Russia-Ukraine crisis

EXPLAINER: How Western sanctions target Russia

Reuters
EXPLAINER: How Western sanctions target Russia

SANCTIONS SOUGHT. A protester holds a placard demanding new sanctions against Russia, during the visit of German Chancellor Olaf Scholz, in Kyiv, Ukraine, February 14, 2022.

Antonio Bronic/Reuters

(3rd UPDATE) Here are the sanctions imposed against Russia, so far, following its invasion of Ukraine

The United States, Britain, Europe, and Canada announced new sanctions on Russia on Saturday, February 26 – including blocking certain lenders’ access to the SWIFT international payments system – following Russia’s invasion of Ukraine on Thursday, February 24.

Below are details on the measures proposed so far:

Switching off SWIFT

Washington and its partners started to deploy what was widely seen as one of the harshest sanction measures: barring banks from SWIFT – a step that will stop lenders from conducting most of their financial transactions worldwide and, according to the statement, effectively curb Russian exports and imports.

The step, which will include restrictions on the central bank’s international reserves, will be implemented in the coming days, the nations said in a joint statement that also vowed further action.

It was not immediately clear which Russian banks would be removed from SWIFT, but Ursula von der Leyen, president of the European Commission, said the move would ensure those selected were “disconnected from the international financial system” in a way that would “harm their ability to operate globally.”

SWIFT is used by more than 11,000 financial institutions in over 200 countries.

Banks and financial firms

The United States and Britain announced restrictions that, combined with previous sanctions, would in effect kick the vast majority of Russian banking assets out of both countries. New targets included Sberbank and VTB Bank, Russia’s two largest lenders.

US banks must sever correspondent banking ties – allowing banks to make payments between one another and move money around the globe – with Russia’s largest lender, Sberbank, within 30 days.

Officials in Washington also wielded their most powerful sanctioning tool, adding VTB, Otkritie, Novikombank, and Sovcombank to the Specially Designated Nationals list – effectively kicking them out of the US financial system, banning trade with Americans, and freezing their US assets.

EU leaders have agreed sanctions targeting 70% of the Russian banking market and important state-owned companies, including in defense.

Russia’s large banks are deeply integrated into the global financial system, meaning sanctions could be felt far beyond its borders. Data from the Bank for International Settlements showed European lenders hold the lion’s share of the around $120 billion in foreign banks’ exposure to Russia.

According to data from Russia’s central bank, total Russian banking foreign assets and liabilities stood at $200.6 billion and $134.5 billion, respectively, with the US-dollar share amounting to around 53% of both, down from 76% to 81% two decades ago.

Sovereign debt and capital markets

Britain announced it would ban Russian sovereign debt sales in London. Russia has issued 4.1 billion pounds of sovereign debt in London since the beginning of 2020.

The coming package of EU measures will “target the ability of the Russian state and government to access the EU’s capital and financial markets and services, to limit the financing of escalatory and aggressive policies,” the bloc said. It will ban EU investors from trading in Russian state bonds.

Washington announced new restrictions on dealings in Russia sovereign debt on Tuesday, February 22. Americans – already barred from investing in Russian sovereign debt directly – will be banned from purchasing it in the secondary market after March 1.

Even before the latest events, access to Russian bonds had become increasingly restricted.

US sanctions imposed in 2015 made future Russian dollar debt ineligible for many investors and key indexes. In April 2021, President Joe Biden barred US investors from buying new Russian rouble bonds over accusations of Russian election meddling.

The curbs have cut Russia’s external debt by 33% since early 2014 – from $733 billion to $489 billion in the third quarter of 2021.

Individuals

The US, the EU, and Britain have already imposed asset freezes, travel bans, and other curbs on Russian individuals.

Britain announced sanctions on more than 100 Russian individuals and entities, including an asset freeze and travel ban on Yelena Georgieva, chair of the board of Novikombank; Pyotr Fradkov, Promsvyazbank chairman; Denis Bortnikov, VTB deputy president; Kirill Shamalov, President Vladimir Putin’s former son-in-law; and United Aircraft’s Yury Slyusar.

Britain will also introduce legislation to limit deposits that Russian nationals can hold in UK bank accounts. The limit will be 50,000 pounds ($66,860) at British banks.

Washington sanctioned Fradkov and Bortnikov on Tuesday, as well as Vladimir Kiriyenko, the son of a former prime minister.

On Thursday, Washington targeted others close to Putin, including Sergei Ivanov, chief executive officer of Russian state-owned diamond mining company Alrosa; Andrey Patrushev, who has served in leadership roles at Russian state-owned gas company Gazprom; and Ivan Sechin, reportedly a deputy head of a department at energy company Rosneft.

Biden said on Thursday he would consider personal sanctions on Putin, a move Moscow has said would not harm the president personally but would prove “politically destructive.”

The EU has already imposed sanctions on five people who were involved in a Russian parliamentary election in annexed Crimea last September, and said it would blacklist all lawmakers who voted to recognize two regions controlled by pro-Russian separatists in eastern Ukraine, freeze any assets they have in the EU, and ban them from traveling to the bloc.

Energy corporates and Nord Stream 2

The United States and the EU already have sanctions in place on Russia’s energy and defense sectors, with state-owned gas company Gazprom, its oil arm Gazpromneft, and oil producers Lukoil, Rosneft, and Surgutneftegaz facing various types of curbs on exports/imports and debt-raising.

Sanctions could be deepened, with one possible option being to prevent companies settling in US dollars.

Nord Stream 2, a recently completed pipeline from Russia to Germany, was awaiting regulatory approval by EU and German authorities before Berlin put its certification on ice.

The US on Wednesday, February 23, imposed sanctions on the company in charge of building Russia’s Nord Stream 2 gas pipeline.

Curbing technology

The EU has vowed to introduce measures to crimp Russia’s technological position in key areas – from high-tech components to cutting-edge software.

The US Commerce Department said on Thursday it was implementing export controls that will severely restrict Russia’s access to semiconductors, computers, telecommunications, information security equipment, lasers, and sensors that it needs to sustain its military capabilities.

Similar measures were deployed during the Cold War, when sanctions kept the Soviet Union technologically backward and crimped economic growth. – Rappler.com