# Explainer-How Western sanctions will target Russia
Author:  Pal Sinha, Barnali 
Author URL: https://financedigest.com/author/pal-sinha-barnali
Published: 2022-02-23
Category: BUSINESS
Category URL: https://financedigest.com/category/business
Meta Title: New Sanctions on Russia: US and Allies Coordinate Moves
Meta Description: Details on the sanctions imposed by the United States, European Union, Britain, and other Western powers on Russian banks, financial firms, sovereign debt, and
URL: https://financedigest.com/explainer-how-western-sanctions-will-target-russiahtml

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By Karin Strohecker

(Reuters) -The United States and its allies are coordinating new sanctions on Russia after Moscow recognised two regions in eastern Ukraine as independent, officials said.

Details have started to emerge on the steps taken or planned by the United States, European Union, Britain and other Western powers.

Below are details on the curbs proposed so far and what other sanctions could target Russia:

BANKS & FINANCIAL FIRMS

Britain announced sanctions on five banks – Bank Rossiya, Black Sea Bank, Genbank, IS Bank and Promsvyazbank – all are smaller lenders, with only Promsvyazbank on the [central bank’s](https://www.financedigest.com/analysis-china-central-bank-under-pressure-to-ease-is-hemmed-in-by-inflation-fed-jitters.html "Analysis-China central bank, under pressure to ease, is hemmed-in by inflation, Fed jitters") list of systematically important lenders.

U.S. President Joe Biden announced sanctions on VEB bank and Russia’s military bank, referring to Promsvyazbank, which does defence deals. The Treasury Department said: “All assets under U.S. jurisdiction will be immediately frozen and U.S. individuals and entities are prohibited from doing business.”

A senior U.S. administration official added that Sberbank, and VTB [Bank would face](https://www.financedigest.com/analysis-u-s-banks-face-trillion-dollar-reverse-repo-headache.html "Analysis: U.S. banks face trillion-dollar reverse repo headache") sanctions if the Russian invasion proceeds.

Bank Rossiya is already under U.S. sanctions from 2014 for its close ties to Kremlin officials.

The [European Union has agreed to blacklist banks](https://www.financedigest.com/token-inc-launches-london-office-to-answer-demand-from-european-banks.html "Token, Inc. Launches London Office to Answer Demand from European Banks") involved in financing separatist activities in eastern Ukraine.

Russia’s large [banks are deeply integrated into the global](https://www.financedigest.com/world-bank-warns-global-economy-could-easily-tip-into-recession-in-2023.html "World Bank warns global economy could easily tip into recession in 2023") financial system, meaning sanctions could be felt far beyond its borders. Data from the Bank for International Settlements (BIS) shows that European [lenders hold the lion’s share](https://www.financedigest.com/u-s-mid-tier-lenders-shares-rise-in-frankfurt-after-svb-deal.html "U.S. mid-tier lenders shares rise in Frankfurt after SVB deal") of the nearly $30 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](https://www.financedigest.com/first-abu-dhabi-bank-could-renew-35-billion-offer-for-stanchart-bloomberg-news.html "First Abu Dhabi Bank could renew  billion offer for StanChart -Bloomberg News") and $134.5 billion respectively with the U.S. [dollar share](https://www.financedigest.com/shares-steady-dollar-dips-as-us-holiday-lifts-rates-gloom.html "Shares steady, dollar dips as US holiday lifts rates gloom") amounting to around 53% of both, down from 76%-81% two decades ago.

[SOVEREIGN DEBT](https://www.financedigest.com/sovereign-debtors-creditors-agree-on-steps-to-jumpstart-debt-restructurings.html "Sovereign debtors, creditors agree on steps to jumpstart debt restructurings") & CAPITAL MARKETS

The package of measures from the EU will “target the ability of the Russian state and government to access the EU’s capital and [financial markets and services](https://www.financedigest.com/wrapping-financial-services-in-a-security-blanket.html "Wrapping Financial Services in a Security Blanket"), to limit the financing of escalatory and aggressive policies,” according to a statement by the bloc.

It will ban EU [investors from trading in Russian state bonds](https://www.financedigest.com/investors-seek-higher-returns-as-catastrophe-bond-issuance-slows-during-q2-according-to-aon-study.html "INVESTORS SEEK HIGHER RETURNS AS CATASTROPHE BOND ISSUANCE SLOWS DURING Q2, ACCORDING TO AON STUDY").

