US takes aim at financial institutions with new Russia sanctions authority

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US takes aim at financial institutions with new Russia sanctions authority © Reuters. FILE PHOTO: U.S. Treasury Secretary Janet Yellen speaks during an interview in New York City, U.S., September 18, 2023. REUTERS/Shannon Stapleton/File Photo

By Daphne Psaledakis and Andrea Shalal

WASHINGTON (Reuters) -U.S. President Joe Biden on Friday signed an executive order threatening penalties for financial institutions that help Russia circumvent sanctions, the White House said in a statement, as Washington seeks to increase pressure on Moscow.

The order also gives Washington the ability to broaden import bans of certain Russian goods, such as seafood and diamonds, the White House said.

“We are sending an unmistakable message: Anyone supporting Russia’s unlawful war effort is at risk of losing access to the U.S. financial system,” National Security Advisor Jake Sullivan said in a statement.

The move comes as U.S. funding for Ukraine military aid is running out and the United States and its allies search for new ways to slow Russia’s war effort.

Washington already had the power to sanction non-Russian financial institutions but Friday’s executive order underscores the “very real risks for foreign financial institutions, many of whom don’t seem to have gotten the message yet,” said Edward Fishman, a sanctions expert at Columbia University.

The measures clarify that the U.S. can target financial institutions involved in transactions on behalf of those hit with U.S. sanctions or tied to Russia’s military industrial base, including the sale of certain critical items.

The order is being issued in coordination with allies, said senior administration officials, speaking on condition of anonymity.

The United States has repeatedly warned companies against skirting U.S. sanctions imposed on Russia, and has targeted firms in the United Arab Emirates, Turkey and China that it has accused of helping Moscow avoid the measures.

Senior U.S. officials have also traveled to Turkey, the UAE and other countries to warn that businesses could lose access to G7 markets if they do business with entities subject to U.S. curbs.

A Treasury official said Washington expressed its concerns to governments around the world, adding that the U.S. is asking for more scrutiny of financial institutions that could be facilitating transactions supporting Russia’s procurement of military-industrial inputs.

The official said that the new authority was not focused on any specific country and not intended to suggest that governments are aware of these transactions.

While the order is not aimed at specific countries, those that have been most implicated in evasion and violations of U.S. sanctions are “obvious,” Fishman, who worked on Russia sanctions at the State Department during President Barack Obama’s administration, said, citing China, Turkey and the UAE as examples.

CHOKE POINT

The new order gives Washington and its allies tools to target the networks Moscow was trying to put in place to circumvent these sanctions through the use of front companies and “witting and unwitting financial intermediaries,” one of the senior officials said.

“We’ve sanctioned a number of these companies that we’ve found, but ultimately the choke point for these companies and Russia’s ability to continue to try and circumvent our sanctions is the financial system,” the official said.

“What this tool allows us to do is to target those institutions and give them a very stark choice.”

The provisions take effect immediately.

The officials said they were not aware of any U.S. or European institutions that were in violation of the order, noting that most U.S. and European firms had already scaled back their business with Russia dramatically.

Brian O’Toole, a former Treasury Department official now with the Atlantic Council think tank, said the executive order will allow the Biden administration to use secondary sanctions in a more nuanced way.

“These are akin to Iran-style sanctions,” he said.

The executive order will also give Washington the ability to ban products that originated in Russia but were transformed outside of the country, including diamonds and seafood, the White House said.

The action comes after the Group of Seven countries earlier this month announced a direct ban on Russian diamonds starting Jan. 1, followed by phased-in restrictions on indirect imports of Russian gems from around March 1.

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