Sub-sanctioned TKB will ask the US for a license to work with Asian banks

Transcapitalbank after falling under US sanctions lost the opportunity to make settlements with banks from Central Asia. The US has already allowed him to service banks in Afghanistan,

Transcapitalbank, which was sanctioned in April, plans to apply to the US Treasury Department to obtain separate licenses to continue working with banks in Central Asia, Mongolia and the Transcaucasian republics. This was reported to RBC by a representative of TKB. For these credit institutions, Transcapitalbank is a settlement bank and ensures cross-border payments - after the imposition of sanctions, these operations became unavailable.

The United States imposed sanctions on Transcapitalbank on April 20, but OFAC (the sanctions arm of the Treasury) issued a six-month license to TKB that would allow it to continue working with Afghan banks. “Currently, Transcapitalbank is preparing an appeal to OFAC in order to obtain the same separate licenses to continue working with other countries for which we opened loro accounts,” RBC’s interlocutor said.

As Elena Shirinskaya, deputy chairman of the board of Transcapitalbank, explained to RBC, TKB asked the World Bank to connect banks in Afghanistan in 2016. “Over time, TKB became the main clearing bank for Afghanistan. We have established settlements between Afghanistan and Kazakhstan, Uzbekistan, Tajikistan, Turkmenistan, CHINA, Vietnam, SOUTH KOREA through direct correspondent relations with the financial institutions of these countries,” she stressed. According to Shirinskaya, it is not yet clear how payments will be made under the license issued by OFAC for Afghanistan. “Previously, all settlements were seamless and efficient, but now they may take several days to complete due to the tightening of the compliance procedure on the side of the receiving banks,” the bank’s deputy chairman said. RBC sent a request to the World Bank.

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What business did TKB conduct in Asia

Transcapitalbank, whose largest shareholders are the spouses Olga Gryadovaya and Leonid Ivanovsky (17.5 and 9.5% at the end of 2021; now information about the owners of the bank is hidden), has built a settlement system for countries that do not have direct accounts in American clearing banks from - due to the low risk appetite of the latter for small economies, a TKB representative claims. For banks in neighboring countries, he opened loro accounts and made payments through his nostro accounts. All payments were made using SWIFT. This allowed TKB's counterparty banks to conduct interregional trade.

All banks in Tajikistan, Kyrgyzstan, Mongolia, 80% of the banking systems of Uzbekistan and the Transcaucasian republics, 60% of banks in Kazakhstan have multicurrency accounts in TKB, Shirinskaya said. According to the bank, the turnover of payments in the Central Asian region for 2021 amounted to more than $2.5 billion.

According to the US Treasury Department, TKB created a settlement system to circumvent international sanctions and offered its services to banks in Asia, including China, and the Middle East. To avoid detection of sanctions circumvention, TKB conducted transactions through its own payment system TKB Business, which is an alternative to SWIFT, the US claims. Thus, he also processed payments in US dollars for clients under sanctions. TKB planned to set up a clearing house in Asia without involving US or European banks in the clearing process, US officials say.

A TKB representative told RBC that the accusations of the US Treasury are not true: “The TKB settlement service business model was public and has never been hidden from our foreign partner banks and international rating agencies. <...> We were extremely surprised that TKB was on the sanctions list for creating a transparent settlement system for banks in the near abroad.” He added that TKB Business was offered to loro banks only as a backup communication channel.

Does the bank have chances to obtain licenses

The license (.pdf) already issued to Transcapitalbank allows, until October 20, 2022, to carry out any operations involving TCB and the American financial system, if their final destination or country of dispatch is Afghanistan.

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“It is separately stipulated that American banks keep correspondent accounts for TKB for these purposes, but all other operations are also allowed. It is difficult to imagine what other operations can be discussed, given the current situation in Afghanistan. I think we are mostly talking about cross-border transfers in US dollars via SWIFT,” says George Voloshin, head of the French branch of the consulting company Aperio Intelligence. At the same time, the license prohibits any other operations, including the provision of correspondent services by American financial institutions through TCB in favor of sanctioned banks and other banks with limited access to the American financial market, as well as the provision of such services by the Central Bank, the Russian Ministry of Finance and the National Welfare Fund.

“That is, even if the operation is aimed at making a legal transfer of funds to or from Afghanistan, structures that fall under the restrictions of directives cannot be involved in it,” says Voloshin.

Considering OFAC's expansionary motivation to include TCB in the sanctions list, the likelihood of issuing a new license seems low, Anton Imennov, managing partner of the Moscow office of the Pen & Paper Bar Association, believes. In his opinion, it was the nature of payments with banks in Central Asia, Mongolia and Transcaucasia that could be the reason for imposing sanctions against the bank.

“The license issued (to work with Afghanistan. -) is general, that is, the US Treasury issued it on its own initiative, and not at the request of TKB. Further licenses directly requested by TKB will be ad hoc [if any]. Their receipt depends on how the US Treasury considers it expedient to continue TKB's activities in other countries through the American financial system. As a rule, it is very difficult for a sanctioned person to obtain such a license,” says Voloshin. In his opinion, TKB will receive a license for another country only if it can demonstrate the humanitarian need for conducting financial operations by analogy with Afghanistan.

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The imposition of sanctions will primarily hit the countries of Central Asia and Afghanistan, and not RUSSIA, as all payment chains have been disrupted, the TKB representative believes. “The blocking of cross-border payments will disrupt the imports and exports of this region, which will cause problems in the economy and could lead to a humanitarian catastrophe,” he says.

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