Sanctioned Russian bank opens its doors in Crimea

Russian Bank Rossiya, the subject of US sanctions in March, has wasted no time in returning a message of business as usual to the US.FCA - Obama Putin handshake

This week, it announced the opening of a representative office in the Crimean capital of Simferopol and plans to open branches across the newly created republic in the coming months.

Does this mean that the US imposed sanctions have done little to quell Russia’s political and economic ambitions, or is this gesture a show of force, an thumb in the eye for Obama?

Bank Rossiya’s presence in Crimea should give easier access to Russian funds flowing into the Republic; but the money should stop there. Heavy sanctions by OFAC have forced institutions to report transactions connected to suspicious entities to the US government. And there is no limit on the amounts involved.

Aquila non captat muscas – or does it?

FCA - American EagleOFAC is considered one of the most powerful agencies of the US government; few know what it is, what it does and the extent of its powers. The agency, according to reports, operates behind a veil of secrecy. Some of its sanctions on individuals and entities come in from undisclosed sources, and OFAC seems keen to protect those sources and there is no de-minimis or matter too small to be worthy of investigation.

During an investigation into Iranian sanctions busters, OFAC received a tip off from a financial institution connected to a USD10,000 transaction from a Japanese firm to a Hong Kong firm. The tip off related to dual use materials – zirconium. More than 90% of zirconium is used in nuclear energy applications, according to the Royal Society of Chemistry.

Although OFAC’s strategy of pressurising even non-US institutions to halt dealings with certain institutions has its critics, it does seem to be working as financial institutions do not want to see their revenue flows dry up. The US Treasury’s tactics appear to be unbeatable, as the government places more emphasis on the wars waged by targeted sanctions and less on military manoeuvres carried out under the watchful eyes of the Joint Chiefs of Defence.

Fighting fire with fire

So, if the eyes and ears of the global financial system are scouring transactions for connections to Russian sanctioned entities and individuals, the so-called political elite may find themselves frozen out of anything that happens beyond their own national borders.

Undeterred, however, a few strategies have appeared in the media hinting at how Russia might hit back at the West. It could take the case to the World Trade Organisation (WTO) in Geneva, issuing a law suit against the US for potentially breaching the WTO Agreement.

The Russian Central Bank has announced plans to create a national payments system which would remove its dependence on Visa and Mastercard, which abruptly stopped processing the payments of three Russian banks in March leaving transactions in the lurch. Of course, one way of tackling sanctions is to hit back with sanctions of your own.

“A former OFAC official who asked not to be identified recalled a 2011 meeting with Chinese officials, who bombarded him with technical questions about OFAC and its powers. China was developing its own laws to authorize unilateral sanctions, he later confirmed.

“I am not sure we’re ready for a world where the Russian Federation and People’s Republic of China start having their own lists where they’re sanctioning people,” the former official said.” From Reuters.

 

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