The Biden administration has announced plans to crack down on banks and financial services companies that are helping Russia avoid tough sanctions over access to military technology and equipment that is helping its war against Ukraine.
The move, announced on Friday, comes after attempts by the United States to block Russia’s access to the supplies it needs to build more missiles and other weapons have proven unsuccessful.
The United States and Europe have imposed tough sanctions on Russia over the past two years. But an illicit network of traders and smugglers, working with the help of shadowy financial firms, is helping Russia gain access to the illicit goods it needs to restock its military arsenal.
Treasury Secretary Janet L. Yellen on Friday warned financial institutions not to help supply Russia’s war machine.
“There should be no doubting the decision of the United States and our partners when weighing the real risks associated with support for deterrence in Russia,” Ms. Yellen in a statement. “We expect financial institutions to make every effort to ensure that they are not intentional or unintentional facilitators of avoidance and evasion.”
Moscow’s intelligence services and Defense Ministry have turned to networks that facilitate Russia’s access to illicit materials by exporting them to other countries where they can be more easily shipped to Russia. . This allowed Russia to gain access to critical technology that could aid its military.
Finding new ways to thwart Russia’s ability to restock its military supplies is especially important as Western aid to Ukraine dries up.
On Friday, President Biden signed an executive order giving the Treasury Department the authority to impose sanctions on banks and other financial institutions that enable these elicit transactions and allow smugglers to be paid. Senior administration officials have described the new powers as a tool that would allow the United States to throw sand into the gears of Russia’s military industrial complex.
Western financial institutions have largely stopped doing business with Russia. But administration officials said they hoped the threat of new sanctions would encourage American and European financial firms to pressure banks in other countries to steer clear of Russian smuggling schemes.
Daniel Tannebaum, a partner at Oliver Wyman who advises multinational companies on sanctions, said the administration’s move was long overdue.
“The implementation of this will be critical for Russia’s allies to feel the need to make a choice,” Mr. Tannebaum, who is also a senior fellow at the Atlantic Council.
American and European officials are already working with banks to develop a warning system to alert governments to possible sanctions violations. In September, American banks alerted the US government to 400 suspicious transactions.
The Biden administration is relying heavily on the private sector to manage its sanctions program.
This week, it announced that it will require maritime insurers and financial services firms to more strictly enforce the price cap imposed by the Group of 7 countries on Russian oil exports by collecting additional documentation about contents and prices of oil shipments.
As part of that improved policy, other participants in the energy trade supply chain will have to be prepared to provide more information about additional costs, such as shipping fees, that traders inflate to hide. the higher price paid for Russian. oil.
