By Anthony Marcus, for Eurasia Business News – February 24, 2022, update on Ferbruary 26.

Sberbank (Сбербанк) is the largest bank in Russia. Photo credit : Anthony Marcus, Moscow, 2020.

The United States has taken restrictive measures against VTB bank and Sberbank. Their American assets will be frozen. This decision was announced by US President Joe Biden, speaking on Thursday at the White House, after Russia launched a military operation in Ukraine to remove the government in Kiev.

We are blocking several more large banks. This means that their assets in the US will be frozen. Among them is VTB, the second largest bank in Russia,” said Joe Biden.

US Treasury released sanctions against VTB Bank and Sberbank after the statement of the US President.

On a daily basis, Russian financial institutions conduct about $46 billion worth of foreign exchange transactions globally, 80 percent of which are in U.S. dollars, according to US Treasury. The vast majority of those transactions will now be disrupted. These new sanctions cut off Russia’s two largest banks — which combined make up more than half of the total banking system in Russia by asset value — from processing payments through the U.S. financial system. The Russian financial institutions subject to today’s action can no longer benefit from the U.S. financial system.

This is the second restrictive measures against the Russian banking sector in a week: on Tuesday, Biden announced the imposition of sanctions against Russia for recognizing the Donetsk and Lugansk People’s Republics : Russian banks Vnesheconombank (VEB), Promsvyazbank (PSB), and 42 of their subsidiaries were targeted.

Biden said that the US authorities are introducing tough new sanctions against the Russian Federation, as well as restrictions on exports to the country. Washington believes that these measures will have a long-term effect. 

Today, I am authorizing the imposition of additional tough sanctions and new restrictions on what can be exported to Russia. This will entail serious costs for the Russian economy both immediately and over time. We have deliberately designed these sanctions in such a way as to increase the long-term effect for Russia and minimize the impact on the United States and our allies,” said US President Joe Biden.

I want to make it clear that the US is not doing this alone. Over the course of months, we have been assembling a coalition of partners that represent well over half of the global economy – the 27 members of the European Union, including France, Germany, Italy, as well as the United Kingdom, Canada, Japan , Australia, New Zealand and many more to add to the cumulative impact of our response“, added the head of the United States.

The US and its allies want to limit Russia’s ability to operate in Western currency :

I spoke to G7 partners today. We will limit Russia’s ability to do business in dollars, euros, pounds and yen, to be part of the global economy. We will stop the opportunities for financing and developing the Russian armed forces.

US sanctions on VTB Bank

OFAC has imposed full blocking sanctions on VTB Bank, Russia’s second-largest financial institution, which holds nearly 20 percent of banking assets in Russia. VTB Bank is majority-owned by the GoR, which deems it to be a systemically important financial institution. This will sever a critical artery of Russia’s financial system. By imposing these sanctions, assets held in U.S. financial institutions will be instantly frozen and inaccessible to the Kremlin. This is one of the largest financial institutions Treasury has ever blocked and sends an unmistakable signal that the United States is following through on its promise of delivering severe economic costs.

VTB Bank was designated pursuant to E.O. 14024 for being owned or controlled by, or for having acted or purported to act for or on behalf of, directly or indirectly, the GoR, and for operating or having operated in the financial services sector of the Russian Federation economy. In addition, 20 VTB Bank subsidiaries were designated pursuant to E.O. 14024 for being owned or controlled by, directly or indirectly, VTB Bank. These subsidiaries include banks, holding companies, and other financial companies located in Russia and eight other countries. All entities owned 50 percent or more, directly or indirectly, by VTB Bank are subject to blocking, even if not identified by OFAC.

VTB Bank, which fell under the sanctions of Great Britain and the United States, received a general license for 30 days from the British Office for the Implementation of Financial Sanctions (OFSI). It will allow the credit institution to carry out operations before curtailing activities in the United Kingdom.

US sanctions on Sberbank

US Treasury also imposed today new sanctions on Sberbank. Sberbank is uniquely important to the Russian economy, holding about a third of all bank assets in Russia. Sberbank is the largest financial institution in Russia and is state-owned. It holds the largest market share of savings deposits in the country, is the main creditor of the Russian economy. Within 30 days, OFAC (Office of Foreign Assets Control) is requiring all U.S. financial institutions to close any Sberbank correspondent or payable-through accounts and to reject any future transactions involving Sberbank or its foreign financial institution subsidiaries. Payments that Sberbank attempts to process in U.S. dollars for its clients — with examples ranging from to technology to transportation — will be disrupted and rejected once the payment hits a U.S. financial institution.

