Bank of China’s Subsidiary to Cease Operations with Russian Subordinate Banks

One of China’s largest banks is halting operations with Russian banks listed on the US sanctions list due to risks associated with secondary sanctions, as discovered by Kommersant. The Kremlin attributes this development to unprecedented pressure on Beijing.

The Chinese Bank of China’s Russian subsidiary will cease operations with Russian banks included in the US Specially Designated Nationals (SDN) list starting June 24, according to sources cited by Kommersant. Cooperation with remaining partners not affected by Washington's restrictions will continue.

This news is not particularly welcome for the Russian market. It is likely to incur additional costs in terms of both time and payment processing expenses. The most significant concern, however, is that payments are being taken out of the banking sector, which results in less government control over them, creating risks of fraud, a source among financiers explained to Kommersant.

Recently, payments have increasingly been made through non-bank payment agents, making the entire transaction chain less transparent, according to the publication’s sources. They believe that the activities of non-bank intermediaries are outside regulatory oversight and lack transparency, making the mechanism risky. “If the money gets hung up, it will be returned in rubles, but it is unclear at what exchange rate this will occur,” they noted.

Some sources have explained the Bank of China’s decision as a move to avoid falling under secondary sanctions.