Financial Institutions Given Ultimatum: Cease or Suffer Sanctions
Senior administration officials have made it clear that financial institutions must choose between halting the shipment of components and goods to the Russian defense sector or facing significant penalties. The United States, European Union, and Britain, along with other allies, have previously imposed sanctions on Russia following its invasion of Ukraine in February 2022. Pressure on Moscow continues to escalate, with targets including Russian President Vladimir Putin, the financial sector, and numerous oligarchs.
This executive order is being issued in coordination with allied nations. The United States has repeatedly warned companies against aiding Russia in evading these sanctions and has taken action against firms in countries such as Turkey and the United Arab Emirates that have been accused of assisting Moscow in circumventing the measures. To further emphasize the consequences, senior U.S. officials have traveled to various countries to stress that businesses trading with sanctioned entities could lose access to G7 markets.
Targeting Russia’s Circumvention Networks
One senior official highlighted the significant impact of initial U.S. sanctions and export controls on Russia’s economy. Currently, the country’s economy is 5% smaller than initially predicted, and it is grappling with a benchmark interest rate of 16%. This new executive order will provide the U.S. Treasury and its allies with additional tools to target the networks Moscow is establishing to circumvent sanctions, including the use of front companies and both willing and unaware financial intermediaries.
While several companies involved in these networks have already been sanctioned, the officials stress that the choke point for these firms and Russia’s ability to bypass sanctions lies within the financial system. However, the officials reassured that they are not aware of any U.S. or European institutions currently violating the order, as most businesses have significantly reduced their engagement with Russia.
Ban on Russian-Origin Diamonds
The executive order will also grant Washington the authority to ban products that originated in Russia but underwent substantial transformation outside the country. This includes diamonds. The Group of Seven countries previously announced a direct ban on Russian diamonds starting on January 1, followed by phased restrictions on indirect imports of Russian gems around March 1. Although the United States has already prohibited the direct import of non-industrial Russian diamonds, this measure will extend the ban to include Russian-origin diamonds processed elsewhere.