their targets: Russian banks and their ability to operate internationally. Read more

Washington on Monday imposed the toughest measures banning trade and investment between American individuals and the two breakaway regions of Ukraine and preparing on Tuesday to cut off Russian state companies Promsvyazbank and Vnesheconombank and 42 of their subsidiaries from the American financial system.

The US Treasury also banned trading in newly issued Russian sovereign debt and ordered the freezing of assets relating to a handful of Russian elites and their family members.

Financial institutions are primarily responsible for enforcing sanctions.

In the past, they’ve paid hefty fines for failing to do the job, but since 2014, when countries sanctioned Russia for annexing Crimea, banks have pulled out of the region and beefed up their sanctions compliance programs. .

US banks spent an estimated $35.2 billion on financial crime compliance — including sanctions, anti-money laundering checks and checks against other illegal activities — in 2020 alone, according to a survey by LexisNexis.

As tensions in the region mounted, the Biden administration was in touch with industry for several weeks about potential measures and alerted banks ahead of Tuesday’s announcement so industry could prepare, three said. industry sources.

“The new US sanctions shouldn’t be difficult to implement because, at least for now, designations of Russian banks are fairly low-key, and after Crimea, US and global banks have had ample time to address the nuances of these kinds of sanctions,” including identifying the beneficial owners of the assets, said Mario Mancuso, international business partner at Kirkland & Ellis LLP.

Still, industry executives who began implementing the rules on Wednesday said they were seeking further clarification from the Treasury on certain details, including the precise geographic boundaries of breakaway territories.

“These jurisdictions are defined by Ukrainian law, but they may or may not be what separatist jurisdictions claim to be in their purported sovereignty and that may change,” said Andrew Shoyer, partner at law firm Sidley Austin.

He added that the 30-day deadline the Treasury had given companies to comply was the toughest he had foreseen.

A Treasury spokesman did not immediately respond to a request for comment.

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The White House and other nations said Tuesday’s measures are just the start. Some additional sanctions, such as expanding their scope to include more Russian banks or individuals, would be relatively simple to manage.

But the leaders raised concerns that jurisdictions could diverge in their approach to sanctions if disputes arise over how to deal with Russian aggression. Reuters reported last week that the United States and its allies disagree on how they should respond to non-military Russian aggression, such as identifiable cyberattacks.

Conflicting sanctions regimes would be more complex and costly to implement, the leaders said.

Another major question is whether Biden imposes “secondary sanctions” on foreign parties who do business with the underlying sanctioned entities. These are also more difficult to implement due to the complexity of identifying commercial links.

Some financial industry executives also told the administration they oppose any sanctions aimed at Russia’s access to payment provider SWIFT, which is used by more than 11,000 financial institutions in more than 200 countries. Read more

Such a move could hurt Russian banks, but it would also disrupt the global payments system and make it difficult for creditors to get their money back from Russia.

While the White House has downplayed this option, lawmakers could pursue it. Although Congress is on recess this week, Isaac Boltansky, director of policy for brokerage BTIG, said he expects lawmakers to introduce legislation soon to challenge Russia’s action.

“There will also be an effort to deny Russia access to the SWIFT international payments infrastructure, but there are fears that this could harm Russian creditors awaiting funds,” he added.

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Reporting by Michelle Price and Pete Schroeder, additional reporting by Hannah Lang and Liz Dilts, editing by Richard Pullin

Our standards: The Thomson Reuters Trust Principles.

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