The United States also increased restrictions on [dealings in Russia’s sovereign debt](https://www.financedigest.com/analysis-no-china-no-deal-bid-to-break-sovereign-debt-logjams-gets-weary-thumbs-up.html "Analysis-No China, no deal: Bid to break sovereign debt logjams gets weary thumbs up"). Americans, who had already been barred from investing in Russian sovereign debt directly, will now also be banned from purchasing it in the secondary market after March 1.

Britain threatened last week to block Russian companies from raising [capital in London](https://www.financedigest.com/london-the-capital-of-cyber-crime-in-the-uk.html "London: the capital of cyber crime in the UK"), Europe’s financial centre for such transactions, though has stopped short of doing so in its announcements on Tuesday.

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

U.S. sanctions imposed in 2015 made future Russian [dollar debt ineligible for many investors](https://www.financedigest.com/dollar-tentative-as-investors-assess-rate-hike-path.html "Dollar tentative as investors assess rate-hike path") and key indexes. In April 2021, Biden barred U.S. [investors from buying new Russian](https://www.financedigest.com/billionaire-investor-yuri-milner-relinquishes-russian-citizenship.html "Billionaire investor Yuri Milner relinquishes Russian citizenship") rouble bonds over accusations of Russian meddling in the U.S. election.

The curbs have cut Russia’s external debt by 33% [since early 2014 – from $733 billion to $489 billion in the third quarter](https://www.financedigest.com/first-quarter-dash-for-cash-largest-since-early-2020-bofa.html "First quarter ‘dash for cash’ largest since early 2020 -BofA") of 2021. Lower debt improves a country’s balance sheet on the surface, but deprives it of financing [sources that could contribute to economic growth and development](https://www.financedigest.com/china-most-promising-source-of-funds-for-overseas-developers-reveals-investorist.html "China ‘most promising source of funds’ for overseas developers, reveals Investorist").

INDIVIDUALS

Sanctioning persons via asset freezes and travel bans is a commonly used tool and the United States, the EU and Britain already have such sanctions in place against a number of Russian individuals.

The EU on Monday imposed sanctions on five people who were involved in a Russian parliamentary election in annexed Crimea in September 2021.

On Tuesday, the bloc said it would blacklist all lawmakers in the lower house of the Russian parliament who voted in favour of the recognition of the breakaway regions, freeze any assets they have in the EU and ban them from travelling to the bloc.

Meanwhile Britain has imposed sanctions on three men, Gennady Timchenko and billionaires Igor and Boris Rotenberg – all of whom are allies of President Vladimir Putin from St. Petersburg whose personal fortunes grew precipitously following Putin’s rise to the presidency. All three men are already sanctioned by the United States.

The United States also imposed sanctions on Tuesday against [Russian elites close](https://www.financedigest.com/citigroup-says-will-close-russian-consumer-commercial-business.html "Citigroup says will close Russian consumer, commercial business") to Putin.

Those hit by sanctions include Alexander Bortnikov, the head of the Federal Security Service, Russia’s powerful domestic security and counterintelligence service.

His son, Denis Bortnikov, the deputy president of Russian-state owned financial institution VTB Bank Public Joint Stock Company and a chairman of the [bank’s management](https://www.financedigest.com/asset-managers-on-alert-after-whatsapp-crackdown-on-banks.html "Asset managers on alert after ‘WhatsApp’ crackdown on banks") company, was also targeted in Tuesday’s move.

Also designated was Putin’s first deputy chief of staff and former [Russian Prime Minister](https://www.financedigest.com/permitted-share-of-chinas-yuan-in-russian-wealth-fund-doubled-to-60-finance-minister.html "Permitted share of China’s yuan in Russian wealth fund doubled to 60% -Finance Minister"), Sergei Kiriyenko. He was previously targeted by the United States, EU and Britain in response to the poisoning of Russian opposition leader Alexei Navalny. His son, Vladimir Kiriyenko, was also designated Tuesday.

