Continuing from our update earlier this week on initial sanctions placed upon Russia by the UK, EU and US, there has followed a raft of sanctions as a result of Russia’s military advancement in Ukraine. In this blog we explore how the regional restrictions placed upon Russia by the UK, EU and US can impact your KYC processes.
UK Prime Minister Boris Johnson has announced an aggressive raft of sanctions on Russia following the escalation of invasive military action in Ukraine. A deposit limit has been put in place, applying to Russians placing funds with UK bank accounts, as well as “stringent export controls” for technology bought by Russia1.
The list of sanctions continues, supplementing Tuesday’s sanctions which we analysed here.
- All major Russian banks to have assets frozen – restricting their access to sterling and transacting payments through the UK
- A block has been put on major Russian companies and the state from raising finance or borrowing money on UK markets
- Asset and account freezes on 100 new individuals
- A suspension of dual export licenses to cover goods with potential military use
- A gradual stop will be put to the UK export of high-tech goods and oil refinery equipment
- Russian airline Aeroflot and its subsidiaries are banned from the UK
Although exact measures have not been outlined, the PM confirmed similar restrictions will be imposed on Russian ally Belarus.
The White House has today revealed sanctions isolating Russia from the global financial and trade system in collusion with their allies across the globe.
- Sanctioning two of Russia’s largest banks: Sberbank and VTB Bank (including a total of 45 subsidiaries of the two banks)
- Full blocking sanctions on three other major Russian financial institutions: Bank Otkritie, Sovcombank OJSC, and Novikombank and 34 subsidiaries of these banks
- OFAC expanded Russia-related debt and equity restrictions to additional aspects of Russia’s economy: 13 major firms are now heavily restricted from raising money through the U.S. market
- Additional full blocking sanctions on Russian elites and their family members
- Penalising Belarus for supporting a further invasion of Ukraine by sanctioning 24 Belarusian individuals and entities2
Following a summit of EU leaders in the early hours of Friday morning, Chief Commissioner Ursula von der Leyen revealed that incoming sanctions will have “maximum impact” on the Russian economy3. The key outcome of the summit is the agreed-upon “five pillars” of sanctions placed on Russian interests.
- The EU is targeting 70% of the Russian banking market to stifle their financing of war by increasing Russia’s borrowing costs and therefore accelerating inflation
- They have further targeted the energy sector, hitting them with an export ban on specific technology and equipment, disabling Russia’s ability to upgrade its much-important oil refineries
- Limiting Russian access to cutting-edge technology
- Immediate ban on all sales of aircraft, aircraft parts and equipment to Russian airlines
- Russian diplomats have had their visas revoked and with it their privileged access to the European Union.
What are your next steps?
Banks and other financial institutions must assess current banking relationships they have with customers to ensure there are no links to the newly sanctioned entities.
Firms should implement a robust process to monitor deposits by Russians using UK bank accounts – including thorough manual review to minimise risk. Have you considered that customers may hold several accounts and could avoid this restriction as a result? Do you provide services to corporate accounts that are held by trusts or include other complex ownership structures? Are your Enhanced Due Diligence measures sufficiently screening risky all actors placed under new sanctions laws? If you are uncertain regarding the above issues, contact us for a consultation.
The sanctions that have been laid out in this piece vary in severity; with some weakening relationships between the Kremlin and its state-sponsored oligarchs, and other measures aggressively targeting Russian operations with immediate effect. What we can be certain of is more sanctions to come, and it is safe to assume upcoming sanctions will continue to escalate in harshness.
As a result of this, at EFI we recommend that firms offering wholesale banking services in particular perform thorough reviews of the beneficial ownership of their customers on a risk-sensitive basis. As we anticipate further action, we believe it would be wise to prepare for wider-ranging measures, and having a deeper, more concentrated understanding of the entities that control your customers may well prove valuable in the days and weeks to come. We also recognise that now is not the best time to have a Russian economic interest within a complex ownership structure – do not fall short in your KYC processes.
As specialists in KYC and other financial crime prevention solutions, EFI have experience of optimising our clients’ processes. We stand ready to assist our clients with the challenge of keeping up with the ongoing changes to sanctions at this difficult time.
This article was featured on International Banker Magazine