Banks in countries such as China, the UAE and Turkey face higher risk of enforcement by US sanctions authorities after Washington dramatically expanded its list of Russian entities covered by secondary sanctions to include major Russian lenders.

The US Department of Treasury said on Wednesday that all sanctioned Russian entities including Sberbank and VTB would now be covered by its secondary sanctions regime, meaning foreign banks that continue to transact with them could be barred from the wider US financial system.

The move is a major escalation of a US policy, first unveiled in December, which initially sought to deter foreign lenders – notably those in China – from serving companies deemed by Washington to have ties to Russia’s military-industrial base.

Broadly, over 4,500 Russian entities are now covered by the regime, up from about 1,200 people and companies under the previous list.

The US Treasury says its new list reflects the fact Russia has “re-oriented its economy and marshalled all parts of its government toward supporting its reprehensible war effort”.

Jason Prince, a partner at law firm Akin, says the move “significantly ratchets up the pressure” on financial institutions to not transact with sanctioned Russian entities, such as Sberbank and VTB.

He tells GTR the move is principally aimed at financial institutions in “fence sitter” nations such as China, India, Turkey and the UAE that are continuing to facilitate Russian imports of products such as electronics and other dual-use goods in aid of Moscow’s military-industrial complex.

“Foreign financial institutions have been very wary of exposing themselves to such secondary sanctions,” says Prince, who recently served as chief counsel to the US Treasury’s sanctions enforcement body, the Office of Foreign Assets Control (OFAC).

“The US is giving them a choice: either you have access to the US financial system, the dollar, the US correspondent banks needed to clear dollar transactions, or continue doing business with sanctioned Russian entities such as Sberbank, VTB and others. Take your pick. The US government is hopeful that many financial institutions will decide they want access to its financial system,” he says.

In recent months, US officials forewarned the possibility of greater sanctions measures amid fears over China’s role as a direct supplier to Russia’s military and as a transhipment route for US and European goods.

Western products are still being found in various types of Russian military equipment recovered from the battlefield in Ukraine, including drones, missiles and armoured vehicles, experts say.

By US Treasury estimates, Russia imported US$5.2bn worth of dual-use goods from Chinese suppliers in 2023, a jump of over 40% in just one year.

“No other country has the capacity to supply Russia with the quantity of machine tools, microelectronics, and other goods the Kremlin needs to build weapons,” Deputy Secretary of the US Treasury Wally Adeyemo said in May.

“The Kremlin cannot produce these weapons at scale or continue its war without the assistance of companies and financial institutions in China,” he added.

This week, the US Treasury and State Department also took aim at Russia’s physical procurement networks.

In all, the two departments sanctioned over 300 entities, including suppliers of electronics, trading houses and middlemen in China, Central Asia, the Middle East, Africa and Eastern Europe. It also specified that foreign branches of VTB and Sberbank in China, India, Hong Kong, Kyrgyzstan would be targeted.



US officials have widely touted the impact of the secondary sanctions regime against Russia, since President Joe Biden signed it into existence through an executive order in December.

US Treasury Secretary Janet Yellen said following an event at the Economic Club of New York this week that the larger banks in China have sought to de-risk from Russia in recent months.

“I think that the largest financial institutions in China have been trying to comply and have a very strong motive not to be designated,” as sanctions violators, Yellen said in comments reported by Reuters.

Laura Deegan, counsel at law firm Miller & Chevalier, says the expansion of the secondary sanctions list could ultimately force more banks to review their Russian business. “It wouldn’t be surprising to see additional de-risking.”

David Savage, a partner at law firm HFW, says “we can expect to see a significant decline in the number of financial institutions continuing to do business with Russia”.

Trade between Turkey and Russia was interrupted after the US Treasury’s initial expansion of its secondary sanctions policy in December. That month, skittish Turkish banks halted payments and strengthened compliance checks on transactions involving Russia, according to Russian and international news reports.

However, there are concerns that Russian importers and exporters will find other means by which to execute cross-border payments and to secure services such as trade finance, despite US measures.

“These expanded secondary sanctions can certainly have an effect on a foreign financial institution’s willingness to grant a Russian entity a letter of credit or guarantees,” says Deegan.

“But it might not stop foreign financial institutions in countries who are not willing to follow US sanctions, as the threat of sanctions still might not deter them,” she adds.

“Those that ignore US sanctions will probably continue to find ways to service Russia,” she says. “The true test of whether these expanded secondary sanctions have ‘teeth’ is whether OFAC decides to start designating [foreign banks] under the new expanded authority, which we haven’t seen just yet.”

While the focus is on third-party states such as China, the UAE and Turkey, European and American lenders are being urged to increase their due diligence to ensure they comply with sanctions.

“[In recent months], Treasury officials have also recently spoken to banks across Europe, including Germany, regarding the need for banks to tighten their sanctions compliance programs,” Deegan says.