The Biden administration announced plans to crack down on banks and financial services companies that are helping Russia evade strict sanctions on access to technology and military equipment helping in its war against Ukraine.
The move, announced Friday, comes after U.S. attempts to curb Russia’s access to supplies it needs to build more missiles and other weapons have proven unsuccessful.
The United States and Europe have imposed strict sanctions on Russia over the past two years. But an illicit network of traders and smugglers, working with the help of shadowy financial firms, has been helping Russia gain access to banned products it needs to replenish its military arsenal.
Treasury Secretary Janet L. Yellen on Friday warned financial institutions not to help supply Russia’s war machine.
“No one should doubt the resolve of the United States and our partners in weighing the real risks associated with supporting Russian evasion,” Yellen said in a statement. “We expect financial institutions to do everything possible to ensure that they are not knowing or unwitting facilitators of avoidance and evasion.”
Moscow’s intelligence services and the Defense Ministry have turned to networks that facilitate Russia’s access to banned materials by exporting them to other countries from where they can be sent to Russia more easily. That has allowed Russia to gain access to critical technology that can help its military.
Finding new ways to limit Russia’s ability to replenish its military supplies is increasingly 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 triggered transactions and allow smugglers to get paid. Senior administration officials described the new powers as a tool that would allow the United States to throw sand in the wheels 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 put pressure on banks in other countries to stay away from Russian smuggling schemes.
Daniel Tannebaum, a partner at Oliver Wyman who advises multinational companies on sanctions, said the administration’s action was long overdue.
“Enforcing it will be critical for Russian allies to feel the need to make a decision,” said Tannebaum, who is also a member of the Atlantic Council.
US and European officials have already been working with banks to develop an alert system to alert governments about potential sanctions violations. As of September, US banks had alerted the US government about 400 suspicious transactions.
The Biden administration has relied heavily on the private sector to control its sanctions program.
This week, it announced that it would require marine insurers and financial services companies to more rigorously enforce the price cap that the Group of 7 countries has imposed on Russian oil exports by collecting additional documentation on the content and the prices of oil shipments.
As part of that strengthened policy, other participants in the energy trading supply chain will have to be willing to provide more information about ancillary costs, such as shipping rates, that traders have been inflating to disguise the higher prices they are paid for Russian products. oil.