How the imposition of US sanctions may affect Russian banks and their customers

The draft law developed by US Democratic senators provides for a number of restrictive measures against the Russian financial sector. According to him, in the event of an escalation of hostilities in Ukraine, at least three Russian financial institutions may fall under new US sanctions . The senators proposed to select such organizations from the list, which included the state corporation VEB.RF, the Russian Direct Investment Fund and ten banks (including not only state-owned, but also private ones): Sberbank, VTB, Gazprombank, MKB, Alfa-Bank, Rosselkhozbank, “ Opening, Promsvyazbank, Sovcombank and Transcapitalbank.

The document also provides for the introduction of blocking secondary sanctions against any providers of "specialized financial messaging services" if they continue to work with banks that have fallen under the sanctions. These include, in particular, the international SWIFT system and the Russian financial messaging system, which was developed as an alternative in case of SWIFT shutdown in RUSSIA. RBC figured out what such severe restrictions could lead to if the bill is still approved and sanctions are imposed.

The new package also provides for personal sanctions against the Russian President, Prime Minister and senior military leadership, restrictions on the participation of foreign companies and managers in Russian mineral extraction industries, a ban on any transactions with Russian sovereign debt, and so on. The reason for them may be the conclusion of the US President that the Russian government (including acting through intermediaries) “is involved in or knowingly supports a significant escalation of hostile activities against Ukraine” compared to the period before December 2021.

Impact of potential sanctions on banks

Western sanctions are divided into blocking (SDN, Specially Designated Nationals) and sectoral (SSI, Sectoral Sanctions Identifications). When falling under blocking sanctions, the assets of individuals and companies in both the US and the EU are blocked. And with those, and with others it is forbidden to conduct any business and conclude transactions. Sanctioned individuals are also prohibited from entering the US and/or the EU. The effect of sectoral sanctions extends to the financing of a sanctioned person by companies from the US and the EU. But the assets of the participants in such a list are not frozen and they are not isolated from the financial system.