Sanctions against Russia, an additional cost for banks

This is an indirect consequence of the conflict in Ukraine, which will not immediately show up in the accounts. But, in the longer term, it could well cost the banks dearly.

Since the beginning of the Russian invasion, many foreign financial institutions have announced that they are suspending their activity there, or even indicated that they want to withdraw from the country. These decisions will have a direct impact on revenues and profits.

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

Risk of fines

The sanctions are indeed multiple, from various countries (United States, United Kingdom, European Union, etc.), and with different methods. For the banks, each new measure announced must be carefully analyzed in order to be able to apply it correctly and avoid being found at fault, otherwise they would be subject to heavy fines.

“All the groups are going through their balance sheet with a fine-tooth comb to determine the activities and the customers they may have in connection with Russia”, explains Nicolas Darbo, partner at the firm Accuracy. “The main concern, in the current context, is to apply the sanctions, no more and no less”, adds a high-level banker.

The situation is not new. Each major banking group already has battalions of analysts and lawyers familiar with the sanctions system. For years, they have scrutinized every activity that could have a link with countries that are notably under US sanctions, such as Iran and Cuba. Any discrepancy can quickly amount to billions of dollars, as BNP Paribas saw in 2014.

Fast and multiple

With Russia, there is nevertheless “a real paradigm shift”, judge Thierry Mennesson. “Given the speed with which these sanctions fell and their multiplicity, banks will have to strengthen their capacities in the field of compliance and risk management, warns the expert. This will inevitably have a cost, even though 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 in the context of violations of embargoes in Cuba and Iran. These cases had forced the bank, for years, to spend heavily on lawyers and advice of all kinds.

Highly exposed in Russia, the French group has been working hard again for five weeks to apply the economic sanctions put in place as scrupulously as possible.

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