LONDON/FRANKFURT (Reuters) – The U.S. Treasury has warned Austria’s Raiffeisenbank (RBI) that its access to the U.S. financial system could be restricted because of its dealings with Russia, the U.S. Treasury said on Thursday. , a person familiar with the matter has seen a letter detailing the threat.
The May 6 letter is the strongest warning yet to Russia’s largest Western bank and follows months of pressure from Washington and Europe to tighten sanctions against Russia and further strain its finances. It is something.
This month, the RBI abandoned a $1.5 billion deal with a sanctioned Russian businessman that the United States objected to. But the bank’s ties to Russia run much deeper. Restricting access to the dollar system could have potentially serious negative consequences.
Why is the US concerned?
When Russia launched a full-scale invasion of Ukraine in February 2022, the United States responded with broad sanctions against Russia and Russian companies. Many Western companies, including banks, rushed to exit.
However, a few Western banks remain with a significant presence in Russia, including RBI and Italy’s UniCredit. Both have lived in Russia since the collapse of the Soviet Union more than 30 years ago.
The RBI’s reluctance to back down has increasingly frustrated U.S. officials, who realize that the sanctions have not been as effective as hoped. Sanctions enforcement agency OFAC launched an investigation into RBI in early 2023.
The bank has postponed its plans to leave Russia.
To free up funds frozen in Russia, the RBI plans to buy a stake in construction group Strabag from a company the Vienna-based group has identified as controlled by Russian tycoon Oleg Deripaska. was.
The move was opposed by the U.S. Treasury Department because Deripaska is under sanctions.
The bank withdrew its bid this month after the United States repeatedly warned it not to proceed.
The European Central Bank is also increasing pressure on the central bank and is expected to order it to scale back its operations in Russia.
Remaining in Russia would prove to be highly profitable for the banks, discouraging them from leaving.
What does RBI say?
An RBI spokesperson said on Wednesday that the bank has significantly reduced its activities in Russia and is working to “deconsolidate” its Russian subsidiary.
Banks, including the RBI, have also said that exiting Russia is a complex process and cannot simply be sold.
For international banks to separate their local operations, they would need approval from Russia’s central bank, the Ministry of Finance, and even Russian President Vladimir Putin.
Last year, Russian authorities made it clear to the RBI, which has about 4 million local account holders and 10,000 employees, that it wanted to continue as it would enable international payments, a person familiar with the matter told Reuters earlier. Told.
Due to US sanctions, Russian banks have been denied access to the SWIFT international payments system. As a result, financiers like the RBI have become a payments lifeline for hundreds of Russian companies.
RBI also receives support from Austria, and Austrian authorities have pushed back against pressure on the bank.
Austria and Russia have had close ties for decades, and Vienna has long served as a hub for cash from Russia and its former Soviet neighbors.
What can the United States do?
In short, there are a lot of them.
The dollar is the cornerstone of international finance, and the United States is the most powerful regulator in the world, primarily because it can end banks’ access to the currency.
In a letter to the RBI, Deputy Treasury Secretary Wally Adeyemo cited President Joe Biden’s executive order authorizing secondary U.S. sanctions on foreign financial institutions that conduct significant transactions involving Russia’s military industrial base.
Losing access to dollars could put any bank in crisis.
Richard Portes, an economics professor at London Business School who studies sanctions, said restricting the RBI’s access would be “hugely damaging”.
Critics of sanctions say the U.S. is accelerating its use of alternatives to the dollar, such as China buying Russian oil by paying in renminbi.
But the dollar remains the pre-eminent currency in international trade and a major reserve currency, and that position is likely to remain, analysts say.
Will the Ministry of Finance do it?
The U.S. government has so far refrained from using new executive orders to sanction foreign financial institutions.
Secondary sanctions target companies that do business with foreign nationals or foreign companies that are already subject to U.S. sanctions.
Adeyemo said in February that U.S. threats to hit foreign financial institutions with sanctions had led to major changes in the flow of funds between Russia and countries such as Turkey, the United Arab Emirates and Kazakhstan.
Has the US ever restricted access to dollars?
Restricting Western banks’ access to the dollar system is highly unusual.
In 2014, French bank BNP Paribas was banned from certain dollar transactions for one year as part of a settlement to resolve allegations that it violated U.S. sanctions against Sudan, Cuba and Iran.
In 2018, the United States accused Latvia’s third-largest bank, ABLV, of money laundering and violating sanctions against North Korea. This effectively locked banks out of the dollar financial market, triggering a shutdown.
(Reporting by Tommy Reggiori Wilkes and John O’Donnell; Editing by Mark Potter)
