Russia says JP Morgan 'illegally' blocked embassy money transfer

MOSCOW (Reuters) - Russia accused U.S. bank JP Morgan JPM.N on Tuesday of "illegally" blocking a payment from one of its embassies to an insurance agency "under the pretext of anti-Russian sanctions".

The offices of JP Morgan in the Canary Wharf district of London, January 28, 2014. REUTERS/Simon Newman

In a statement on its website, the Russian Foreign Ministry suggested the action, which it called “unacceptable, illegal and absurd”, would have consequences for the U.S. embassy and consulate in Russia.

One of the highest profile confrontations yet over U.S. sanctions, the move may increase tensions between Washington and Moscow and add to nervousness of U.S. companies over doing business in Russia.

JP Morgan gave no immediate comment.

“Washington should understand any hostile action against a Russian diplomatic mission not only constitutes a flagrant violation of international law but is rife with consequences that will inevitably effect the work of the embassy and general consulate of the United States in Russia,” the statement said.

The payment came from Russia’s embassy in Kazakhstan to Russian insurance agency Sogaz, which is partly owned by Abros, according to the Sogaz website. Abros is a subsidiary of Bank Rossiya, according to Russian media reports, which is facing U.S. sanctions.

Bank Rossiya was blacklisted by the White House last month as part of a widening effort to punish Russian President Vladimir Putin’s inner circle over Moscow’s role in the Ukraine crisis.

Financial advisers in Moscow have noted general confusion over interpretation of the sanctions, particularly when dealing with subsidiaries of companies which have either been sanctioned or which have shareholders that have been punished.

“There is a lot of confusion ... as to what might be the full scope of the sanctions and what we are hearing is while the sanctions are specific, a lot of U.S. companies are adopting a much more risk-averse or cautious approach,” said Chris Weafer, partner at Macro Advisory.

“There is almost self-sanctioning going on.”

Visa V.N and Mastercard MA.N briefly cut off services for clients at Russia's SMP bank, whose main shareholders were affected by U.S. sanctions, before resuming them shortly thereafter.

“The general rule is that if a company is controlled ... by an individual on the list, they can’t do business with that company,” said one financial adviser last week, speaking on condition of anonymity.

“But it’s quite a slippery slope regarding the whole holding structure,” the source said.

Russia’s accusation could damage relations the bank has with the country. JP Morgan generated fees of $55.6 million in investment banking fees in Russia last year, with a 7 percent market share.

JP Morgan is one of a number of Western banks operating in Russia. Others which have a presence here include Goldman Sachs GS.N, Bank of America BAC.N, Citigroup C.N and Morgan Stanley MS.N.

Editing by Andrew Roche