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U.S. plans to cut ties with targeted Russian banks if Ukraine is invaded

Headlines 11:13 21 Feb, 2022

The measures, which would only be implemented if Russia invades Ukraine, aim to hurt the Russian economy

U.S. plans to cut ties with targeted Russian banks if Ukraine is invaded

President Joe Biden's administration has prepared an initial package of sanctions against Russia that includes barring U.S. financial institutions from processing transactions for major Russian banks, three people familiar with the matter said, Qazet.az reports citing Reuters.

The measures, which would only be implemented if Russia invades Ukraine, aim to hurt the Russian economy by cutting the "correspondent" banking relationships between targeted Russian banks and U.S. banks that enable international payments.

While U.S. authorities have said banking restrictions would be part of a package of possible sanctions, the administration's plan to cut correspondent banking ties - which underpin global money flows - has not previously been reported.

The United States will also wield its most powerful sanctioning tool against certain Russian individuals and companies by placing them on the Specially Designated Nationals (SDN) list, effectively kicking them out of the U.S. banking system, banning their trade with Americans and freezing their U.S. assets, the same sources said.

The White House and Treasury Department declined to comment.

The sources said the package could change up to the last minute and it was unclear who the targets would be. However, they believe top Russian financial institutions including VTB Bank (VTBR.MM), Sberbank (SBER.MM), VEB, and Gazprombank are possible targets.

Experts consulted by Reuters said that while the correspondent banking tool lacks the punch of an SDN designation, which freezes a bank's assets, they could still deal a meaningful blow to the target banks by making it difficult to transact in U.S. dollars, the global reserve currency.

Much of global trade is transacted in dollars.

It is unclear whether Russian banks would be added to the SDN list, but both types of sanctions could hit Russia hard.

"Since a significant number of global trade transactions are in U.S. dollars this is a sanction with bite, but without the more complicated and deadly sanction of being placed on the SDN list and having all assets in the U.S. or in the hands of U.S. persons frozen," said Washington lawyer Kay Georgi, who specializes in international trade.

Sources noted that the administration could exempt certain transactions from the restrictions if deemed necessary.