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/ Wednesday, March 2, 2022
Russia eyes sanctions workarounds in energy, gold, crypto Putin expected to move funds through smaller banks and accounts of elite families
T
Fatima Hussein The Associated Press
he harsh sanctions imposed on Russia and the resulting crash of the ruble have the Kremlin scrambling to keep the country’s economy running. For Vladimir Putin, that means finding workarounds to the Western economic blockade even as his forces continue to invade Ukraine. Former Treasury Department officials and sanctions experts expect Russia to try to mitigate the impact of the financial penalties by relying on energy sales and leaning on the country’s reserves in gold and Chinese currency. Putin also is expected to move funds through smaller banks and accounts of elite families not covered by the sanctions, deal in cryptocurrency and rely on Russia’s relationship with China. Presently, “the biggest two avenues that Russia has are China and energy,” said John Smith, former director of Treasury’s financial intelligence and enforcement arm.
China announced last week that it would allow imports of wheat from all parts of Russia for the first time. However, Smith said the Chinese and others “will be driving incredibly hard bargains” now that Russia has fewer willing buyers, and China will want to avoid being subject to secondary sanctions or sanctions violations enforcement. This week, the U.S. further tightened its sanctions to immobilize any assets of the Russian Central Bank in the United States or held by Americans. The Biden administration estimated the move could impact hundreds of billions of dollars of Russian An increased funding. reliance on The latest measures did cryptocurrency will include a carve-out that be an inevitable authorizes energy-related avenue for Russia transactions with the bank. The to try to prop penalties also do not impact up its financial Russia’s gold stockpile, which transactions. Putin has been accumulating for several years.
In fact,
The Economic Sanctions
The U.S. and EU have levied sanctions on Russia’s biggest banks and its elite, frozen the assets of the country’s Central Bank located outside the country, and excluded its financial institutions from the SWIFT bank messaging system — but have largely allowed its oil and natural gas to continue to flow freely to the rest of the world. While Russia is likely to turn closer to China to make up for lost supplies of goods and services it normally would get from the West, Smith said, “they’re also betting that their enormous energy supplies will continue to be in demand, particularly during this cold winter. There’s significantly more profit to be made from their energy if they can get it to market.” Last month, Russia and China signed a 30year deal that will allow Russia to supply gas to China, though the pipes to carry that gas won’t be completed for at least three years. In addition,
Cryptocurrency
An increased reliance on cryptocurrency will be an inevitable avenue for Russia to try to prop up its financial transactions, said David Szakonyi, a political science professor at George Washington University, “but it’s unlikely it’ll serve as a substitute for corporate transactions over time.” Ari Redbord, a former Treasury senior adviser who heads government affairs at TRM, which among other things develops analytics on financial crimes, said his organization has identified at least 340 businesses in Russia that could be potentially used as “on and off ramps” for cryptocurrency. Redbord said that because of the breadth of the
They [Russians] are also betting that their enormous energy supplies will continue to be in demand, particularly during this cold winter. There’s significantly more profit to be made from their energy if they can get it to market. -John Smith Former director, Treasury’s financial intelligence.
sanctions, the amount of crypto that Russia would need to replace the billions of sanctions “would be very difficult to off-ramp into traditional currency.” Ori Lev, who served as a head of enforcement at Treasury’s Office of Foreign Assets Control during the Obama administration, said that overall, “whether it’s using cryptocurrency or relying on China, there are mitigating actions they can take, but they can’t recreate the financial system.” The Biden administration has argued that China won’t be able to make up for the loss of U.S. and European business and that sanctions cutting Russia off from Western sovereign debt markets will be crippling. At the same time, the White House has sought to publicly make the case that Beijing coming to the rescue of Moscow could be detrimental in the long term for China’s reputation in Europe and around the globe.
