Banks punished for finances – Newspaper Kommersant No. 235 (7436) of 12/17/2022

The EU extended sanctions restrictions to three more Russian banks. Two private banks – Credit Moscow and Far East – had their assets frozen, and RRDB, a subsidiary of Rosneft, had its operations restricted. Moreover, the first two banks were under sanctions due to the fact that they worked “in the financial services sector, which is strategic for the Russian economy.” According to experts, sanctions pressure on Russian banks is used as a tool to influence their owners.

The European Union adopted the ninth package on Friday sanctions against Russia, follows from the official statement. According to the report, three Russian banks fall under the sanctions, two of which have Moscow Credit Bank (ICD) and Far Eastern Bank assets will be frozen. This week, the ICB assured that “the bank has no assets in the European Union.” In both cases, the reason was that the two private banks operate “in the financial services sector, which is strategic for the Russian economy.” In addition, MKB received a license to export gold in May, thus receiving “a direct benefit from the Russian government.” The Far East Bank, according to the EU, is one of those authorized “to provide banking support for defense contracts” and participates in many state programs.

The third credit institution to face sanctions is— All-Russian Regional Development Bank (VBRR), a subsidiary of Rosneft (with subsidiaries controls 98.34% of the bank). The EU announced that it would ban transactions with this bank. For RRDB, the oil company is not only the owner, but also a “priority client”, and the bank itself is “closely integrated into the corporate financial structure” of Rosneft, according to the official website of the oil company. RRDB has been under US sectoral sanctions since 2015, limiting funding. The bank did not promptly respond to Kommersant’s request.

A number of banks are already on the EU sanctions list, including Sberbank, VTB, Promsvyazbank, Novikombank, AB Rossiya, Sovcombank, RNKB, FC Otkritie, VEB. In addition, ten financial institutions have been disconnected from the SWIFT financial messaging system. Rosbank was included in the US SDN List this week (see “Kommersant” of December 16), which implies an asset freeze, its counterparties have until March 15 to wind down operations.

Mergen Doraev, partner of AB EMPP, explains that EU sanctions assume automatic action for all participating countries.

“And their introduction will entail the refusal of all European financial institutions to work with Russian banks, including cross-border settlements with the euro,” says Mr. Doraev. The interlocutor of Kommersant in one of the banks also notes that the sanctions will not allow making payments, and will also lead to the zeroing of correspondent relations with foreign banks. According to the RRDB website, it has a rather narrow correspondent network. In particular, direct foreign currency accounts are opened only in Swiss francs at Credit Suisse AG. In the currencies of friendly countries, the bank works through Russian intermediary banks. With regard to RRDB, the sanctions imply a total ban on any operations and transactions with European entities until a separate license is obtained for a particular transaction, Sergey Glandin, partner at the NSP law firm, notes. According to him, the ban comes into force from the moment it is published in the official journal of the EU, and the compliance systems of counterparties in the EU are automatically set to sanctions updates.

When choosing banks and the sanctions applied to them, the EU proceeds from the ownership structure of the bank and the size of its assets, says bank lawyer Nina Semina.

Russian banks are used as a tool to influence their owners, beneficiaries, other members of the groups they belong to, and “the largest of them have themselves become targets for potential requisitions,” says Ms. Semina.

“Therefore, banks of the scale of VTB or Sberbank – the largest Russian state-owned banks – have been subject to an asset freeze, and, for example, through a relatively small RRDB in comparison, they are trying to influence Rosneft’s transactions,” she notes. In her opinion, this “fits into the framework of the ongoing discussions of deals with Russian energy resources.”

One of Kommersant’s interlocutors admits that the oil company is unlikely to have carried out a significant part of the transactions through RRDB. In addition, in his opinion, the settlements themselves could already be transferred, including to yuan and to non-sanctioned banks. Earlier in November, the head of the company, Igor Sechin, called for the development of clearing settlements between China and Russia.

Olga Sherunkova