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Britain, the EU and U.S. approved a swathe of sanctions against Russia on Tuesday, hours after the Kremlin formally recognized the independence of two separatist-controlled areas of eastern Ukraine, threatening a full-scale invasion of the rest of the country.

The EU sanctions carry asset freezes against 27 individuals and entities involved in or benefiting from Russia’s “illegal decision” to invade, including companies active in Russia’s defense sector, parties conducting “disinformation war” against Ukraine and a currently undisclosed number of banks suspected of financing Russian military operations and other destabilizing acts in and around the cities of Luhansk and Donetsk.

European officials also targeted Russia’s ability to raise capital on the bloc’s financial markets and banned companies from conducting business in the two breakaway regions, just as they did in the case of Crimea after Russia annexed the territory in 2014.

The EU additionally imposed travel bans and asset freezes on the 351 members of Russia’s State Duma, the lower house of the country’s Federal Assembly, who voted in favor of recognizing the separatist areas of the Donbas region as sovereign jurisdictions.

“This package of sanctions that has been approved unanimously by members states will hurt Russia, and it will hurt a lot,” Josep Borrell, the bloc’s top diplomat, said during a press conference Tuesday evening in Paris. “We are doing this in close coordination with our partners: the U.S., U.K. and Canada.”

Borrell also voiced his support for placing plans “on the table” that would revise the bloc’s sanctions regime to allow designations against Russian oligarchs.

London

U.K. Prime Minister Boris Johnson announced that Britain had moved forward with blacklisting three Russian oligarchs— financier Gennadiy Timchenko, Boris Rotenberg, who along with his brother Arkady owns SGM, Russia’s largest player in the construction of gas pipelines and power supply lines, and Igor Rotenberg, majority owner of Gazprom Drilling—alongside five Russian lenders “involved in bankrolling the Russian occupation” of Ukraine.

Lenders designated Tuesday under Britain’s recently expanded autonomous sanctions regime include Bank Rossiya, Genbank, Black Sea Bank for Development and Reconstruction, IS Bank and Promsvyazbank, which U.K. officials described as “pivotal” in propping up the Russian defense industry.

“This is the first tranche, the first barrage of what we’re prepared to do, and we hold further sanctions at readiness to be deployed alongside the United States and the European Union if the situation escalates still further,” Johnson told the House of Commons.

The measures immediately drew fire from advocacy groups and lawmakers across the political divide for falling short of the government’s rhetoric against Russia, not least because Timchenko and Boris Rotenberg have been blacklisted by the U.S. since 2014, and Igor Rotenberg since 2018, rendering the U.K. designations largely redundant.

“I know the House wants us to hit [Russian President Vladimir] Putin with absolutely everything that we have today,” Johnson said. “But I think what we want to do is to prioritize unity amongst the alliance … and work in lockstep with them.”

U.K. financial institutions and other firms must immediately halt any business with the five lenders designated Tuesday and freeze any assets they may hold.

Matt Getz, a partner with the Pallas law firm in London, told ACAMS moneylaundering.com that any companies and individuals holding funds or other assets at the five banks “may have some difficulty getting out their money.”

“The larger the Russian party and the more subsidiaries they have, the more difficult it becomes,” Getz said. “Looking at these lenders, I don’t know whether they present the same difficulties as the larger Russian banks would have done.”

Previous enforcement actions have shown that compliance with sanctions against Russian lenders does not always take the straight path.

OFSI two years ago fined Standard Chartered Bank a record £20.5 million for loaning hundreds of millions of pounds from 2015 to 2018 to Denizbank, a Turkish private lender that at the time was controlled by Sberbank, a Russian state-run institution subject to EU sectoral sanctions since 2014.

On Monday, the agency fined U.K. payment services provider Clear Junction Limited £36,000 for handling 15 transactions tied to the Russian National Commercial Bank in Crimea, the Ukrainian territory occupied and annexed by Russia in 2014.

U.K. Foreign Secretary Liz Truss said Tuesday that Britain plans to follow the EU’s lead in blacklisting Russian lawmakers who voted to recognize Donetsk and Luhansk as independent, and extend territorial sanctions imposed on Crimea in 2014 to encompass separatist-controlled territory in the Donbas.

“No U.K. individual or business will be able to deal with this territory until it is returned to Ukrainian control,” Truss said in a statement.

Perhaps the strongest response to Russia’s latest incursion into Ukraine came from Berlin, where German Chancellor Olaf Scholz said he had suspended certification of the controversial Nord Stream 2 pipeline, a $10 billion project designed to bring natural gas directly from Russia to Germany.

Bjorn Paulsen, an attorney with Noerr in Hamburg, Germany, said sanctions against particular Russian sectors or entities, such as banks, will pose a larger challenge for German financial institutions than designations of individuals.

“Companies should be careful that they don’t do anything wrong while they’re reviewing their sanctions exposure, and should suspend certain actions that could cause them bigger difficulties later on,” Paulsen said. “For the time being, a diligent thing to do would be to clear every transaction internally if it regards Russia.”

Washington

In a speech Tuesday afternoon, U.S. President Joe Biden announced the blacklisting of VEB, a Russian domestic development bank, and Promsvyazbank, or PSB, which was nationalized in 2018 and now finances an estimated 70 percent the Russian Defense Ministry’s contracts.

The blacklisting also applies to a combined 42 subsidiaries of the two banks, PSB’s chairman and chief executive Petr Fradkov, and four other Russian officials from Putin’s “inner circle,” the U.S. Treasury Department clarified in a press release.

“In an effort to insulate itself from U.S. sanctions, the [Kremlin] has also tasked PSB with providing credit to entities under U.S. and partner nations’ sanctions so that other lenders, namely Sberbank and VTB Bank, can offload the risk,” Treasury’s Office of Foreign Assets Control, or OFAC, noted. “PSB is reported to be creating a separate currency exchange to service companies targeted by Western sanctions.”

Biden also said he would “cut off” Russian sovereign debt from Western markets by expanding restrictions he originally imposed by way of an executive order in April 2021.

OFAC explained Tuesday that beginning March 1, the expanded restrictions would comprehensively bar U.S. financial institutions from trading any bonds issued by the Central Bank of Russia, the Russian Finance Ministry or sovereign wealth fund.

Biden announced the restrictions—which, according to OFAC, will for the first time target Russian bonds on secondary markets—a day after he imposed a trade and financial embargo on Donetsk and Luhansk.

All told, the measures unveiled by the White House in response to the latest developments in Ukraine fall far short of the devastating sanctions on Russia’s largest financial institutions and key economic sectors that U.S. officials said would be triggered by a full-scale invasion.

Like his counterparts in the EU and U.K., Biden promised Tuesday that he would “escalate” sanctions against Russia if the country expands its latest military offensive.

Late Tuesday, Canadian Prime Minister Justin Trudeau said in a speech that his nation would join its Western allies in imposing sanctions on Russian lawmakers, banks, oligarchs and their firms, and banning investment in Russian sovereign debt or the breakaway regions of Donetsk and Luhansk.

Contact Koos Couvée at kcouvee@acams.org and Valentina Pasquali at vpasquali@acams.org