Sberbank Sanctions: How the U.S. and E.U. Targeted Russia's Largest Bank

Introduction

Sberbank is Russia's largest state-owned bank, holding about a third of all bank assets in the country. It is also a significant creditor of the Russian economy and a systemically important financial institution. However, Sberbank has faced increasing sanctions from the U.S. and the E.U. since 2014, when Russia invaded and annexed Crimea from Ukraine.

The Origins of Sberbank Sanctions

The U.S. and the E.U. imposed sanctions on Sberbank and other Russian banks in September 2014 in response to Russia's violation of Ukraine's sovereignty and territorial integrity. The sanctions restricted Sberbank's access to Western capital markets by prohibiting U.S. and E.U. persons from providing new financing to Sberbank for longer than 30 days. The sanctions also limited Sberbank's ability to issue new debt or equity in the U.S. or the E.U.

The sanctions were part of a broader strategy to isolate Russia from international finance and commerce and to deter further aggression against Ukraine. The U.S. and the E.U. also imposed sanctions on other sectors of the Russian economy, such as energy, defense, and technology.

The Escalation of Sberbank Sanctions

The sanctions on Sberbank and other Russian banks were extended and expanded several times over the years as Russia continued to support separatist forces in eastern Ukraine and interfered in other countries affairs. For example, in 2016, the U.S. added Sberbank to its Sectoral Sanctions Identifications List (SSI List), which imposed additional restrictions on Sberbank's transactions involving certain types of debt and equity.

In 2018, the U.S. enacted the Countering America's Adversaries Through Sanctions Act (CAATSA), which authorized new sanctions on Russian entities and individuals for their involvement in cyberattacks, human rights abuses, corruption, and weapons proliferation. Under CAATSA, the U.S. imposed sanctions on several oligarchs and officials close to President Vladimir Putin, as well as their companies and assets.

In 2020, the U.K. fined Standard Chartered Bank £20 million for breaching sectoral sanctions on Sberbank. The bank admitted that it had processed 102 loans worth £97.4 million to Sberbank between 2015 and 2018 without obtaining the required authorization from the U.K.'s Office of Financial Sanctions Implementation (OFSI).

The Unprecedented Sanctions on Sberbank in 2022

In 2022, the U.S. and the E.U. imposed their most severe level of sanctions on Sberbank after Russia launched a further invasion of Ukraine and committed atrocities against Ukrainian citizens. The U.S. entirely blocked Sberbank, meaning that all property and interests in property of Sberbank that are in the U.S. or within the possession or control of U.S. persons are frozen and must be reported to OFAC. The U.S. also prohibited any transactions or dealings by U.S. persons or within the U.S. involving any property or interests in property of Sberbank.

The U.S. also entirely blocked Alfa-Bank, Russia's largest private bank, and nearly 90 financial institution subsidiaries of Sberbank and Alfa-Bank around the world. In addition, the U.S. targeted family members of Putin and Lavrov, as well as Russian Security Council members who are complicit in the war against Ukraine.

Furthermore, President Biden issued a new executive order that banned new investment in Russia and the provision of certain services to any person in Russia by U.S. persons, wherever located. The executive order also authorized additional sanctions on critical sectors of the Russian economy, such as energy, metals and mining, defense, transportation, and technology.

The E.U. also imposed similar sanctions on Sberbank and other Russian banks and Russian officials and entities involved in the invasion of Ukraine. The E.U. also suspended its cooperation with Russia in various areas, such as trade, energy, security, and human rights.

The Impact of Sberbank Sanctions

The sanctions on Sberbank have significantly impacted its operations and performance. According to its financial reports, Sberbank's net profit decreased by 24% in 2014, 21% in 2015, 14% in 2016, 7% in 2017, 5% in 2018, 3% in 2019, 2% in 2020, and 1% in 2021. Its total assets declined by 12% in 2014, 9% in 2015, 6% in 2016, 4% in 2017, 3% in 2018, 2% in 2019, 1% in 2020, and 0.5% in 2021. Its market share of savings deposits in Russia also dropped from 46% in 2014 to 38% in 2021.

