With 500 new sanctions laid on Russia by the U.S., the possibility of other organizations getting caught up in secondary sanctions has given them pause.
Chinese Banks Turn Away Russian Operations Due To Sanctions
The Moscow Times reported on February 27, 2024 that Chinese commercial banks were no longer processing payments from Russia. This follows reports of Turkish and Emirati banks refusing to deal with Russian clients as well. In all cases, the threat of sanctions from the United States have made the banks rethink their position when it comes to Russia money.
Cards stop working abroad
In particular, more card payment clearing systems from within Russia have been cut off. The round of U.S. sanctions announced on February 23 targeted Russian payment systems and the foreign banks and banking systems dealing with them. Among the 500 sanctions was one specifically against the Russian central bank-owned National Payment Card System (NSCP), which operates the Mir card system. NSCP was connected to China’s UnionPay, which in turn operates under Huawei Pay. Mir-UnionPay cobranded cards have been popular with Russian tourists and émigrés because of NSCP and UnionPay had not been affected by U.S. sanctions or the disconnection of Russian entities from the SWIFT transfer clearing system.
Cards processed through UnionPay have become the default path for payments since both credit cards such as Visa, MasterCard and American Express as well as the SWIFT payment system left the Russian market with the launch of Russia’s broad-scale invasion of Ukraine.
Banks closing doors
The end of cooperation between card payment systems follow on the heels of decisions by banks globally to avoid secondary sanctions for dealing with Russian banks. In China, some of the largest banks in the country have ended relations with Russian entities. The largest bank in China by assets, Industrial and Commercial Bank of China, is among them. So are China Construction Bank, ranked second by assets, and Bank of China, fourth in terms of assets.
Banks in the Middle East were also closing the doors to Russian clients in February. The UAE did get a clean bill of health from FATF and was removed from the FATF gray list, and with the change the nation’s banks have had to be more careful with AML/KYC procedures.
Other effects of sanctions
The threat of secondary sanctions against entities that deal with Russia commercially is also having an effect on the oil industry. Indian traders and refiners, which benefited from previous rounds of sanctions that ended business as usual for competitors, now need to take sanctions into consideration for their own operations.
Reuters reported on February 28 that refineries were looking for new partners given the risk associated with Russian oil. Imports of Russian oil had surged in 2023 to 1.66 million barrels per day compared to 652,000 barrels per day previously.