The chairman and chief executive of Promsvyazbank was also targeted. The Treasury accused Petr Fradkov of working to [transform the bank into one that serves the defense industry](https://www.financedigest.com/how-solvency-ii-transformed-itself-the-fund-industry-and-regulation.html "How Solvency II transformed itself, the fund industry and regulation").

While the United States has used the SDN designation in the past to sanction oligarchs deemed to be “bad actors,” it has [become more cautious in recent years](https://www.financedigest.com/2022-the-year-future-payment-trends-become-reality.html "2022 – the year ‘future payment trends’ become reality?") after 2018 sanctions on the owner of Rusal saw aluminium prices skyrocket and forced Washington to backtrack.

A bill unveiled by U.S. Senate Democrats in January aimed for sweeping sanctions against top Russian government and military officials, including Putin, and President Biden has said he would be ready to [consider personal sanctions on the Russian](https://www.financedigest.com/pizza-firm-dp-eurasia-considers-divestment-of-russian-business.html "Pizza firm DP Eurasia considers divestment of Russian business") president.

Moscow has said any move to impose sanctions on Putin himself would not harm the Russian president personally but would prove “politically destructive.”

ENERGY CORPORATES & [NORD STREAM](https://www.financedigest.com/denmark-invites-nord-stream-operator-to-help-salvage-unidentified-object.html "Denmark invites Nord Stream operator to help salvage unidentified object") 2

The United States and the EU already have sanctions in place on Russia’s energy and defence 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 widened and deepened, with one possible option being to prevent companies settling in U.S. dollars.

[Nord Stream](https://www.financedigest.com/new-intelligence-points-to-pro-ukraine-group-in-nord-stream-attack-nyt.html "New intelligence points to pro-Ukraine group in Nord Stream attack -NYT") 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.

[Europe’s dependence on Russian energy](https://www.financedigest.com/europes-energy-crisis-and-the-nuclear-path-out.html "Europe’s energy crisis and the nuclear path out") supplies weakens the West’s hand when considering sanctions in this sector.

CURBING CHIPS

The White House has told the U.S. chip industry to be ready for new restrictions on exports to Russia if Moscow attacks Ukraine, including potentially blocking [Russia’s access to global electronics supplies](https://www.financedigest.com/exclusive-kazakh-mcdonalds-shut-outlets-temporarily-after-halting-supplies-from-russia-sources.html "Exclusive-Kazakh McDonald’s shut outlets temporarily after halting supplies from Russia – sources").

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

SWITCHING OFF SWIFT

One of the harshest measures would be to disconnect the Russian financial system from SWIFT, which handles [international financial](https://www.financedigest.com/the-hidden-financial-woes-of-international-students-heading-for-the-uk.html "The Hidden Financial Woes of International Students Heading for the UK") transfers and is used by more than 11,000 financial institutions in over 200 countries.

A senior U.S. official said they are not taking SWIFT sanctions off the table.

In 2012, SWIFT disconnected Iranian banks as international sanctions tightened against Tehran over its nuclear programme. Iran lost half its oil export [revenue and 30%](https://www.financedigest.com/renault-revenues-rise-30-in-q1-on-higher-sales-and-prices.html "Renault revenues rise 30% in Q1 on higher sales and prices") of its foreign trade, the Carnegie Moscow Center think tank said.

Among Western countries, the United States and Germany would stand to lose the most from such a move, as their banks are the most frequent SWIFT users with Russian banks, said Maria Shagina at the Carnegie Moscow Center.

[Calls to cut](https://www.financedigest.com/ford-to-make-call-on-europe-job-cuts-by-mid-feb-as-buyers-circle-german-site.html "Ford to make call on Europe job cuts by mid-Feb as buyers circle German site") Russia’s SWIFT access were mooted in 2014 when Moscow annexed Crimea, prompting Moscow to develop an alternative messaging system, SPFS.

The number of messages sent via SPFS was about one-fifth of Russian internal traffic in 2020, according to the [central bank](https://www.financedigest.com/central-banks-ease-off-on-rate-hike-push-in-october.html "Central banks ease off on rate hike push in October"), which aims to increase this to 30% in 2023. However, SPFS has struggled to establish itself in international transactions.

(Reporting by Karin Strohecker and Catherine Belton in London, Katya Golubkova and Andrey Ostroukh in Moscow; Editing by Jason Neely, Mark Potter and Lisa Shumaker)


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