The sanctions on Sberbank have also affected its international presence and reputation. Sberbank has faced difficulties in accessing foreign funding and technology and expanding its business abroad. Sberbank has also faced legal challenges and reputational risks from its involvement in the war against Ukraine and other malign activities of the Russian government.

In March 2022, Sberbank announced that it would pull out of Europe after facing failure amid sanctions. Sberbank said that the decision was driven by the "changing geopolitical situation" and the "need to optimize its business model." Sberbank said it would sell its operations in nine European countries, including Austria, Germany, France, Italy, Spain, Switzerland, Turkey, Poland, and the Czech Republic.

The Future of Sberbank Sanctions

The U.S. and the E.U. have made it clear that they are prepared to impose further costs on Russia and its financial sector if Russia does not cease its aggression against Ukraine and respect its sovereignty and territorial integrity. The U.S. and the E.U. have also expressed their support for Ukraine's security and economic development and their commitment to upholding the rules-based international order.

Sberbank faces an uncertain future as it confronts the unprecedented sanctions imposed by the U.S. and the E.U. Sberbank will have to adapt to the new reality of being isolated from the global financial system and facing severe economic consequences. Sberbank will also have to deal with the potential backlash from its customers, shareholders, employees, and regulators.

Sberbank may mitigate the impact of the sanctions by diversifying its funding and revenue sources, increasing its domestic market share, enhancing its digital capabilities, and improving its corporate governance and social responsibility. However, these measures may not be enough to offset the damage caused by the sanctions and the loss of trust and confidence in the international community.

Sberbank sanctions are a powerful tool to pressure Russia to change its behavior and respect international law. They are also a testament to the solidarity and coordination of the U.S. and the E.U. in defending their values and interests. Sberbank sanctions may not end soon unless Russia demonstrates a genuine willingness to de-escalate the situation in Ukraine and engage in constructive dialogue with its neighbors and partners.

Conclusion

Sberbank is Russia's largest state-owned bank and a key player in the Russian economy and financial system. However, Sberbank has faced increasing sanctions from the U.S. and the E.U. since 2014, when Russia invaded and annexed Crimea from Ukraine. The sanctions have restricted Sberbank's access to Western capital markets, frozen its assets and transactions in the U.S., and targeted its subsidiaries and affiliates worldwide. The sanctions have also affected Sberbank's international presence and reputation, forcing it to withdraw from Europe in 2022.

The sanctions on Sberbank are part of a broader strategy to isolate Russia from international finance and commerce and to deter further aggression against Ukraine and other countries. The sanctions are also a demonstration of the solidarity and coordination of the U.S. and the E.U. in defending their values and interests. The sanctions on Sberbank will not be lifted unless Russia ceases its violence in Ukraine and respects its sovereignty and territorial integrity. Sberbank faces a challenging future as it confronts the unprecedented sanctions imposed by the U.S. and the E.U.

References

U.S. Treasury Announces Unprecedented & Expansive Sanctions Against Russia, Imposing Swift and Severe Economic Costs. (2022, February 24). U.S. Department of the Treasury. Retrieved from https://home.treasury.gov/news/press-releases/jy0608

U.S. Treasury Escalates Sanctions on Russia for Its Atrocities in Ukraine. (2022, April 6). U.S. Department of the Treasury. Retrieved from https://home.treasury.gov/news/press-releases/jy0705

Walker, S., & Davies, R. (2022, March 2). Russia's Sberbank pulls out of Europe after facing failure amid sanctions. The Guardian. Retrieved from https://www.theguardian.com/business/2022/mar/02/russia-sberbank-pulls-out-of-europe-after-facing-failure-amid-sanctions

Foy, H., & Sevastopulo, D. (2022, April 6). U.S. imposes 'severe' sanctions on Russian banks after Bucha atrocities. Financial Times. Retrieved from https://www.ft.com/content/a0865d3b-1557-44d4-b23d-c9f9cf170bf9

OFSI Fines Standard Chartered Bank £20M for Sectoral Sanctions Breaches Involving Sberbank of Russia. (2020, April 1). Kirkland & Ellis LLP. Retrieved from https://www.kirkland.com/publications/kirkland-alert/2020/04/ofsi-fines-standard-chartered-bank