Countering Russian threats to global financial security

Russia’s full-scale invasion of Ukraine has awoken the Western world to the threat posed by Kremlin aggression and Russian weaponization of global institutions. For years, the Kremlin and its proxies have exploited the rules-based global financial system for their personal gain and in service of Moscow’s geopolitical strategy. Following the invasion of Ukraine, there is now a growing impetus in the West to counter such activity.

The Atlantic Council’s Eurasia Center is exploring the issue of Russian threats to global financial security, beginning with a virtual event on February 8 moderated by Ambassador John Herbst and featuring Ukrainian Minister of Finance Serhiy Marchenko along with a panel of international experts.

Minister Marchenko began the event by reminding viewers that “for too long, Russia has been allowed to undermine the system from inside.” Ignoring the challenges that Russia’s misuse of the rules-based international order pose will only make this problem worse, he warned.

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Since 2014, the West has sanctioned an expanding list of Russian industries and entities in response to violations of international law. Unprecedented additional sanctions were imposed following Russia’s full-scale invasion of Ukraine in 2022. However, the available sanctions options are not yet exhausted. “Sanctions are having an impact on the Russian economy,” said panelist Brian O’Toole, nonresident senior fellow at the Atlantic Council’s GeoEconomics Center, “but there is still plenty more to be done.”

Russia has created an international network to avoid sanctions and flout the rules governing the global financial sector. This network includes not only Russia’s Wagner Group, which was recently sanctioned as an international criminal organization by the US State Department, but also “the Taliban, Hezbollah, [Syria’s] Assad regime, North Korea, and Iran,” said Marchenko.

“Countless investigations have uncovered Russia’s complicity in money laundering,” reported Marchenko. He noted that Russia’s dependence on illicit financial activity through its network of allies has only increased since the imposition of sanctions.

For Timothy Ash, senior sovereign strategist at Bluebay Asset Management, sanctions are just the beginning of the process of extricating Russian malign influence from global institutions. Moscow is “corrupting [global] systems from within,” while Moscow’s international partners help “regime money exit and then be deployed in Russian state interests,” said Ash.

John Cusack, founder of the Global Coalition to Fight Financial Crime, noted that “Russia has been gaming the system for more than two decades.” In the case of one global institution, the Financial Action Task Force (FATF), which was set up to police international money laundering, he claimed Russia’s role has run directly counter to the goals of the institution. Cusack accused the Kremlin of weaponizing its standing in the FATF to “[go] after people they don’t like.”

To respond to Russia’s flagrant violations, FATF has the power to place Russia on a “blacklist” that calls on FATF member countries to apply greater due diligence on financial transactions involving Russia. Russia’s placement on the FATF blacklist would, according to Minister Marchenko, “dramatically increase the cost of doing business with Russia.”

O’Toole noted that sanctions are only one aspect of the overall strategy to counter Kremlin aggression in Ukraine and beyond. “Ukraine’s victory relies on the bravery of the Ukrainian people and military supplies from the West,” he commented. At the same time, O’Toole stressed that sanctions “are a complementary policy” limiting the ability of Russia to fund its aggression.

Olena Halushka, co-founder of the International Center for Ukrainian Victory, compared Russian atrocities in Ukraine to the actions of “ISIS, Al Qaeda, or Hezbollah” and called on Western countries to label Russia a terrorist state. Halushka observed that Russia’s blacklisting by the FATF can also help “to close the loophole through which Western-made main components [including] microchips are ending up in Russian or Iranian weapons.” There will be no end to Russian aggression if there is no accountability, warned Halushka.

The global financial system is based on rules, commented Minister Marchenko. “We have powerful mechanisms to enforce these rules,” he noted. “The time has come to use them.”

Benton Coblentz is a program assistant at the Atlantic Council’s Eurasia Center.

Further reading

The views expressed in UkraineAlert are solely those of the authors and do not necessarily reflect the views of the Atlantic Council, its staff, or its supporters.

The Eurasia Center’s mission is to enhance transatlantic cooperation in promoting stability, democratic values and prosperity in Eurasia, from Eastern Europe and Turkey in the West to the Caucasus, Russia and Central Asia in the East.

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Image: A Russian one ruble coin is pictured in front of a monitor showing St. Basil's Cathedral and a tower of Moscow's Kremlin in this illustration taken June 24, 2022. (REUTERS/Maxim Shemetov/Illustration)