Russia was dealt two more significant blows this week, as Turkish banks have followed in the footsteps of their Chinese counterparts in refusing to work any longer with banks in Russia.
A media report in Kommersant, a business newspaper in Russia, reported this week that all Turkish banks terminated their relationships with just about every credit institution in Russia. They also suspended all payment processing, though they have made an exception for foreign subsidiary banks.
According to sources who spoke with the media outlet, Turkish banks were pressured to make a move after President Joe Biden issued an executive order last month that imposed secondary sanctions on any foreign firm that was helping Russia in its war against Ukraine in any way.
According to the order, authorities in the U.S. can disconnect banks from other countries from the American financial system if those countries violate sanctions that the U.S. has imposed on Russia.
Russian logistics companies that have been working with Turkey told the newspaper that payments across borders have since become significantly more complicated than they were. Plus, they have to compile a lot of documents and data just to confirm that they aren’t violating any sanctions rules.
As a result, Turkish financial institutions were “in a holding pattern,” a banking sector source told Tass — a state news agency in Russia. This is because Biden’s order was “very broadly worded” and required a lot of additional clarification.
Bloomberg reported on the matter recently, writing that the executive order has resulted in processing times getting much longer for some money transfers. There are also a lot of instances where money has been delayed for multiple days or even sent back to the originator.
Turkey made the move to cut off ties with Russian financial institutions, Bloomberg reported, because they didn’t want to be included on an international “gray” list of countries that are considered to be unable to wrap their heads around money laundering, as this deters investment from outside their borders.
Roman Prokhorov, who works for the Financial Innovations Association in Russia, commented to Kommersant about the situation, saying Turkey still is “interested in being a commodity and transport hub between Russia and Europe.” He added there was “some kind of other game” that’s the cause of this impasse.
If Turkish banks ultimately decide that the risks of continuing to do business with Russia are too great, then their only option might be to establish a settlement through banks located in third countries, which could include some that were part of the Soviet Union and are still at least somewhat sympathetic to Russia.
In addition to Turkey’s move, two banks in China have also decided that a review of all Russian businesses must be conducted. They are also severing ties with any clients that are on the sanction list published by the U.S., and will no longer provide any financial services to Russia’s military or the sector in general.