Too big to sanction? A big Russian bank still operates freely in the global economy because it helps Europe get Russian gas

Ukraine is urging the United States and the European Union to impose tougher sanctions on one of Russia’s largest banks, Gazprombank, which is still able to operate freely around the world due to its central role in Moscow’s gas trade.

The Ukrainian government has said the bank, which was set up to serve Russian gas company Gazprom, is helping finance the Kremlin war in Ukraine.

“The United States and Europe should sanction Gazprombank, not only for its role in helping Russia generate revenue from its energy sales, but because Gazprombank is directly involved in supporting the Russian military, state-owned enterprises and other institutions that support the invasion of Ukraine. Andriy Yermak, chief of staff to Ukrainian President Volodymyr Zelenskyy, told NBC News.

Gazprombank, Russia’s third-largest bank, has been spared the kind of tough restrictions faced by many other Russian lenders. It continues to oversee dollar and euro transactions and is still part of the SWIFT international banking messaging system.

The question of whether to tighten sanctions on Gazprombank illustrates the dilemma facing Western governments as they try to squeeze the Russian economy following its invasion of Ukraine. Europe still relies heavily on Russian natural gas and uses Gazprombank to handle payments for its gas imports. Most European governments remain reluctant to penalize the bank and risk cutting off the flow of natural gas altogether, according to Western officials and experts.

Ukraine has pressured the United States to extend sanctions and has shared information about Russia’s alleged actions with US officials as part of this campaign.

According to Ukrainian intelligence, Gazprombank is handling salary payments for at least some Russian troops participating in the invasion of Ukraine, as well as payments to the families of soldiers killed in the war.

Ukraine says there are also indications that the bank is linked to purchases of military equipment. In one case, a Russian military officer from a tank division operating in eastern Ukraine used Gazprombank to arrange the purchase of two quadcopter drones, according to Ukrainian information obtained by NBC News.

Gazprombank, which has representative offices in China, India and Europe, could also be involved in efforts to circumvent Western sanctions, possibly helping other entities access foreign currency or enable the purchase of equipment that could be used for potentially military purposes, according to the Ukrainian intelligence services. They raised these concerns with US officials.

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Russia’s federal agency that handles civilian foreign aid and cultural exchange, or Rossotrudnichestvo, has been exploring the possibility of using Gazprombank to arrange money transfers to one of its offices in Portugal, intelligence says .

Rossotrudnichestvo did not respond to a request for comment.

The Biden administration declined to comment on the information cited by Ukrainian intelligence.

Gazprombank did not respond to a request for comment.

A Treasury Department official said the Biden administration is monitoring Gazprombank’s activities and does not rule out future action against the bank.

“We continue to monitor Gazprombank to see if they do business with sanctioned entities,” the official said.

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“To date, I believe that we have not taken the decision to impose full blocking sanctions on Gazprombank,” the official said, adding that a range of options remained open.

The goal of US financial sanctions is “to deny Russia access to the revenue it needs to sustain its economy and build its military-industrial complex” and to disrupt defense industry supply chains. countries “in order to make it harder for them to project power today and project power into the future,” the Treasury official said.

Agathe Demarais, a former French treasury official, said Europe would be in “a delicate position” if Gazprombank were excluded from the international financial system.

“The United States knows that if they put Gazprombank under American sanctions, it would cause huge problems in the EU, it would send the euro zone into a deep recession and it would create a big gap between the EU and the United States. United on the sanctions front,” said Demarais, now director of global forecasts at the Economist Intelligence Unit. And the Biden administration is keen to avoid a clash with its European allies, she said.

Some sanctions experts have said Gazprombank could try to avoid risky deals that could draw the attention of US or European authorities and jeopardize its crucial link in channeling natural gas revenues to Moscow.

Although Washington has not frozen the bank’s assets or blocked dollar transactions, the Treasury Department last month imposed sanctions on 27 of its executives.

In February, the United States introduced sanctions against a Gazprombank board member, Sergei Sergeevich Ivanov, head of a Russian state-owned diamond mining company. He is also the son of a close Putin ally and senior Russian government official, according to the Treasury Department.

In 2014, after Russia seized Ukraine’s Crimean peninsula, the United States imposed limited restrictions on Gazprombank, prohibiting American banks from providing medium or long-term financing to the lender.

In Switzerland, financial authorities in 2018 banned the Swiss subsidiary of Gazprombank from accepting new private clients, citing the bank’s violation of anti-money laundering rules and its inability to verify transactions.

FINMA, Switzerland’s financial regulator, said it continued to monitor Gazprombank Switzerland, but declined to comment further.

“We can confirm that we are in close contact with Gazprombank Switzerland,” spokesman Vinzenz Mathys said.

Last year, Europe depended on Russia for around 45% of its natural gas. Europe has reduced its imports of Russian gas this year and the EU has set itself the goal of cutting imports by two-thirds by the end of the year.

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But Europe remains heavily dependent on Russian gas, and this week Moscow cut natural gas deliveries to Europe, prompting calls for conservation measures as governments prepare for winter.

Russian officials said the supply cuts were due to maintenance issues, but Germany accused the Kremlin of using the energy as a political weapon.

“Sanctions against Gazprombank would amount to a Russian gas embargo, which is currently not planned,” said Simone Tagliapietra, senior researcher at Bruegel, a Belgium-based think tank specializing in the European economy.

“The EU must first implement its embargo on Russian oil, which will start at the end of the year.”

The EU plans to cut 90% of its Russian oil imports by the end of 2022.

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