The financial sector, a pillar of the Western strategy to isolate Moscow

Western countries hit where it hurts the most, the financial sector, the target of measures to sanction Russia after its invasion of Ukraine

It is about “cutting all ties between Russia and the world financial system”, explained French Economy Minister Bruno Le Maire on Friday, before a meeting with his European counterparts in Paris on this crisis.

What measures?

After a first train of sanctions, especially against Vladimir Putin’s entourage, the European Union now wants to drastically limit Russia’s access to European capital markets.

The details of the measures are not known, but they would be similar to those already adopted by the United Kingdom, which plans to prevent public and private companies from raising funds in its territory and limit the sums that Russians can have in their British bank accounts.

Washington has already acted against certain financial players, including the two main Russian banks, Sberbank and VTB Bank.

“Excluding a bank from the US financial system is equivalent to preventing it from making payments in dollars,” explains Stephen Le Vesconte, a lawyer for the Linklaters cabinet.

How far do they go?

Not much, according to Ukrainian President Volodymyr Zelensky. “The pressure on Russia must increase,” he tweeted.

For example, Western countries have not cut Russia off from the Swift banking network, which allows receiving or issuing payments around the world. “It’s our last option,” Le Maire said.

Russia has foreign exchange reserves of about US$640 billion as of February 18 (double what was found in 2014, according to a Natixis note), and a sovereign wealth fund of US$175 billion. Enough to finance strategic companies, largely public.

What consequence for Western banks in Russia?

Several European banks have subsidiaries in Russia. The most exposed are France’s Société Générale, Italy’s Unicredit and Austria’s Raiffeisen Bank International.

They suffered on Thursday in the stock market, but “at the moment they do not suffer legal consequences” explains Le Vesconte, although “they are going to operate in a country where the currency loses value, and inflation can increase drastically”.

They will have to put aside their clients if the assets of some of them are frozen.

In terms of contribution to turnover, “the exposure of European banks is much less strong today than to Greek banks in 2010”, also relativizes Éric Dor, director of economic studies at IESEG.

Is it possible to avoid sanctions?

In practice, yes, answers Julien Martinet, lawyer at Swiftlitigation.

He takes the example of Iran, subject to even harsher sanctions, and notes that “systems are implemented with the establishment of a third payer. But it is neither official nor acceptable to the large banking institutions in the field of the fight against money laundering and the financing of terrorism”

Companies risk a lot by not respecting sanctions. The French BNP Paribas was sentenced to pay a colossal fine of US$8.9 billion for having sent money through the United States from 2004 to 2012 on behalf of Sudanese, Cuban or Iranian clients.

The alternative to the dollar is highlighted by oil producers such as Rosneft and Gazprom Neft, which “have declared that the option of payment in alternative currencies was included in several supply contracts,” explains John Plassard, an analyst at Mirabaud.

Nicolas Fleuret, a financial industry specialist at Deloitte, imagines the use of cryptocurrencies “as an alternative payment vehicle”. Russia is producing more and more cryptocurrencies.