Russian banks, subject to sanctions in the West, have found a safe haven in Ukraine, a country at war with Russia.
Ten banks with Russian capital operate today on the Ukrainian territory. Jointly they have an approximately 12% share in the Ukrainian market of banking services. According to the August rankings published on the Forinsurer website, the following banks are in the forefront: Sberbank Rossii holding UAH 52.6bn deposits and USD 1.9bn in foreign currency deposits, Alfa Bank with UAH 40bn and USD 1.1bn, and VTB Bank with UAH 39bn and USD 1.15bn. In the same rating, the Russian bank Petrokommerts ranked fifth in terms of profitability.
According to the data collected by Forinsurer, banks with Russian origins still exert a strong influence on the Ukrainian economy – Sberbank Rossii ranks fourth on the list of banks with the largest share in lending to legal entities. The sum of loans granted amounts to UAH 45.7bn. VTB with the total amount of UAH 29bn of loans granted ranks sixth on that list.
In the meantime, four of the Russian banks operating freely in Ukraine are subject to Western sanctions: VTB, Sberbank Rossii and VS Bank controlled by the latter, as well as Prominwestbank controlled by Russian Vnesheconombank.
There are tools but there is no will
In Kiev the public opinion stresses lack of any actions taken by the National Bank of Ukraine (NBU) against the Russian banks operating in Ukraine and under Western sanctions. Given that Valeria Gontareva is Petro Poroshenko’s crony, her silence is interpreted as acquiescence to the interests of this oligarch, who replaced president Viktor Yanukovych as the head of state.
“The policy of not applying sanctions against Russia by Ukraine is saddening. Really, that’s what “swinging a boat” truly means. On the one hand, we maintain peace and good neighbourly relations with Russia on the juridical plane, and their oligarchs quietly make money hand in hand with their Ukrainian colleagues, on the other, ordinary Ukrainians are drafted for war which has not been formally acknowledged”, wrote Ihor Lutsenko on his Facebook profile commenting the lack of any National Bank’s activities.
NBU has instruments which could and in fact should use to limit the activities of the sanctioned Russian banks in Ukraine, if it only wanted to. According to the decision taken by the NBU management board in August last year, the central bank takes measures against those banks that infringe the banking legislation or against which international sanctions have been imposed. Restrictive actions should to be taken, among others, on the basis of information received from relevant authorities in other states, international associations and organisations, as well as Ukrainian state authorities. Official information about the imposed sanctions published by those agents, including mentions on the official websites, also falls within the scope of “received information”.
The catalogue of measures available to be used by the central bank in its actions against a bank placed under foreign sanctions is described in the banking law. They include the right to restrict, suspend or prohibit certain types of operations, as well as operations with bank affiliates, the right to prohibit payment of dividends, and to deprive the bank of the right to carry out foreign exchange operations. It allows the adoption of the most severe measures such as the withdrawal of banking licence or even the liquidation of the sanctioned bank.
The content of the NBU ordinance clearly shows that the introduction of sanctions against the Russian banks by the Ukrainian central bank does not require any specific request from an external entity, Ukrainian or foreign – it would be enough if just one of these foreign entities announced the introduction of sanctions on its own behalf and the NBU, in a gesture of solidarity, should do the same. In legal terms, the provision formulated in the indicative mode entails an obligation to take action, thus “the central bank undertakes to” means it is required to take action. This equally applies to the situation when banks “violate the banking legislation” or to the banks having Western sanctions imposed on them.
The list of American sanctions against Russian entities, including the Russian banks operating in the territory of Ukraine, was published by the Office of Foreign Assets Control of the US Department of the Treasury. Similarly, the sanctions announced by the European Union can be found at the official website of the European Union. To this day, however, there has been no reaction to those moves in Kiev.
Nothing wrong with deceiving the West
Instead of performing his obligations towards Ukraine’s Western allies, Petro Poroshenko, the president-oligarch, counts on their short memory and propaganda gestures meant to replace real actions against Russia.
”We need an effective and coordinated plan in case the Minsk agreements are broken. We are talking about a new wave of sanctions and well-coordinated actions. Russia should pay a due price for killing Ukrainians and for the occupation of Ukraine”, said Poroshenko at the meeting with a US congressmen at the beginning of July.
Meanwhile, the oligarch with extensive business interests in Russia and with Russian partners making business in Ukraine personally blocked the implementation of a package of sanctions against the aggressor, prepared by the government as early as last year.
“Two months ago the government adopted the ordinance on the introduction of sanctions. The whole world put sanctions in place, only we are looking forward to the Second Coming of Christ. It’s time for Ukraine to finally introduce sanctions, to officially acknowledge Russia as an aggressor country, to demonstrate to the whole world that we are also fighting for our national interests just as the Americans and Europeans are fighting for us”, grumbled in November last year the Ukrainian Prime Minister, Arseniy Yatsenyuk.
In January, MPs from the “Batkivshchyna” party forming part of the government coalition officially addressed Poroshenko. “We call on the president to introduce sanctions against the Russian Federation and to lead by example in backing those sanctions with his business practice as there is nothing to prevent him from doing so. Then it won’t be only the poor soldiers who will be doing the fighting but the business and governmental elite as well. We mobilised tens of thousands of people and how many sanctions did we impose on Russia? The answer is: None”, quoted the “Slovo” and “Dilo” newspapers after the representatives of “Batkivshchyna”.
