The G7 and the EU are exploring measures to tighten the enforcement of sanctions against Russian banks that assist Moscow in bypassing trade restrictions, Bloomberg reported.
This initiative focuses particularly on third-country lenders that utilize Russia’s SWIFT-like financial messaging system, SPFS, to circumvent sanctions.
These discussions are crucial as they set the stage for next month’s upcoming G-7 meeting in Italy, where leaders aim to finalize and agree on enhanced measures.
Sanctions evasion through third countries
Moscow has been avoiding sanctions, particularly those aimed at preventing it from receiving essential technology for weapons manufacture, by routing prohibited products through third countries like China, Turkey, the United Arab Emirates, and several Central Asian states.
These complex networks involving multiple intermediaries have made enforcing sanctions particularly challenging.
In response, the G7’s recent efforts have seen a particular focus on banks suspected of facilitating these transactions, with potential new penalties prompting some lenders to adopt stricter controls.
The United States has explicitly stated its willingness to sanction any entity that assists Russia in accessing weapons components.
SPFS system sanctioning
The European Commission has proposed a new set of sanctions targeting lenders that use the SPFS system to evade restrictions.
The system’s use roughly tripled between last year and 2022. More than 150 foreign banks currently use it in around 20 countries, including China, Belarus, Armenia, Tajikistan, and Kazakhstan.
This system, which has seen a significant increase in use, especially after major Russian banks were cut off from SWIFT following Russia’s invasion of Ukraine in 2022, is now a critical component of Russia’s strategy to mitigate the impact of international sanctions.
However, within the EU, there are some doubts about a total ban on SPFS due to concerns about the impact on legitimate transactions and diplomatic relations with third countries.
Discussions are also ongoing about listing third-country banks that assist Russia in sanction evasion, enhancing legal requirements for companies to audit their subsidiaries and supply chains, and identifying more individuals and entities in third countries for sanctions.
While the specifics of these measures are still being debated and we could see variations in implementation among G-7 members, the direction is clear: there is a concerted effort to close loopholes and cut off Russia’s financial and technological lifelines for its war efforts against Ukraine.
