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Few in Number, Russia Sanctions Require Outsize Lifting by Compliance Departments
By Vanya Dragomanovich
printAlthough sanctions on Russian nationals and companies might seem fairly innocuous at first blush, compliance departments at European banks are finding the task of identifying designees unusually difficult, say legal experts. Since March, the United States has blacklisted 31 individuals and one financial institution, Bank Rossiya, for their alleged support of the Russia's February invasion of the Crimean peninsula. The European Union has designated 33 individuals, many of whom are included on the U.S. blacklist. The restrictions come in addition to similar asset freezes targeting former Ukrainian officials. Given that European and U.S. banks have a much higher level of...
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U.S. officials are increasingly relying on economic sanctions as a tool of foreign policy, but the effectiveness of sanctions in achieving policy objectives is questionable, according to Bryan Early, political science professor at University at Albany.
Away from Moscow, EU and U.S. sanctions have done more than simply hobble the ability of Russian banks to obtain credit and correspondent accounts. For some institutions in London, the restrictions have resulted in tight constraints on anti-money laundering compliance efforts.
At its highest levels, Russian corruption over the past 20 years has been disguised by networks of shell companies and facilitated by foreign banks willing to turn a blind eye to state embezzlement, according to Karen Dawisha, a political science professor at Ohio-based Miami University.
This time last December, one might reasonably have expected that 2014 would be a year of modest changes for the anti-money laundering and sanctions compliance sector. Then came JPMorgan Chase, BNP Paribas and a convoy of Russian tanks to quash that notion.
Whatever the effectiveness of sanctions meant to sway Russia's involvement in Ukraine, one thing is certain: they've worsened the country's capital flight problem. By year's end, approximately $128 billion will have moved abroad, up from $63 billion in 2013, according to Russia's central bank.
The expansion of Western sanctions targeting Russia will require banks to closely vet additional types of credit and transactions tied to financial, energy and defense firms, according to attorneys.
The EU on Monday adopted extended sanctions targeting Moscow's oil and defense industries' measures expected to raise compliance costs for banks in the economic bloc, once implemented.
Military clashes in Ukraine are complicating behind-the-scenes efforts by some EU nations to prevent new sanctions and roll back existing financial restrictions targeting Russia.
The European Union Tuesday further restricted Russia's access to the continent's financial markets and energy technology industry and promised targeted sanctions against individuals and entities on Wednesday.
With the blacklisting of three Russian financial institutions Tuesday, the United States has targeted nearly a third of the assets controlled by the federation's banking sector, according to a senior U.S. official.
The U.S. Treasury Department Wednesday imposed its strongest sanctions to date in response to Russia's role in Ukrainian violence, blacklisting 12 companies in the federation's financial, energy and defense sectors.
U.S. officials are preparing to press their EU counterparts on stronger Russia sanctions ahead of a European Council meeting next week, State Department representatives told the Senate Foreign Relations Committee Wednesday.
Threatened U.S. sanctions against large swathes of Russian businesses would likely target defense and financial firms ahead of energy companies if imposed, according to experts.
The first line of the Ukrainian national anthem could well apply to the battered nation's banks these days: "Ukraine is not dead yet."
U.S. officials have no plans to negotiate Russia's compliance with an anti-tax evasion law that takes effect this summer and could impose stiff monetary penalties on nonparticipating financial institutions.
U.S. sanctions against 17 Russian individuals and companies, including three banks and the head of one of the nation's largest energy companies, will raise more questions than answers for compliance officers.
Plans by Russia to develop an independent payment network could limit the U.S. government's window into illicit finance in the federation, say analysts.
The House Committee on Foreign Affairs advanced amended legislation Tuesday that would require U.S. officials to report on banks linked to the embezzlement of Ukrainian assets.
In announcing sanctions against Russian politicians and one bank Thursday, U.S. officials made clear that American financial institutions should prepare for more, and soon.
Diplomatic tension over Ukraine has raised doubts that the United States will attend an upcoming Moscow plenary of the world's largest anti-money laundering task force, say current and former officials.