US to target banks that help Russia’s war in Ukraine

WASHINGTON – The United States said on Dec 22 that it will impose sanctions on foreign banks that support

Russia’s war in Ukraine,

in a new bid to exert economic pressure on Moscow as it diversifies from the West to China.

Under an executive order signed by President Joe Biden, the US will impose so-called secondary sanctions against financial institutions that back companies already targeted for supporting Russia’s defence industry.

“We are sending an unmistakable message: Anyone supporting Russia’s unlawful war effort is at risk of losing access to the US financial system,” White House National Security Adviser Jake Sullivan said in a statement.

Mr Sullivan said the new sanctions will “continue tightening the screws on Russia’s war machine and its enablers”, adding that earlier measures have “significantly degraded” Russia’s military, long seen as among the world’s most formidable and which in recent months has relied on imports from sanctioned North Korea and Iran.

But Russia since the start of the war has been rapidly working to reduce its exposure to the West, shifting away from trade in the US dollar, euro, sterling and yen.

China’s largest banks, meanwhile, have extended billions of dollars worth of credit in renminbi to Russia since the war as Western institutions exit.

US Deputy Treasury Secretary Wally Adeyemo said major banks in countries such as China, Turkey and the United Arab Emirates have largely made efforts to avoid running afoul of US sanctions, and that the new measures would target smaller institutions.

Russia has been setting up front companies to hide purchases through third countries, Mr Adeyemo said in an interview with CNBC.

“They’re not going through big companies in these countries. They’re going through small firms to get things like micro-electronics and machine tools and engine parts,” he said.

“But all of these companies still have to use the financial system.”

Russia weathering blow

Russia’s economy has taken a hit from the pressure but is still on a growth trajectory, with the International Monetary Fund in October forecasting growth of 1.1 per cent for 2024.

A key target has been Russia’s oil exports, with Western powers agreeing to a cap of US$60 a barrel.

The US Treasury Department said on Dec 21 that the cap brought down Russia’s tax revenue from oil and petroleum goods exports by 32 per cent between January and November, compared with a year earlier.

But other assessments have been less rosy on the impact. A recent study by the Kyiv School of Economics found that compliance with the price cap has been virtually non-existent because of widespread fraud.

The new effort at secondary sanctions comes as the Group of Seven industrialised democracies baulks at seizing Russian government assets to support Ukraine, a potentially major means of pressure backed by the United States.

Direct US assistance to Ukraine could also soon dry up, with Congress yet to approve a request by the Biden administration owing to an unrelated dispute on immigration policy.

The White House fears an end to aid would give new momentum to Russia against Ukraine, which has received US$43 billion (S$57 billion) in military assistance from the US since the invasion.

In parallel actions on Dec 22, the US said it would step up sanctions against Russian diamonds and seafood – banning their import if they originated in Russia, even if they were then processed elsewhere.

The action comes days after a European Union ban on Russian diamonds. The US has already banned imports of Caspian Sea caviar since 2005 for conservation reasons.

Russia has managed to soften the impact of sanctions through trade via third countries, with Central Asian nations in particular seeing sharp increases in shipments of technology.

The US has been stepping up the use of secondary sanctions, despite concerns among some policymakers and experts that it will encourage other countries to move away from the dollar.

The US has used its clout most visibly on Iran by threatening countries that buy oil from the clerical state. AFP