To implement sanctions on Sberbank, OFAC issued Directive 2 under E.O. 14024, “Prohibitions Related to Correspondent or Payable-Through Accounts and Processing of Transactions Involving Certain Foreign Financial Institutions” (the “Russia-related CAPTA Directive”). This directive prohibits U.S. financial institutions from: (i) the opening or maintaining of a correspondent account or payable-through account for or on behalf of any entity determined to be subject to the prohibitions of the Russia-related CAPTA Directive, or their property or interests in property; and (ii) the processing of transactions involving any such entities determined to be subject to the Russia-related CAPTA Directive, or their property or interests in property. Accordingly, U.S. financial institutions must reject such transactions unless exempt or authorized by OFAC.

The United States also imposed sanctions on representatives of the management of Sberbank and VTB Bank. The sanctions list included the first deputy chairman of the board of Sberbank Alexander Vedyakhin, as well as the first deputies of the chairman of the board of VTB Andrey Puchkov and Yuri Solovyov. The restrictions also affected Solovyov’s wife Galina Ulyutina.

The US Treasury, as part of the sanctions it imposed against Sberbank, ordered all American financial institutions to close their Sberbank accounts within 30 days. Payments that Sberbank attempts to process in U.S. dollars for its clients — with examples ranging from to technology to transportation — will be disrupted and rejected once the payment hits a U.S. financial institution.

Further individual sanctions to come

Joe Biden said that the US authorities continue to consider the possibility of imposing sanctions against Russian President Vladimir Putin. Journalists reminded the head of state of his words that “big countries cannot bluff” and asked if the possibility of imposing personal sanctions against Putin was under consideration. “This is not a bluff, this [possibility] is being considered,” answered the American leader. He was then asked if he meant sanctions against the Russian President. Joe Biden replied “Yes” to journalists.

Read also : US President Joe Biden announced new sanctions against Russia

The Russian President on Thursday morning at 04:00 AM said that in response to the appeal of the leaders of the republics of Donetsk and Luhansk, he decided to conduct a special military operation in Ukraine, to counter Ukrainian army and remove the national government in Kiev. The Russian leader stressed that Moscow’s plans do not include the occupation of Ukrainian territories and that no civilian will be injured. The Russian Ministry of Defense reported that the Russian military does not strike at the cities of Ukraine and that military infrastructure is disabled by high-precision means.

Debt and Equity Prohibitions

US Treasury released today sanctions to limit Russia’s ability to finance its military operation in Ukraine and other priorities of the Russian government. OFAC expanded Russia-related debt and equity restrictions to additional key aspects of Russia’s economy. 

OFAC targeted 13 major Russian firms, which are listed in Annex 1 to the Russia-related Entities Directive, include companies critical to the Russian economy and six of Russia’s largest financial institutions. They are now seriously restricted by US Treasury from raising money through the U.S. market — a key source of capital and revenue generation, which limits the Kremlin’s ability to raise money for its policies.

Pursuant to E.O. 14024, OFAC identified the following 11 Russian entities as being owned or controlled by, or having acted or purposed to act for or on behalf of, directly or indirectly, the GoR:

  • Sberbank is Russia’s largest financial institution. Today, Sberbank was also identified as subject to the Russia-related CAPTA Directive.
  • Gazprombank Joint Stock Company is Russia’s third-largest financial institution and is closely affiliated with the energy sector.
  • Joint Stock Company Russian Agricultural Bank is Russia’s fifth-largest financial institution and closely affiliated with the agricultural sector.
  • Public Joint Stock Company Gazprom is the world’s largest natural gas company.
  • Public Joint Stock Company Gazprom Neft is one of Russia’s largest oil producers and refiners.
  • Public Joint Stock Company Transneft (Transneft) manages Russia’s network of petroleum-related pipelines.
  • Public Joint Stock Company Rostelecom is Russia’s largest telecommunications company.
  • Public Joint Stock Company RusHydro is a hydroelectricity company and one of Russia’s largest power companies.
  • Public Joint Stock Company Alrosa is the world’s largest diamond mining company, responsible for 90 percent of Russia’s diamond mining capacity, which accounts for 28 percent globally.
  • Joint Stock Company Sovcomflot is Russia’s largest maritime and freight shipping company.
  • Open Joint Stock Company Russian Railways is one of the world’s largest railroad companies.

Pursuant to E.O. 14024, OFAC identified the following three Russian entities for operating or having operated in the financial services sector of the Russian Federation economy:

  • Joint Stock Company Alfa-Bank is Russia’s largest privately owned financial institution, and Russia’s fourth-largest financial institution overall.
  • Credit Bank of Moscow Public Joint Stock Company is Russia’s largest non-state public bank and Russia’s sixth-largest financial institution.
  • Sberbank, which is described above.

These new sanctions on major Russian banks and state-owned industrial companies may provoke however supply-chains disruption in the commodities markets, as Russia is a major exporter of oil and gas, aluminum, palladium, gold and wheat. This situation should fuel further high inflation in Europe and partially in the US.

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