The US has unleashed two rounds of sanctions on Russia’s banks that are proving to be some of the most effective measures to curb Russia’s ability to do business yet.

As bne IntelliNews has reported, the oil sanctions have proved to be a spent cannon once Russia very quickly and very effectively switched its oil export from Europe to Asia, and not a single barrel of Russian crude oil has been sold below the oil price cap of $60. Likewise, Russia has effectively dodged the technology sanctions by rerouting its imports via one of its many friendly countries and is importing as much technology and equipment as it did before the war.

The US campaign to restrict Russia’s access to the international banking system is proving to be much more effective, as even Russia’s friends have significant trade and banking relations with the US, relations these countries are not prepared to jeopardise.

Two days before Christmas last year, the Office of Foreign Assets Control (OFAC) issued a warning that any bank that facilitates Russian financial transactions would be subject to secondary sanctions or big fines.

It was a threat that bankers took seriously. Leading Chinese bank Chouzhou Commercial Bank ceased all financial dealings with Russia and closed Russian clients’ accounts in February, in a move that will potentially disrupt Russia’s $200bn a year trade turnover.

China has become Russia’s strongest supporter ever since Chinese President Xi Jinping visited Russian President Vladimir Putin in Moscow in March 2022 and following the imposition of the SWIFT sanctions in the first week of the war two years ago, Russia has been forced to largely abandon the dollar and replace it with the yuan in international transactions. But despite these tight ties, Chinese banks have been wary of bringing down US sanctions on themselves and China was running a $75bn a month trade surplus with the US in the last quarter of 2023.

In March the same thing happened in Turkey. Turkish banks abruptly closed their Russian clients’ accounts and stopped doing business with Russians, which will disrupt the flourishing trade relations.

Russia has become Turkey’s biggest trade partner, importing $4.32bn worth of goods in January alone, twice as much as from China and four times as much as from Germany, the second and third largest partners respectively.

Even Hungarian Prime Minister Viktor Orban has said that he might have to “rethink” his relations with Russia in the future as the banking sanctions noose was tightened by Western diplomats.

Technically, OFAC’s Christmas order is not a sanction, but the US has followed through on the eve of the second anniversary of the start of the war with more formal banking sanctions that expand the list of banks and financial institutions that have been made untouchable for US businesses.

The US announced the latest sanctions package imposed on Russia since the onset of the invasion in February 2022 that contains 484 legal entities, 57 individuals and 12 sea vessels that have come within the scope of sanctions.

OFAC claimed on February 26 the sanctions were succeeding in reducing financial flows between Russia and a raft of countries that also include Turkey, the United Arab Emirates and Kazakhstan.

By targeting specific banks inside Russia and outside, OFAC is adding to sanctions already imposed on key pillars of Russia's financial infrastructure, including the National Payment Card System (NPCS) that operates the Mir credit cards that now don’t work abroad.

The new banking sanctions extend to nine Russian regional banks, including those headquartered in military-industrial bases, five investment and venture capital funds focused on bolstering advanced technologies and industries, and six financial technology companies offering software and IT solutions to Russian financial institutions.

The sanctions allow OFAC to freeze all property and assets owned by sanctioned entities and individuals within US jurisdiction, as well as those under the control of US persons. Moreover, organisations indirectly owned by sanctioned individuals face similar sanctions.

Transactions relating to the property or interests of sanctioned persons, both within and outside the United States, are prohibited unless authorised by a specific OFAC licence. These restrictions extend to the transfer of funds, goods or services to or from sanctioned entities, underscoring the breadth of the sanctions regime.

Furthermore, foreign financial institutions engaging in significant transactions or providing services related to the Russian military-industrial sector risk facing OFAC sanctions. Activities such as maintaining accounts, transferring funds and offering financial services to sanctioned entities and individuals could trigger punitive measures.

The ramifications of the sanctions are already being felt in Russia. The St Petersburg Exchange (SPBX) has been a major victim of the new rules. As bne IntelliNews reported, pre-war the exchange specialised in selling foreign listed equities to Russian retail investors and was booming. SPBX has already attracted OFAC’s attention, but restrictions have now been tightened further.

However, scepticism persists regarding the efficacy of sanctions in altering Russian behaviour and their ability to hurt the economy. Despite their disruptive impact, Russia continues to adapt and has been surprisingly nimble in circumventing restrictions.

Sanctioned banks:

Avangard Bank, headquartered in Moscow;

Bank RostFinance, with headquarters in Rostov-on-Don;

Chelindbank, with headquarters in Chelyabinsk;

Bank International Financial Club, headquartered in Moscow;

Modulbank, with headquarters in Kostroma;

Databank, with headquarters in Izhevsk;

Maritime Joint Stock Bank, headquartered in Moscow;

Bystrobank, with headquarters in Izhevsk;

SPB Bank, with headquarters in Moscow.

Sanctioned investment firms and venture capital funds:

BSF Capital provides investment banking services, venture capital investments, fund management and large asset management;

Investment Consultant Elbrus Capital, investment company;

Orbita Capital Partners, an asset management company;

Investment and Venture Fund of the Republic of Tatarstan , provides loans and grants and finances technological and industrial projects;

Guard Kapital, investing in Russian information technology companies.

Sanctioned fintech companies:

Finansovye Informatsionnye Sistemy, develops information systems for the financial sector;

Quorum, develops financial software;

Crypto Pro, develops cryptographic software and public key infrastructure solutions;

Faktor TS, software for cryptographic information protection;

Sistemy Prakticheskoi Bezopasnosti, develops software for security systems;

Validata develops and produces secure corporate information systems.