13 Jun 2024 15:20

New sanctions package will complicate transactions with "friendly" banks, including payments in national currencies - analyst

MOSCOW. June 13 (Interfax) - The latest sanctions package announced by the United States on Wednesday not only blocks dollar exchange trading in Russia, but also promises new difficulties in cross-border payments, not excluding those in national currencies.

As reported, as part of its new restrictive measures, the US Treasury issued an updated memorandum on observing sanctions compliance standards (Updated Guidance for Foreign Financial Institutions on OFAC Sanctions. Authorities Targeting Support to Russia's Military-Industrial Base). Its task is to notify foreign financial institutions about the risks of secondary sanctions for participating in any significant transactions/business in the interests of blocked Russian entities, such as Sberbank and VTB , the Ministry of Finance said in a release.

The document expands the range of possible secondary sanctions against foreign financial institutions for transactions with Russian blocked persons, as well as transactions with the Russian military-industrial base and transactions for certain goods. In fact, this is the main component of the new package, Ivan Timofeyev, general director of the Russian International Affairs Council, an expert on sanctions issues, said.

"Why is this most important? Because over the past two years Russia has actively reoriented its economic ties to non-Western countries (China, India, UAE, etc.). Naturally, the greatest interest is in supplies to Russia of those goods that are prohibited from being supplied by Western countries. One of the ways to complicate these transactions is secondary sanctions against banks in non-Western countries that conduct financial transactions related to these deals," Timofeyev wrote in his Telegram channel.

The US authorities began working systematically on this at the end of 2023, the analyst said. President Joe Biden signed Executive Order 14114 in December, which amended Executive Order 14024, the key legal mechanism for US sanctions on Russian individuals. The amendments gave the US Treasury the authority to impose blocking sanctions or prohibit opening correspondent accounts in the US for banks from third countries that conduct financial transactions in favor of persons previously blocked on the grounds of being part of the Russian military-industrial base, technology, manufacturing, aerospace and other sectors, as well as to impose sanctions in relation to those banks from third countries that conduct significant transactions with the Russian military-industrial base and related to goods from a special list.

Signs of the impact of these novelties on banks had already started to appear in February. Businesses began to receive complaints about delays or cancellations of payments in banks from friendly countries, including China, Timofeyev said. Now the United States has expanded the grounds for imposing secondary sanctions, and has prescribed clear instructions for foreign banks with a set of requirements to control the risk of secondary restrictions. Notably, the concept of the "Russian military-industrial base" has been expanded. Now, it is associated with all persons blocked by decree No. 14024, including those who have nothing to do with the military-industrial base. "The logic here is this: if the entire Russian economy directly or indirectly works to support military operations, then essentially all previously blocked entities, including, for example, Russian banks, belong to it. The only exceptions are transactions for which the US Treasury previously issued general licenses (food, energy, medicine, and telecommunications). This also includes any persons, not necessarily sanctioned, working in the technological, manufacturing, aerospace or other sectors," Timofeyev said.

The use of transaction methods that the US authorities see as opaque, changes in information about the parties to the transaction in payment documents, or concealment of the real purposes of the transaction, etc. may serve as a reason for imposing sanctions, he said.

"So far, the United States has not massively applied secondary sanctions against foreign banks for designated transactions with Russia. However, the June 12 measures are likely to further complicate transactions involving banks from friendly countries, including transactions in national currencies," Timofeyev said, adding that the new restrictions make it even more important to find a systemic solution to the problem of sustainable financial settlements with non-Western countries.