“Take a step back with your teams and imbed the idea that this isn’t business as usual,” was the message from counterterrorism finance expert Juan Zarate, who spoke today during the American Bankers Association’s Washington Summit about what Russia’s invasion of Ukraine and sanctions mean for U.S. banks.
Zarate—a former senior counter-terrorist financing official in the George W. Bush administration and co-founder of the Financial Integrity Network—called the sanctions “a rapid and aggressive response” that are “unprecedented in scope and impact,” adding that “the weight of the war has been put on the shoulders of sanctions” unlike anything the international financial community has seen before. “The sanctions aren’t going to roll back the tanks, but they can change the [Putin] regime’s calculus in terms of next steps.”
The international response to Russia’s invasion of Ukraine has been uniquely consistent, with most countries in Europe, including the normally neutral Switzerland, united in their approach to cutting Russia off from traditional banking systems and resources such as SWIFT, which provides services related to the execution of financial transactions and payments between banks worldwide, Zarate noted. But the big question is what comes next. The United States is preparing to ban oil and gas imports from Russia. While the gesture is largely symbolic for the United States, Germany and other countries in Europe that get much of their oil and natural gas from Russia are considering similar moves, he added.
“It will affect markets. And it will push European partners to decide on next steps of financial confrontation with Russia. If you don’t go after oil and gas, you’re not going to impact the Russian economy,” Zarate said, noting that Russian President Vladimir Putin considers attempts at financial isolation an act of war, and that the country will find other ways to defend itself, either by aligning with other global powers such as China, by resorting to cyberwarfare or both.
“More sanctions are going to come. We know the Russians are going to try to evade [sanctions],” he said. “There’s going to be more enforcement pressure and financial institutions, like it or not, are at the center of the storm. I would make sure that your compliance teams, risk officers and general counsel are proactively thinking about what your Russia exposure is and what you can do to protect yourselves. This includes cybersecurity. Putin doesn’t obey the same laws. These regimes feel pressure and see the agents of that pressure as the financial system, and they won’t be shy in biting back—not just at government servers but also the public sector.”