The anaconda strategy, how international sanctions squeeze Russia international payments

According to Elvira Nabiullina, head of the Bank of Russia, Russian banks and companies continue to look for ways to work with international payments.

"Due to sanctions, there are certainly difficulties with conducting cross-border payments. Nevertheless, Russian banks and companies are finding different ways [of making payments] with different countries, and are quite flexible in changing these methods when difficulties increase," she said.

Bank of Russia

However, as reported, US threats of implementing secondary sanctions start to gravely hurts in restraining Russian companies, and individuals, access to foreign banks. I recently posted several papers showing how Turkish banks, but also financial institutions in the UAE started to de-risk in preventing Russia related business.

Could it be the same with China?

As reported by Newsweek Russian companies with business interests in China are reporting significant payment bottlenecks amid revelations that at least nine Chinese banks have stopped processing transactions from Russia, including those made in yuan.

As of this week, the Chinese banking firms that had stopped accepting yuan payments from Russia included Ping An Bank, Bank of Ningbo, the Chinese subsidiary DBS Bank, Great Wall West China Bank, China Zheshang Bank, China Guangfa Bank, Kunshan Rural Commercial Bank, Shenzhen Rural Commercial Bank, and Dongguan Rural Commercial Bank, according to?Izvestia, citing sources in Russia's banking sector.

Russia only solution could reside in, working alternatives for Russian companies now include opening a bank inside China or in Hong Kong, or banking from "friendly countries,".

Chinese banks tighten noose around Russia

The financial system, and subsequent sanctions going along, is a key factor in the overall deterrence mechanism to prevent a State to take a wrong stake.

Could it be actioned in a way to prevent such a situation, as the war in Ukraine? In the Financial Times authors argue that, "Please use the sharing tools found via the share button at the top or side of articles. Copying articles to share with others is a breach of FT.com T&Cs and Copyright Policy. Email [email protected] to buy additional rights. Subscribers may share up to 10 or 20 articles per month using the gift article service. More information can be found here. https://www.ft.com/content/3a0d687e-abd9-4769-97c5-10cf8853eeb4The plumbing of these financial networks is therefore central to the ability to implement, oversee, and, enforce sanctions. But it’s a complicated system, with pipes consisting of both public and private actors. Oversight and co-ordination are therefore necessary to maximise sanctions effectiveness, as well as ensuring that they don’t impact financial markets more widely. Functioning as intended, these networks would have been rerouted in a way that prevented the Russian state, its “partner-in-crime” Belarus, and Kremlin-connected actors from receiving new inflows of funds, while keeping the pipes clear for the outflows of foreign currency reserves. Coupled with an effective policy aimed at reducing oil and gas revenues, this might, eventually, deplete the funding of the Russian war machine."

While all attention has been focused this week on the Council of the European Union decision opening the door to using Russian seized assets, nowhere is the divergence between the aspirations and reality of policy starker than with regards to?Euroclear.

The Kremlin is already warning Western countries on potential law suits against Banks transferring Russian funds to UKraine. Meanwhile, Western creditors keep on finding a way to stop suffering from enacted sanctions,"The only parties affected by Euroclear’s position are Western creditors, who are unable to either extract cash from the sanctioned entity, or to sell their claims to parties that could do so. And so, the sanctioned company — an arm of the Russian state — gets to keep cash it should not have."

Euroclear and financial interdependance

Sophisticated capitalism developed deep ties with Russia. Not easy to escape. If Russia is very often seen as a blueprint for other similar situations, lessons should be (quickly) learned.

#sanctions #finance #banking #assets #sanctioncompliance