The U.S. Department of the Treasury has unveiled a significant expansion of sanctions against Russia, targeting Gazprombank, over 50 additional banks, more than 40 securities registrars, and 15 financial officials. This sweeping action, announced on 21 November 2024, is aimed at severing Russia’s access to the international financial system and further restricting its capacity to fund its military activities in Ukraine.
The sanctions represent a concerted effort to close loopholes in previous measures, including the designation of Gazprombank and its six foreign subsidiaries. Alongside these actions, the Office of Foreign Assets Control (OFAC) issued a stern warning about the risks associated with participation in Russia’s alternative financial messaging system, the System for Transfer of Financial Messages (SPFS), which Moscow has used to circumvent restrictions imposed by its exclusion from SWIFT.
Gazprombank and Its Role in Russia’s War Machine
Gazprombank, a key conduit for Russia’s economic and military operations, has long been a linchpin in sustaining the Kremlin’s financial networks. OFAC’s designation of Gazprombank and its subsidiaries—spanning operations in Luxembourg, Hong Kong, Cyprus, Switzerland, and South Africa—effectively blocks their assets in the United States and prohibits transactions involving them. These subsidiaries have been integral to facilitating Russia’s international financial activities and war-related payments.
Treasury Secretary Janet Yellen underscored the significance of these measures:
“Today’s sanctions targeting Russia’s largest remaining non-designated bank, as well as dozens of other financial institutions and officials, will further diminish and degrade Russia’s war machine. This sweeping action will make it harder for the Kremlin to evade U.S. sanctions and fund and equip its military.”
Curtailing Russia’s Alternative Financial Systems
Russia’s SPFS, a domestic alternative to SWIFT, has become a focal point in its efforts to maintain international financial connectivity. OFAC’s new alert highlights the risks for foreign financial institutions joining SPFS, warning that such participation could lead to sanctions. The alert aims to dissuade international banks from facilitating Russian transactions and stresses the broader implications of supporting parallel financial structures designed to evade sanctions.
Broader Sanctions on Financial Institutions and Registrars
In addition to Gazprombank, over 50 small and medium-sized Russian banks have been sanctioned to further isolate Moscow from global financial systems. This includes entities that have acted as intermediaries for Russian military procurement and economic activities. OFAC also targeted more than 40 securities registrars, which Russia has increasingly relied upon to bypass sanctions on its National Settlement Depository.
The designations extend to several officials from Russia’s Central Bank, including those responsible for modernising payment systems and promoting alternative financial pathways. These individuals have been instrumental in ensuring the Kremlin’s financial connectivity amid escalating sanctions.
The Strategic Timing and Challenges of Implementation
While the latest measures signify a robust escalation in sanctions, analysts have questioned their timing. Some argue that these actions should have been implemented during the early stages of Russia’s invasion of Ukraine in 2022. Dr Vladislav Inozemtsev, a senior fellow at the Center for Analysis and Strategies in Europe, described the sanctions as “long-awaited” but lamented the delay:
“This makes the sanctions against Russia’s banking system almost universal, but it comes nearly three years after the aggression began. Earlier action could have delivered a more decisive blow.”
Economic Impact on Russia
Despite facing sanctions since 2022, Russia’s economy has shown resilience. With unemployment at a historic low of 2.4%, and support from countries like China and India through discounted commodity exports, the Kremlin has managed to sustain its war economy. Moscow’s wartime spending has injected trillions of roubles into its industrial and military sectors, mitigating the impact of earlier sanctions.
The development of SPFS and other financial adaptations has further enabled Russia to navigate restrictions, albeit with limited efficiency compared to SWIFT. However, the U.S. Treasury’s actions against SPFS signal an intent to curtail even these stopgap measures.
Outlook
The new sanctions are a critical component of the broader Western strategy to weaken Russia’s financial architecture and military capabilities. However, the challenge lies in ensuring swift and effective enforcement. OFAC’s actions also place the onus on foreign financial institutions to comply or risk being drawn into the sanctions net.
These measures highlight the importance of cohesive, timely action in addressing geopolitical threats. As the war in Ukraine continues, the effectiveness of these sanctions will depend on their implementation and the willingness of global actors to align with U.S. efforts. While the latest measures tighten the noose on Russia’s financial system, they also serve as a reminder of the complexities and limitations of economic warfare in the modern era.
