Banks face unprecedented challenges in ensuring compliance with the sanctions imposed on Russia since the invasion of Ukraine in February 2022, bankers and advisers told a panel at the European Bank for Reconstruction (EBRD) annual meeting in Yerevan on May 15. 

Multiple packages of sanctions have been imposed on Russia by the European Union, the US and many other countries since the invasion, their scale and scope dwarfing those imposed on other nations such as Iran. 

“Compared to nine or 10 years ago, the sanction regimes introduced in the last two and a half years were so complex and were coming at such high speed it was difficult not only for commercial banks to keep pace, but also for the regulars. In many cases, the regulators themselves were not fully aligned,” Elitza Kavrakova, group head of institutional clients at Raiffeisen Bank International AG, told the panel. 

William Rich, head of banking client sanctions compliance at Citi, agreed that the “sheer speed and scope of the changes that have happened in the last two years is really unprecedented”. 

“Before the Russia sanctions programmes, we had the Iran sanctions. The Russia sanctions programmes today are about five times larger than those for Iran. The Iran programme took about a decade to put in place; for Russia 98% was in the last two years, so we are talking about a very different scale of the rate of change,” added Rich. 

He also pointed out that the nature of the targets of the Russia sanctions programmes exacerbates the situation. 

“For Iran, North Korea, Syria — some of the other big programmes — the types of targets weren’t multinational corporations, they weren’t banks with large global footprints; with Russia they are, so we have all sorts of risks and conflicts popping up in places where we never had them before.” 

The situation is further complicated by differences between sanctions regimes. 

“At the G7 level there is a lot of consistency in the policy response to Russia’s invasion of Ukraine, however, in the but sanctions programmes of predominately the US, the EU and the UK there is a fair amount of divergence in what is restricted and what is excepted from restrictions that,” said Rich. “This makes life pretty difficult for banks like Citi that operates in all of those jurisdictions” 

Martial Nicolas Smets, director at ARGOS Advisory and Audit, discussed the circumvention of the sanctions.  “There are people who are trying to circumvent the sanctions, every day they are trying to find new ways,” he said. 

According to Smets, the main issue is layering, whereby one company imports goods, sells it on to another, which then exports it to Russia. “We need to be able to connect the dots,” he said. 

“We have seen a lot of circumvention from Europe to a third country, in the Caucasus for instance. From that country it would then be exported to Central Asia, and from Central Asia it would end in Russia. In order to be able to control this appropriately, we need to understand the end-to-end transaction.” 

This process, he added, is “Extremely complex and time consuming" for banks.