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  • David Tannenbaum

Russia Advisory Update - May

Our May advisory looks at some of the critical gateways that Russia-related sanctions targets must pass through, and how financial institutions can implement controls to reinforce these new sets of sanctions.

The good guys are winning. Ukraine is back to the Russian border around Kharkiv and counterattacking at Kherson. Finland is joining NATO; Sweden is next. The Moskva lies at the bottom of the sea and a full Russian BTG sits at the bottom of the Donets. Vladimir Putin is running out of bodies to fill his BMPs with. Ukrainian citizens are returning home at record rates. Not only is Ukraine holding their ground, but they are taking back their once occupied land.

Authoritarian governments are watching the situation with consternation, and the results of this war may dictate if the coming decades will be more, or less, dangerous for ourselves and our children. It’s not enough to just prevent defeat, but as noted by the U.S. Secretary of Defense, it’s U.S. policy “to see Russia weakened to the degree that it can’t do the kinds of things that it has done in invading Ukraine.”

There is an economic component to this strategy. Ukraine’s allies, including the United

States, United Kingdom, and European Union (collectively “the authorities”) have imposed

harsh sanctions against Russia. Currently, we are focused on three sets of sanctions

which target gateways that Russian sanctions targets must pass through:

  • The authorities have banned Russian vessels from U.S., E.U., and U.K. ports, which if well designed and implemented, could undercut Russia’s maritime industry and ability to ship and receive goods. In their upcoming sanctions package, the E.U. is also set to ban seaborne shipments of oil (and insuring those shipments) to the bloc.

  • The U.S. and E.U. have prohibited the provision of accounting, trust, and corporate formation services to Russia or persons located in Russia. These prohibitions, if properly enforced, may prove transformative in our ability to fight financial crime.

  • The authorities have placed export controls on dual-use goods sought by Russia, which will undercut its ability to maintain an effective military, as well as undercut Russia’s technology-related industries.

In this advisory, we examine how these gateway sanctions impact financial institutions and what banks must do to implement them. This may require a deft touch. Compliance departments are already strained from handling the daily number of Russia-related transactions or issues they encounter, and these sanctions threaten to place even greater pressure on banks. We advise that financial institutions are upfront with regulators about whether they need to re-prioritize how resources are used to address these challenges, as the benefits of properly enforcing these gateway sanctions likely outweigh the benefits that come from simple and inefficient tasks such as watchlist screening.

May Russia Advisory for Financial Institutions
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