| HOLLYWOOD, Fla., March 20
HOLLYWOOD, Fla., March 20 U.S. blacklistings
over Russia's annexation of Crimea may spark a sanctions
exchange that would leave banks scrambling to assess their
exposure to targeted parties and to uncover murky financial
linkages, according to industry officials.
Russian business leaders who are potential sanctions targets
have extensive and complex ties around the world, making it hard
to track their financial interests, speakers said at an
anti-money laundering conference in Florida this week.
On the other hand, Western businesses' extensive investments
in Russia make them vulnerable to Russian action. Moscow has
already threatened economic retaliation.
"I think this may be one of the very first times that the
U.S. government has actually implemented sanctions against, or
that implicate, another country that can actually bite back,"
said Bill Fox, managing director of Bank of America's global
financial crimes compliance operation.
"That could escalate real quickly, and I think that's the
real risk here ... It will be uncharted waters, frankly."
Russia has an array of financial levers it can pull, said
Juan Zarate, a former senior U.S. Treasury and White House
policymaker on terrorism financing.
"They have enormous trade in particular with Europe. The gas
and oil tool, they've used in the past to ratchet up pressure on
Ukraine and Eastern Europe. They have the ability to sanction
Western banks, as they have suggested that they might," Zarate
told the conference.
"And frankly in the most nefarious of contexts, you could
imagine the Kremlin locking arms with certain organized criminal
elements to undermine U.S. financial interests, including in
Russia recorded a total of $94 billion in foreign investment
inflows in 2013, jumping to third in the world after the United
States and China, according to the United Nations.
The United States has a relatively small $14 billion in
direct investment in Russia. The EU accounts for about
three-quarters of foreign direct investment in the country.
The CIA estimated total Russian investment abroad at $439
billion at the end of 2013.
The White House has sanctioned 11 Russians and Ukrainians in
response to Russia's annexation of Crimea from Ukraine,
completed this week. It has threatened more measures if the
crisis is not resolved.
The EU has also weighed in, issuing travel bans and asset
freezes against 10 Russian politicians, three military officials
and eight Ukrainians, mostly from Crimea. Some of the names
match those on the U.S. list.
The EU on Thursday was considering additional sanctions.
BofA's Fox told bankers attending the anti-money laundering
conference that a situation where two economic powers appear
poised to use sanctions as weapons of foreign policy could get
If sufficiently provoked, Russia could nationalize U.S.
investments in the country, said Chip Poncy, a former U.S.
Treasury official who is now Zarate's partner in the
anti-laundering consultancy Financial Integrity Network LLC.
The White House this week warned U.S. investors away from
The U.S. Securities and Exchange Commission has also begun
contacting public funds with investments in Russia to make sure
they are properly managing risks and disclosing their holdings
to investors, according to people familiar with the matter.
However, Russia is more dependent on the global financial
markets than are North Korea and Iran - two countries that have
been the focus of long term U.S. sanctions.
That means Russia may also be more vulnerable to U.S.
sanctions, Poncy said.
"Russia has such keen exposure to the (U.S.) dollar, to
trans-national markets, to the G20, to the G7, to the BRICS, to
the post-industrialized countries, and in that sense we have
real opportunity," he said.
Some global banks with "entanglements" in Russia probably
chose to do business there because the U.S. government
historically has not levied sanctions against major economic
powers, Poncy said.
He added that banks should now be focused on determining the
degree of their exposure to Russian clients.
This is a "complex, multi-faceted" situation and banks
should put together monitoring teams that include sanctions
experts, said Darren Donovan, a principal with consultancy KPMG.
"Have someone on your team that is really staying very
current with this and do an assessment, 'What is the exposure?
What is the nature of your relationships as it relates to
Russia,'" he said. "It costs very little to look."
Tracking the holdings of sanctions targets may be hard.
Some potential Russian targets are legitimate business
leaders, belong to broad consortia, or have extensive
investments around the world.
Also at this stage, banks may find relatively few
transactions involving political targets who are sanctioned. The
U.S. government threatened sanctions before imposing them,
giving these people time to move their assets out of reach.
"We think monies have already started moving, right?" John
Byrne, executive vice president of the Association of Certified
Anti-Money Laundering Specialists, asked his fellow panelists.
Poncy noted, however, that the assets of some targets may
not be easily convertible for swift movement.
Russia last year barred state officials and their families
from holding bank accounts or other financial assets abroad.
That was seen as a part of campaign by Russian President
Vladimir Putin to force wealthy officials to keep their money in
Russia and tighten control over the country's elite.
(Reporting by Brett Wolf of the Compliance Complete service
of Thomson Reuters Accelus)
(Editing by Randall Mikkelsen and Sophie Hares)