US Treasury Secretary Janet Yellen has issued a strong call to German banks to bolster their efforts in complying with sanctions imposed on Russia. Addressing German bank executives in Frankfurt on Tuesday, Yellen emphasized the urgency of closing loopholes that allow Russia to evade these sanctions and warned of severe consequences for non-compliance, including potential exclusion from US dollar transactions.
Reinforcing Sanctions: The Need for Vigilance
Yellen began her address by highlighting the Treasury’s expanded authority to impose secondary sanctions on banks that facilitate Russian military-related transactions. She noted that this measure has been effective in disrupting Russia’s procurement of essential goods for its ongoing war in Ukraine. However, she stressed that the current efforts are insufficient and need to be intensified.
“Russia continues to procure sensitive goods and expand its ability to domestically manufacture these goods. We must remain vigilant and be more ambitious,” Yellen declared, underscoring the critical nature of the issue.
Intensified Compliance Measures by German Banks
In her prepared remarks, Yellen urged financial institutions to adopt heightened compliance measures and to focus more intensely on preventing Russian attempts to bypass sanctions. She emphasized the importance of monitoring compliance not only within their own operations but also across their foreign branches and subsidiaries. Yellen specifically called on the executives to engage with their foreign correspondent banking customers, particularly those in high-risk jurisdictions, to ensure adherence to the sanctions.
“Russia is desperate to obtain critical goods from advanced economies like Germany and the United States,” Yellen warned. “We must remain vigilant to prevent the Kremlin’s ability to supply its defense industrial base and access our financial systems.”
Recent Pressure on European Banks
Yellen’s appeal follows a significant instance of US Treasury pressure leading to a major European bank altering its course. Austria’s Raiffeisen Bank recently abandoned a substantial deal involving a Russian tycoon due to intense scrutiny from the US. Earlier this month, Raiffeisen Bank International (RBI) retracted its bid for a 1.5 billion euro ($1.6 billion) industrial stake linked to Oleg Deripaska, a prominent Russian businessman. This move highlighted the US’s determination to hold European banks accountable for their ties with Russia.
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A source familiar with the situation revealed that the US Treasury had formally warned RBI that its access to the US financial system could be restricted due to its Russian dealings. On May 6, Deputy Treasury Secretary Wally Adeyemo sent a letter expressing concerns about RBI’s operations in Russia and the proposed 1.5 billion euro deal.
The collapse of this deal followed significant pressure aimed at blocking the acquisition of a stake in the construction group Strabag, which was intended to release funds frozen in Russia. Yellen noted that while the most significant Russian sanctions evasion activities are emerging from China, the United Arab Emirates, and Turkey, the Treasury is actively working to disrupt evasion tactics globally, including in Central Asia, the Caucasus, and across Europe.
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Broader Global Economic Discussions
During her visit to Frankfurt, Yellen also took the opportunity to engage with top bank executives to discuss broader issues concerning the global economy and financial system stability. She expressed optimism about the resilience of the global economy, noting that it is performing better than expected, with risks being broadly balanced and financial conditions easing since the banking turmoil of the previous year.
“We also remain vigilant to potential vulnerabilities, including elevated levels of corporate debt, leverage, liquidity mismatches in the non-bank sector, and strains in commercial real estate markets,” Yellen added.
G7 Finance Ministers’ Meeting
Yellen’s discussions in Frankfurt are part of a broader engagement with financial leaders ahead of the G7 finance ministers’ meeting in Italy. This upcoming meeting is expected to focus on these critical issues, including the enforcement of sanctions against Russia, global economic stability, and potential vulnerabilities in the financial system.
The US Treasury’s stance, as articulated by Janet Yellen, underscores the critical importance of maintaining stringent sanctions against Russia and preventing any attempts to evade them. By urging German banks to enhance their compliance efforts, Yellen aims to ensure that the international financial system remains robust and capable of curbing Russia’s ability to sustain its war efforts. The message is clear: vigilance and ambition are essential to thwarting the Kremlin’s strategies and preserving global financial stability.
