Armenian banks must now identify and freeze payments designed to slip past Western sanctions on Russia, under central bank rules that took effect on August 12.

The requirements sit inside a new regulation on banks' minimum internal control standards approved by the Central Bank of Armenia. Lenders have to build systems for managing sanctions-evasion risk and to identify, suspend or reject suspicious transactions before they are processed, rather than unpicking them afterwards.

The screening reaches well beyond the customer sitting in front of the teller. Banks must vet counterparties and any other party to a transaction, weighing its geography, currency and location as well as the origin of the goods or services being paid for. For individuals that means checking citizenship, residential address and tax residency; for companies, where they are based and actually operate, plus affiliates and beneficial owners.

Monitoring has to be continuous. A customer must be reviewed within one business day of any change to a sanctions list or to the customer's own details, using automated systems, and banks that regularly serve financial institutions abroad must assess those institutions' own exposure to evasion risk, The Moscow Times reported on August 13.

Armenia has spent four years as one of the most reliable side doors out of the Russian financial system, and this closes it by regulation rather than by nervous compliance officers acting case by case. The same rails carry money onward to brokers in the United Arab Emirates and other jurisdictions, so a rule that bites at the Armenian end bites all the way down the chain.

Financial adviser Natalya Smirnova said banks would look past whether a customer appears on a sanctions list and into sources of capital and income, ownership structures and the route the money has taken.

"If your company or employer has sanctioned founders or beneficiaries, that may be grounds for refusing to credit the funds, even if you personally are not subject to any restrictions," she wrote on Telegram.

Armenian lenders had already begun refusing to open accounts for Russian citizens late last year, and closing some without explanation beyond "internal compliance requirements." Russians had opened more than 70,000 accounts at Armenian banks by July 2022, according to Armenian government data, in the first rush out of Russia after the invasion.

The tightening lands as Yerevan's turn away from Moscow hardens into policy. An IRI poll in May found 75% of Armenians back EU membership, and Prime Minister Nikol Pashinyan's Civil Contract party won June's election on that platform, despite a Russian squeeze on Armenian exports in the run-up to the vote.

Moscow's counter-argument is that EU membership and the Russia-led Eurasian Economic Union cannot coexist. Pashinyan returned to the EAEU's intergovernmental council on August 7 after an 18-month absence, a reminder that Armenia is not walking out of the bloc so much as quietly making itself less useful to it.