EU banks in Russia react to US sanctions threat

The US has threatened Austria's top bank with sanctions for doing business in Russia, following earlier briefings with German lenders.

The US Treasury warned Austria's Raiffeisen Bank International (RBI) it risked "being cut off from the US financial system" if it was helping to fund Russia's military.

It read the riot act in a press release on Thursday (7 March).

Senior Treasury official Anna Morris also met with the Austrian government and with RBI executives in Vienna on Thursday and Friday.

RBI told EUobserver "as a matter of principle, we do not comment publicly on discussions with representatives of authorities".

But the bank was keen to wash its hands of Russia's war-effort all the same.

Ukraine's National Agency on Corruption Prevention (NACP) has named RBI in its blacklist of international "Sponsors of War".

And the Austrian bank's spokesman said on Friday: "Yes, RBI would like to continue its dialogue with NACP to ensure that it is removed from this list".

But for its part, Kyiv doubled down amid the new US pressure.

RBI was "a major financial pipeline between the EU and Russia", the NACP's sanctions director, Agiya Zagrebelska, said on Friday.

"Is the bank [RBI] able to manage risks and not be part of any [sanctions] circumvention schemes, having such a big place in the Russian market — especially given the civil-military fusion of the Russian economy?", she said.

RBI made €1.3bn in profit in Russia last year, where it employed 9,942 people in 490 retail branches.

It also took part in a Russian scheme on loan perks for Russian military conscripts.

"According to the Federal Law of the Russian Federation No. 377-FZ adopted on 7 October 2022, a loan moratorium for conscripts has been installed from 7 October 2022 until 31 December 2023. As a legal entity registered in the Russian Federation, RBRU [RBI's Russian subsidiary] is required to adhere to Russian laws," it previously told EUobserver.

And for Ukraine's Zagrebelska "the issue [of EU firms' Russia war-support] goes far beyond Austria's borders".

RBI is one of eight leading EU banks still in Russia.

The others are: Dutch lender ING, Germany's Commerzbank and Deutsche Bank, Hungary's OTP Bank, Italy's Intesa SanPaolo and Unicredit, and Sweden's SEB.

OTP Bank, which used to be on Ukraine's Sponsors of War list, posted a 125 percent increase in its Russia profit in 2023 on Friday, pocketing €242m, for instance.

It has 82 retail branches in Russia, employs 2,018 people there, and also took part in Russia's "loan moratorium for conscripts" scheme, according to its Russian website.

The US Treasury didn't reply when EUobserver asked if Morris might come knocking on OTP Bank's door in Budapest in future. OTP Bank didn't reply either.

German banks

But US Treasury officials have also briefed German financiers on the new sanctions threat, Commerzbank said.

Talks "in [German] banking associations included general discussions directly with OFAC representatives on this topic", a Commerzbank spokeswoman said on Friday, referring to the Office of Foreign Assets Control — the US Treasury's financial intelligence unit.

The talks began after OFAC acquired new powers on 22 December to punish what the US called "Russian Harmful Foreign Activities".

Commerzbank does corporate banking for mostly German companies active in Russia.

It doesn't disclose its Russian profit and employs about 130 people there.

When asked if it feared potential US sanctions, Commerzbank said it "treats sanctions compliance with the utmost importance and has taken risk-based measures to reduce its Russia-related sanctions risk exposure".

ING told EUobserver the new US rules meant "banks can be sanctioned or denied access to the US-dollar clearing system for a certain period of time, provided the bank has facilitated significant transactions that benefited the Russian military branch."

But the Dutch bank said it didn't feel at risk because it "complies with all international sanctions laws including UN, EU, and OFAC".

ING also does corporate banking in Russia, where its Moscow office employs some 270 people and manages €1.3bn of loans.

Trump effect

Meanwhile, if the US Treasury was to make good on its threat to "cut off" a top EU bank, it wouldn't be the first time the US imposed sanctions on a European champion.

Former US president Donald Trump imposed penalties on firms building the Nord Stream 2 gas pipeline from Russia to Germany in 2019, infuriating Berlin and the European Commission.

The EU also issued a "blocking regulation" in 2018 forbidding EU firms from complying with Trump's Cuba and Iran extra-territorial sanctions.

But the EU foreign service and Austria declined to criticise the US Treasury's threat against RBI on Friday, with the EU foreign service merely spelling out its general philosophy instead.

"In general, EU sanctions are autonomous and are binding for EU entities/citizens only. They are not applied extraterritorially and we do not find extraterritoriality of sanctions decisions in line with our understanding of international law", EU spokesman Peter Stano told EUobserver.