All actions have consequences, as proved to the world by enforcing a number of sanctions on Russia earlier this month. The country faces contempt from the rest of the planet in the aftermath of its shock invasion of Ukraine.
Russia’s intent to invade Ukraine
As seen in the news, Russia recently launched the first in what is meant to be a series of attacks on Ukraine. after viewing its intent to join the European Union and NATO (North Atlantic Treaty Organization) as a threat to their peace and security. The ultimate goal of Russia is total occupancy and the absorption of the European country into the Russian Federation.
Sanctions on Russia
Attempting to punish Russia for its actions and to cause economic damage, the United States of America and its allies have set a number of sanctions upon the offending country- starting with freezing $630 Billion worth of its foreign currency reserves.
It seems that the world has placed Russia in a financial quarantine of sorts, subsequently cutting it out of SWIFT (Society for Worldwide Interbank Financial Telecommunication). This prevents financial transactions between Russian banks and those in other countries. All but two of the country’s largest banking institutions are set to be removed from the system as retribution.
The USA has also played a part in limiting the functions of The Central Bank of the Russian Federation. This led to a sharp drop in the value of the Russian Rouble- by over 30%. This in turn has caused inflation to run rampant in the country, causing mass panic among Russian citizens.
Russians are scrambling to convert their savings into dollars to prevent further damage to their savings, with the escalation of withdrawals beginning to put a rather heavy strain on the bank’s holdings. In an attempt to save itself from sinking, the Central Bank has increased the rates of interest by almost double, which is further discouraging struggling Russians from taking any loans.
The USA has also put together a team of federal agents to investigate and prosecute a number of wealthy Russian oligarchs, who are using their riches to fund the invasion of Ukraine. The Justice Department had a hand in assembling the team. It aims to monitor all illegal activities, as well as seize black money.
Trade Sanctions on Russia
However, finance is not the only area where the USA aims to hit hard, with various sanctions related to the closure of its aerospace to flights taking off from Russia, as well as bans on the trade of gasoline and automation parts bring put in place. Many foreign investors have pulled out of Russian companies as well, causing the closure of their local branches and factories. The average citizen’s savings are suffering heavily from rising unemployment, inflation, and the increased cost of borrowing.
Technologically advanced countries like Japan, Germany, and the USA have limited the export of technology to Russia’s various sectors. This includes defense, aerospace, and military programs, with the intent to hinder their attempts at modernization. However, as long as Russia has good relations with China, which is also a supplier of technological parts, this move might not strike as deep a blow as intended. The main goal of this sanction on Russia is to attack the manufacturing of 22 defense organizations, who supply drones, planes, missiles, tanks, and more to the military.
So, with the rest of the world slapping sanctions upon sanctions on Russia in the aftermath of its invasion of Ukraine, one question weighs heavy on everyone’s minds. How will this affect the rest of us?
Effects of the Sanctions on Russia
The steps taken by retaliating countries seem to be working in the short run, sending Russia’s economy into a tailspin. However, the ensuing panic has also opened up a number of opportunities for financial fraudsters and scammers to strike.
Russian citizens are lining up at ATMs by the dozen in attempts to withdraw their life savings as dollars- before the Rouble sinks even lower. Banks are unable to keep up with the added stress, which is depleting their resources. In order to combat this, the Central Bank increased the borrowing rate by almost double. This has further discouraged Russians from taking out loans to combat the financial crisis.
So, how exactly has this led to an increase in financial crime? Among all the confusion, a series of cybercrimes targeting a number of the Ukrainian government and bank websites are taking place. All foreign banks having dealings with any Russian banks were ordered to back out as a result of the sanctions on Russia.
This led to mass chaos with the rejection of all payments waiting to come through. Wide gaps are being left open for hackers to take advantage of the situation, as many transactions are being disrupted. The growing discrepancy between the rich and poor caused by this may lead to the formation of organized crime gangs- which automatically means dabbling in black money dealings like money laundering and corruption.
Involvement of Oligarchs
Officials also caught Russian oligarchs moving their private funds to overseas bank accounts, further adding to the chaos. This is being done out of fear of the Ruble depreciating further. The money is also funding the Russian army in its invasion of Ukraine. In fact, this is a form of terrorist funding.
The use of Russian money for illegal purposes is nothing new. Oligarchs have been pouring money into American real estate for decades. In fact, many properties in the posh New York neighborhoods belong to Russia’s elite. This is a subtle way of hiding their illegally obtained wealth in plain sight.
Russia has always been one of the USA’s primary targets when it comes to surveillance of financial fraud. This is likely to increase after the financial sanctions are completely put into place. The hacking of bank accounts and online fraud is bound to see a surge as Russia’s economy continues to deteriorate.
Foreign banks and companies dealing with Russian banks have been advised from using the extremely secure SWIFT system, forcing them to find alternate means of communication. This makes it very likely for them to fall prey to hackers lurking in the shadows. The lack of information security in the transition will no doubt make this much easier for them.
Conclusion
In short, the enforcement of sanctions on Russia opens up the risk of Russian banks experiencing financial risks. It also poses a problem to overseas companies’ dealings with them. It is still yet to be seen how the Russian economy will fare in all the ensuing chaos. The world watches with bated breath to know- will it prevail, or will it fold to the pressure?
