U.S. Launches Inquiry into Raiffeisen Bank’s Russia Business

The United States sanctions authority has launched an investigation into Austrian lender Raiffeisen Bank’s Russia business, increasing scrutiny of the bank that plays a key role in the Russian economy. The bank said it had received a request from the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) in January to “clarify payments business and related processes maintained by RBI in light of the recent developments related to Russia and Ukraine.” OFAC asked for details of Raiffeisen’s involvement in Russia, partially occupied Donbas region, Ukraine and Syria, including about the transactions and activity of certain clients.

As the OFAC wanted a reply by February, the bank’s lawyers negotiated an extension, pledging to answer the questions in three tranches of information to be sent to in early April, May and June.

Raiffeisen said it was cooperating fully with OFAC and that it understood the request was not triggered by a specific transaction or business. It said it had processes in place to ensure compliance with sanctions.

Raiffeisen has not been sanctioned in the past, but the January information request is worrying European financial regulators responsible for oversight of the bank because of the potential that it could ultimately lead to penalties against it.

The bank is deeply involved in the Russian financial system, with Russian central bank describing it as one of the two foreign banks that are “systemically important credit institutions”, underscoring its importance to Russia’s economy, which is grappling with sweeping Western sanctions.

As Austria’s second-biggest lender, the bank is  also key for much of that nation’s economy as well as having extensive operations in eastern Europe. Austrian authorities have been monitoring the situation at Raiffeisen and its business in Russia closely because of the bank’s importance.

Raiffisen is among a handful of European banks that remained in Russia since Moscow’s invasion of Ukraine. The decision has met with criticism, including from investors, but the bank has defended its position, saying its exposure to Russia is contained.

Raiffeisen made a net profit of roughly €3.8 billion last year, thanks in large part to a €2 billion plus profit from its Russia business. Meanwhile, Russian savers have lodged more than €20 billion with the bank.

The U.S. Treasury has the authority to impose sanctions and can penalize those who break them. Its most aggressive sanctioning tool freezes U.S. assets and excludes banks from accessing U.S. dollars, critical for international trade and finance.

The toughest sanctioning tool in OFAC’s arsenal, known as the SDN list, freezes assets held in the United States and bars American companies or citizens from trading with those listed, freezing a bank or individual out of all dollar payments.

This grants the U.S. influence far beyond its shores to enforce its sanctions. Alternatively, OFAC can also resort to less stringent measures such as levying fines and sending warning letters over sanctions violations.

But Washington is not expected to take such draconian steps. It is common for OFAC to ask for information from banks, which does not lead to automatic penalties.

OFAC has sanctioned five major Russian banks, including state-backed Sberbank as part of a response to Moscow’s invasion of Ukraine, as well as wealthy oligarchs.

In 2018, the U.S. Treasury sanctioned Latvia’s ABLV Bank, due to concerns about illicit activity connected in large part to Russia, prompting the bank to quickly unravel.

Raiffeisen’s CEO Strobl told shareholders in March that he is examining options for the Russian business, but reaching a conclusion would take some time because the bank is not “a sausage stand” that could be closed overnight.

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