Sanctions against Russia, an additional cost for banks

This is an indirect result of the conflict in Ukraine, which will not be immediately reflected in the accounts. But, in the long run, it could cost banks dearly.

Since the start of the Russian invasion, a number of foreign financial institutions have announced that they are suspending their activities there, or have even indicated that they wish to withdraw from the country. These decisions will have a direct impact on revenue and profits.

But banks will have to bear other costs: those associated with the proper application of economic sanctions imposed by the West on Russia. “We are entering a new world. And this can become a real headache for the banks,” said Thierry Meneson, partner at Oliver Wyman.

danger of fine

The sanctions are actually many, from different countries (USA, United Kingdom, European Union, etc.), and in different ways. For banks, each new measure announced needs to be carefully analyzed so that it can be implemented correctly and avoid mistakes, otherwise they will be subject to hefty fines.

“All the groups are going through their balance sheets with a fine comb to determine their activities and clients in relation to Russia,” explains Nicholas Darbo, partner at firm Accuracy. “In the current context, the main concern is enforcement of sanctions, neither more nor less”, says a high-level banker.

The situation is not new. Every major banking group already has battalions of analysts and lawyers familiar with the sanctions system. Over the years, he has scrutinized every activity that may have had links with countries that are particularly under US sanctions, such as Iran and Cuba. As BNP Paribas observed in 2014, any discrepancy can quickly reach billions of dollars.

fast and multiple

With Russia, however, there is “a real paradigm shift”, Judge Thierry Meneson. Experts caution, “Given the speed at which these restrictions fell and their multiplicity, banks will need to strengthen their capabilities in the areas of compliance and risk management. It will inevitably be a cost, even if they thought they could breathe a little after the Covid crisis. ,

Last December, Societe Generale welcomed the final abandonment of legal proceedings initiated by the US Department of Justice, particularly regarding sanctions violations in Cuba and Iran. These cases had forced the bank to spend heavily on lawyers and all kinds of advice over the years.

Much exposed in Russia, the French conglomerate may be forced to take out the checkbook again to ensure that its compliance processes are well and truly compliant with the obligations of this “new world”.

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