JPMorgan Withholds Russian Embassy Funds: Are Sanctions Paying Off?

Source: Wanwa / Wikimedia Commons

By annexing Crimea from Ukraine, where it was an autonomous region and home to Russia’s warm-water fleet, Russian President Vladimir Putin set off the worst conflict between East and West since the Cold War. The Group of 7 industrialized nations threatened the country with economic sanctions.

Obama and the European Union have imposed sanctions on around 20 Russian individuals — including Putin’s “personal banker,” Yuri Kovalchuk, who is the largest shareholder of Bank Rossiya; oil tycoon Gennady Timchenko; and retired KGB officer and Putin’s chief of staff, Sergei Ivanov — as part of a broadening of sanctions that targeted Russian government officials and allies of Putin. Bank Rossiya itself was also sanctioned. Meanwhile, U.S. companies have been advised to proceed with caution and make their own risk assessments when conducting business with sanctioned individuals and companies.

With this backdrop, JPMorgan Chase (NYSE:JPM) — the largest financial institution in the United States by assets — blocked a remittance sent from the Russian embassy in Astana, Kazakhstan, to Sogaz Insurance Group, which is partly owned by Bank Rossiya. In a statement posted to its website, the Russian Foreign Ministry in Moscow said the payment was withheld “under the pretext of anti-Russian sanctions imposed by the United States.” Interfering with the transaction was an “absolutely unacceptable, illegal and absurd decision,” Alexander Lukashevich, a ministry spokesman, said in the statement.

Through a source familiar with the dispute, Bloomberg learned that the value of the money transfer was less than $5,000.

“Any hostile actions against the Russian diplomatic mission are not only a grossest violation of international law, but are also fraught with countermeasures that unavoidably will affect activities of the embassy and consulates of the U.S. in Russia,” Lukashevich said.

Of course, if the U.S. government approves of the transaction, JPMorgan will still be able to process the payment, Bloomberg’s sources said. “As with all U.S. financial institutions that operate globally, we are subject to specific regulatory requirements,” JPMorgan said in a statement acquired by the news service. “We will continue to seek guidance from the U.S. government on implementing their recent sanctions.”

JPMorgan has conducted business with Russia’s Finance Ministry in the past. The lender was chosen to improve the country’s standing with U.S. credit rating firms; in 2011, Putin said the rankings given to Russia were an “outrage” that increased borrowing costs for domestic businesses and the government. JPMorgan was also among the banks selected to advise the country on a 1 trillion ruble ($28.5 billion) privatization program.

In Russia, the financial institution earned $56 million in investment banking fees last year, according to data compiled by the consulting company Freeman & Co.; only stated-controlled VTB Capital and Sberbank CIB earned more, according to Bloomberg.

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