New EU Sanctions on the Horizon

The EU's 12th tranche of sanctions should be ready soon

Photo by Christian Lue on Unsplash

As the second anniversary of Russia’s invasion of Ukraine approaches, it looks like the EU increasingly is close to reaching final agreement on a 12th package of sanctions against Russia.

Austria—another country known for its corruption and the massive presence of genocidal “diplomats” and Russian spies—last week agreed to back the deal before reversing course and blocking passage on “technical objections.”

And by “technical objections,” I mean that Vienna was demanding that Ukraine remove Raiffeisen Bank from its list of “war sponsors.”

Austria had been pushing to remove the bank from a Ukrainian list dubbed "international sponsors of war" - which sets out to shame companies doing business in Russia and supporting the war effort by, for instance, paying taxes.

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The blacklist has no legal standing, but it is symbolically important, reinforcing public pressure on Raiffeisen to quit Russia, something the Austrian bank has said it is willing to do but which has yet to happen.

The thing is that removing Raiffeisen from Ukraine’s blacklist will do nothing to salvage the bank’s reputation. It is still doing business in Russia and soaking up Putin’s blood money, and everyone knows it. It supposedly tried to find a buyer for its Russian arm this year, but no one in their right mind wants that bank, especially with Moscow appropriating assets of companies it finds “unfriendly” to Russia. And frankly, there are a lot of regulatory hurdles to overcome. But Raiffeisen, for all its promises to exit the Russian market, as of October has not even submitted its exit plan to the European Central Bank, a process that would likely require approval from Russian authorities, and has postponed the spinoff of its Russian subsidiary until the end of the year.

Raiffeisen—one of Austria’s biggest lenders—has had a reputation for lax anti-money laundering controls for years. And Austria hasn’t been doing much about it, while it tries to whitewash its reputation as Russia’s money-laundering puppet and haven for Russian spies.

The Austrian Financial Market Authority began an investigation into the bank after it was cited in the 2016 Panama Papers leak, which revealed a network of offshore companies in tax havens. The regulator later fined Raiffeisen €2.7m for poor money-laundering prevention methods, but the fine was overturned by Austria’s supreme court. In 2019, Raiffeisen was also accused by the prominent Kremlin critic Bill Browder, an anti-money laundering activist and investor, of handling more than $634m in dirty money from Russian criminals. But Austria’s Public Prosecutor’s Office decided to take no action following Browder’s complaint.

And it looks like US regulators are and have been noticing. Raiffeisen in February confirmed that it has received a request for information (RFI) from the US Treasury’s Office of Foreign Assets Control (OFAC). The bank claims it’s cooperating with OFAC, and is answering queries regarding "payments business and related processes maintained by RBI in light of the recent developments related to Russia and Ukraine."

Raiffeisen remains one of the few foreign banks left in Russia since Moscow's invasion of Ukraine, and if it provides correspondent services—and access to the global financial system—to sanctioned Russian financial institutions, it could face a number of problems, including secondary sanctions and penalties by US regulators for allowing sanctioned financial institutions access to the US dollar.

So removing Raiffeisen from Ukraine’s blacklist does nothing, other than show that Austria remains a corrupt country trying to whitewash the fact that its second-largest bank is still steeped in Vladimir Putin’s blood money.

That said…

The deed is done, and Austria has dropped its objection after a successful bit of petty blackmail.

Why do I say it’s petty, and why am I not particularly concerned about it?

If you remember, in March, Ukraine placed five Greek shipping firms—TMS Tankers, Minerva Marine, Dynacom Tankers Management, Thenamaris, and Delta Tankers—on its list of “war sponsors.” Kyiv accused the Greek shipping companies of aiding Russia’s war effort by continuing to transport Russian oil. Greece placed a hold on the 11th tranche of EU sanctions, demanding that the five companies be removed from the Ukrainian list, in effect engaging in the same bit of blackmail as Vienna did this time. Ukraine removed the compnies from the list, but relisted them two months later.

And then something happened…

OFAC started hitting vessel management companies in Turkey and the UAE with sanctions for transporting Russian oil above the $60 per-barrel price cap, and magically, at least three Greek shipping companies—Minerva Marine, Thenamaris and TMS Tankers—stopped transporting Russian oil!

Guess having an 800 lb. gorilla buddy standing behind you threatening designations works wonders to stop bad activity.

Hungary also was holding up progress on the EU’s 12th sanctions package, demanding that Ukraine remove Hungarian OTP bank from its “international war sponsors” list. Kyiv once again consented, “temporarily” removing the bank from its blacklist, pending the bank’s termination of cooperation with Russia.

OTP Bank is not designated by OFAC or any other authority, but you can bet it’s been on the radar of US, EU, and UK regulators. Removing it from the “war sponsors” list just shows that Hungary is willing to blackmail Ukraine while it shows itself to be a steadfast friend to Russia.

So it looks like the 12th tranche of EU sanctions against Russia is a done deal.

The European Commission last month submitted to the EU Council proposals to impose restrictive measures on more than 120 individuals and legal entities for their role in undermining the sovereignty and territorial integrity of Ukraine.

A ban on Russian diamonds will also be included, as well as measures to better enforce the price cap on Russian oil and target sanctions evasion. Member states also would ban the export of machine tools and machinery parts Russia uses to make weapons targeting Ukraine.

Will the additional sanctions do the trick?

As I’ve said before, sanctions are a long game, and with Russia being the world’s 11th largest economy by GDP, it’s going to take a while. But economic erosion is happening in Russia, and as Treasury blogged a few days ago, sanctions and export controls are diminishing Russia’s economic performance, increasing fiscal pressure on the Kremlin, and ratcheting up expenses for Russia as it works to respond to continuously growing sanctions pressure.

Courtesy of the US Treasury Department

The goal is not to destroy Russia or its economy, no matter what the Russian propagandists might tell you in an effort to paint Russia as a victim, but rather limiting Russia’s access to key inputs and technologies Moscow needs to conduct its war in Ukraine effectively.  Russia cannot yet domestically manufacture advanced weapons, and the United States and its partners are taking actions to help ensure that it never does. Russia is now more isolated, relying on individuals and entities willing to facilitate its access to needed funds and technologies, and as more and more facilitators are being identified and prosecuted, Russia will increasingly find that funding and supplying its military is becoming more difficult.