On January 25th, 2015 the National Security and Defence Council of Ukraine (RNBO) informed the public that has made the decision of introducing a “mandatory implementation in the territory of Ukraine of sanctions imposed on the Russian Federation by the European Union, the Swiss Confederation, the US and G-7 countries”, reported the TV station „1+1” and other Ukrainian media.
According to the Ukrainian law for imposing the sanctions presented by RNBO a special presidential decree is needed. As early as in mid-February the government news agency, Ukrinform, announced that the presidential decree implementing the sanctions will be released at any moment, and yet for half a year a list of Russian citizens and companies acting to Ukraine’s detriment has not been approved.
At the end of May, the former Ukrainian Defence Minister, Anatoliy Hrystenko, summed up on Facebook the backstage conversations held in Bucharest, during the international conference SIGPROT 2015 – Emergency Situations Management, concerning the blocking of sanctions against Russia by the Ukrainian President.
“I tried to convince the European and American partners to oppose Putin in a more consolidated way. One of the counter-arguments was hard to refute in private discussions: why is the whole world introducing sanctions against Russia, and Ukraine itself is not; is there any rationale behind this? For me, there is not. Then came the first, the second, and the third wave of sanctions. All were introduced by civilised, democratic countries on different continents, in all parts of the world: Great Britain, Portugal and Spain, up to Japan, from the USA and Canada up to Australia and New Zealand. But sanctions against the Russian aggressor have not been yet introduced in Ukraine! At the beginning politicians explained that Ukraine did not have a law on sanctions. On 14 August 2014, the Verkhovna Rada (the Supreme Council) adopted the law on sanctions – not against Russia but generally on sanctions and the procedure for imposing them upon any country. On 11 September 2014, i.e. immediately after the entry into force of the Act on sanctions, the Council of Ministers approved government proposals for the introduction of sanctions against Russia. According to the document 200 legal entities and 1000 individuals associated with the aggression are subject to sanctions. To be precise: they will be subject to sanctions when the sanctions are introduced by the President. So far none have been imposed. On 25 January 2015, the President convenes an RNBO meeting in order to consider the issue of sanctions against Russia. This takes place four and a half months after the adoption of the Government Ordinance and five and a half months after the adoption of the law by the parliament. The Ukrainian RNBO adopted the resolution on the mandatory implementation on the territory of Ukraine of sanctions imposed on the Russian Federation by the European Union, the Swiss Confederation, the US and G-7 countries. More than four months have passed and during that time President Poroshenko has not issued any decree to impose sanctions against Russia. Only the President has the mandate to do so, no one else. That is clear to everyone. This is his personal responsibility. “What do you think, when will Poroshenko eventually introduce sanctions against the enemy? Will he implement them at all? Will he dare? What is it that allows Putin to so intimidate and blackmail Poroshenko?”, asked Hrytsenko on Facebook.
Since the publication of Hrytsenko’s statements another three months have passed. Instead of sanctions, a game of make believe continues. At the end of March, Petro Poroshenko announced that the Ukrainian sanctions against Russian companies and citizens “will be extended”, reported the information service “Levyi Bereg” and other Ukrainian media. Then again – silence.
At the beginning of June, under the pressure of criticism levied against his Russian businesses, the President of Ukraine once again announced “the extension of sanctions against Russia”. In his speeches, addressed to the Western leaders, he did not mention that thanks to the blockage of the first sanction list there is nothing to expand.
Meanwhile in June, the provisions of the Ukraine Freedom Support Act of 2014 came into force in the US, allowing US authorities to punish foreign banks for carrying out financial operations with individuals and companies, including Russian banks mentioned on the sanction list. According to these provisions US sanctions may be imposed upon any foreign bank which knowingly supports the conclusion of an important financial transaction carried out in the interest of any Russian entity from the US sanction list. As a result, due to the actions undertaken by Poroshenko’s team, favourable to the Russian businesses operating in the Ukrainian banking sector, a paradoxical situation has been created: the Ukrainian central bank is breaking its own rules established last year. Even more, Ukrainian banks, including the Ukrainian central bank itself, for the sake of Russian interests are breaking the law adopted by the US and exposing themselves to the US sanctions. To trigger them they would need no more than to carry out a bigger transaction on the interbank market with a Russian bank operating in Ukraine and mentioned in the US sanction list.
“That’s enough”, citizens say
Faced with the authorities’ inactivity the Ukrainians themselves began to boycott the Russian banks. In Kiev and Lviv protests were organised in front of the buildings owned by those institutions, calling for boycott under the slogan: “Do not finance Putin. Withdraw your money from the occupier’s bank”.
In mid-August the activists of several local civic organisations, e.g. Euromaidan Self-defence in Lviv, asked the management of local branches of the Russian banks to close them in order to prevent “incidents” and “more radical actions”, reported “Vysoky Zamok”, a Lviv daily. Similar actions were simultaneously held in Lutsk and Kiev.
According to the reports by “Vysoky Zamok” even now, from time to time, the capital of Western Ukraine witnesses attacks on the Russian banks – activists throw paint at bank windows, smash them and even shower them with Molotov cocktails. The media reported that the Russian banks’ branches in Kiev and Berdichev had been demolished and explosives planted outside two branches of Sberbank Rossii in Kiev.