By Saskia Rietbroek, CSS
March 3, 2022
Russia’s largest bank, Sberbank, and its subsidiaries are among the growing list of sanctioned Russian banks. The US and the UK placed harsh sanctions on Sberbank. Here is a summary of the sanctions and the implications.
On February 24, the US imposed CAPTA (Correspondent Account or Payable Through Account) List sanctions related to correspondent banking/USD clearing transactions.
This was done under OFAC Directive 2 issued pursuant to EO 14024. The new sanctions mean that US financial institutions are prohibited from engaging in the following activities:
- Opening or maintaining correspondent and payable-through accounts for or on behalf of Sberbank and its property or interests in property; and
- Processing transactions by Sberbank and its property or interests in property.
Note that the CAPTA List is not the same as the SDN list. In general, US persons are not restricted from doing business with CAPTA List parties and there are no asset blocking requirements.
Nonetheless, the breadth of restrictions on US financial institutions interacting with CAPTA-listed entities may, as a practical matter, severely limit transactions by US persons involving these CAPTA-designated entities.
There is a wind-down period until March 26, 2022. This means that the sanctions won’t take effect immediately and USD transactions involving Sberbank can still be cleared until this date.
In practice, Sberbank’s listing on the CAPTA list is particularly relevant to US financial institutions that provide dollar-clearing services for this bank. US banks will have to close any correspondent or payable through account that they maintain for Sberbank or its subsidiaries by March 26.
Further, payments that Sberbank attempts to process in USD for its clients — with examples ranging from to import/export, technology to transportation — will be disrupted and rejected once the payment hits a US financial institution.
New Debt and Equity Restrictions
There are also new debt and equity restrictions on Sberbank. On February 24, 2022 the US listed Sberbank under Directive 3 pursuant to EO 14024.
This designation replicates the debt and equity restrictions already in place pursuant to a previous Directive (Nr.1) under EO 13662: US persons cannot engage in transactions or deal in new debt with a maturity of more than 14 days or new equity of Sberbank and its subsidiaries. The restrictions on these financial institutions extend to those entities owned 50% or more by Sberbank.
These restrictions won’t take effect until March 26, 2022.
New UK Sanctions Affecting Pound Clearing
On March 1, 2022, the UK imposed sanctions on Sberbank, which is subject to new UK correspondent banking/pound sterling clearing sanctions.
The legal authority for these sanctions is Russia (Sanctions) (EU Exit) Regulations 2019 (SI 2019/855) made under the SAMLA 2018, amended on 1 March 2022 by The Russia (Sanctions) (EU Exit) (Amendment) (No. 2) Regulations 2022.
The correspondent banking restrictions are:
- Prohibition of a UK credit or financial institution establishing or continuing correspondent banking relationships with: (i) a designated person (Sberbank); (ii) a UK credit or financial institution owned by Sberbank; or (iii) a non-UK credit or financial institution owned by Sberbank.
- A UK bank is also prohibited from processing a sterling payment to, from, or via Sberbank, or a UK or non-UK financial institution owned by Sberbank.
There is an exemption that applies to the processing of sterling payments for any fee or charge required to permit an aircraft to fly over, land in or take off from Russia. Further, OFSI may also issue licences permitting (i) correspondent banking activity under various grounds, including basic needs, the payment of reasonable legal fees and financial regulation; and (ii) sterling payments under other grounds including humanitarian assistance, the provision of medical goods/services or food, or space flight.
OFSI noted further that failure to comply with financial sanctions legislation or to seek to circumvent its provisions is a criminal offence.
Just like the US sanctions, Sberbank was not made subject to a UK asset freeze.
OFSI issued a general license: GL INT/2022/1277778. This allows for a 30-day wind-down period in respect of the clearing and correspondent banking provisions and applies specifically to Sberbank. UK credit or financial institutions and “relevant institutions” (financial institutions, clearing houses, counterparties or payment system operators) may continue correspondent banking relationships with Sberbank and process sterling payments to, from or via Sberbank (or entities it owns or controls) until 23:59, 31 March 2022.
The designation is relevant to UK financial institutions that provide correspondent relationships to foreign banks, including Sberbank. These will need to be closed.
Further, any UK bank is prohibited from processing a sterling payment to, from or via, Sberbank, or a UK or non-UK financial institution owned by Sberbank. Transactions are only allowed until March 31, 2022 due to the wind-down GL.
New EU Sanctions Not Yet Imposed on Sberbank
As of March 2, the EU hadn’t imposed correspondent banking/Euro clearing sanctions. Since 2014, the EU capital market sanctions have prohibited certain dealings in new debt and new equity issued by Sberbank (or by a company that is majority-owned by one of these banks or companies, or by a person who acts on behalf of any of these banks or companies).
The EU currently has not issued any asset freezing sanctions against Sberbank