Bank of China Russia Branch stops doing business with financial institutions on SDN sanctions list

The main business of the Russian branch of the Bank of China is the RMB settlement business between Russia and China, which has been suspended. Sources said that the bank will continue to cooperate with financial institutions that are not on the SDN list.

It is reported that Industrial and Commercial Bank of China, China CITIC Bank and most other Chinese banks have also taken similar actions. This is not good news for the Russian market.

This means that the time cost of transactions and the cost of payment processing will increase. The financial experts interviewed believe that the most important problem is that this will lead to the transfer of sanctioned financial transactions to non-bank transaction entities, which are less subject to government supervision and have a very high risk of fraud. 

Recently, transaction flows have increasingly shifted from banks to intermediaries, that is, non-bank transaction entities, so the transparency of the transaction chain is getting lower and lower.

Other financial experts pointed out that using the services of these intermediaries is very risky. In addition to the 3-5% commission, there is also the risk of currency exchange. Assuming that the RMB remittance is frozen, the intermediary will return it to the payer in rubles. As for the exchange rate, it depends on luck. 

Reuters also reported another payment channel. As major Chinese banks restrict settlement of Russian transactions due to concerns about US sanctions, companies are turning to secondary banks in northeastern China, close to the Russian border, which may still accept such payments. But such an approach will also complicate the settlement chain. 

At the end of April, the Wall Street Journal wrote that the United States was discussing sanctions against some Chinese banks. Alexey Fedoryaka, partner and head of litigation resolution and sanctions legislation at Sapozhikov & Partners, believes that the threat of US secondary sanctions on Russian branches of foreign banks, including Chinese financial institutions, is real at present. 

She said this is the main reason for the suspension of payments on the Russian side. "If the United States finds that a bank has violated sanctions restrictions and the imposition of secondary sanctions on the bank does not have a significant impact on the United States, the United States will impose sanctions." She believes that the biggest risk targets of secondary sanctions are branches of foreign banks in Russia.