Washington is targeting banks that are integrated into Mir, Russia’s domestic payments system
No more lying about his “reluctance”. Tayyip Erdogan to impose sanctions on Russia? The US and EU are stepping up pressure on Turkey to crack down on evasion of Russian sanctions amid concerns that the country’s banking sector is a potential backdoor for illicit finance, the Financial Times reported on Thursday.
The US is targeting Turkish banks integrated into Mir, Russia’s domestic payments system, two Western officials involved in the plans told the FT, as Brussels prepares a delegation to raise concerns directly with Turkish officials.
The pressure on Turkey comes as Western capitals move to tighten existing sanctions rather than impose new measures. This change recognizes that the financial sanctions imposed after the invasion Vladimir Putin in Ukraine in February failed to damage Russia’s economy as much as they had hoped. However, they argue that closing the “windows” in the current measures will slowly squeeze the Kremlin’s financial lines.
“You will see us focus on financial sector tax evasion,” the first Western official said. “We’re going to send a message very clearly that, for example, third-country financial institutions should not interface with the Mir payment network because, you know, that carries some sanctions-avoidance risks.”
“We have to close the loopholes,” according to the second official, who was involved in this month’s EU-US sanctions talks, citing Turkey as the main target.
Turkish President Recep Tayyip Erdogan, whose country has been a member of NATO since 1952, has taken what he calls a “balanced” approach to the conflict in Ukraine. His refusal to sign sanctions against Russia and a recent pledge to deepen economic cooperation with Moscow have worried his Western allies. Erdogan, who will meet Putin on Friday, said last month that there was “serious progress” on expanding Mir to Turkey.
Five of Turkey’s largest banks, Vakıfbank, Ziraat Bank, İş Bank, DenizBank and Halkbank, are members of the Mir payment system, which was developed by Russia’s central bank as a domestic alternative to Visa and MasterCard.
Two of them – the private DenizBank owned by the United Arab Emirates and the state-controlled Halkbank, notorious for its alleged role in a scheme to evade US sanctions on Iran dating back to 2010 – signed on to Mir after Putin launched his full-scale invasion in February.
İş Bank said its policy requires “strict compliance with all applicable US sanctions,” adding: “We are closely monitoring sanctions and taking the necessary steps to conduct MIR card transactions in accordance with this policy.”
DenizBank said: “We do not carry out transactions with sanctioned banks. We fully comply with international sanctions on Russia.” Halkbank, Vakifbank and Ziraat Bank did not respond to FT requests for comment.
Turkey’s foreign ministry said that while Ankara had a long-standing policy of only applying UN-backed sanctions, “we are also equally steadfast in our policy of not allowing Turkey to become a channel for evading sanctions.”
As part of efforts to strengthen enforcement, Mairead McGuinness, the EU’s economic services commissioner, intends to visit Turkey next month, according to people familiar with the plans. A senior EU official said: “Commissioner McGuinness recently visited a number of countries to discuss issues related to financial services and the implementation of sanctions in particular, given Russia’s aggression against Ukraine.”
Wally Adeyemo, the US deputy treasury secretary, wrote to Turkish businesses last month warning them of “Russia’s efforts to use your country to evade sanctions” and the dangers of “conducting sanctioned transactions with Russian entities”.
Western sanctions, implemented in waves of measures in the first weeks after Russia’s invasion, sought to cut off Russia’s biggest banks, energy and defense companies and hundreds of senior officials and wealthiest businessmen from the global market.
As part of a broader crackdown on sanctions evasion, Western efforts will target people who handle payments on behalf of Russians as well as businesses that have helped set up parallel payment networks for Moscow, according to one of the officials.
The EU and US will also target entities that help Moscow process Russian export revenue or facilitate imports of industrial or defense products banned under Western sanctions, the three officials said.
Other measures being discussed include targeting more people involved in Russia’s software, e-commerce and cyber security industries, two officials said.
In addition to Turkey, the crackdown on potential “windows” to avoid sanctions targets countries in the Caucasus, Central Asia and the Gulf, officials said. “Russia will try to knock on every door. And every country needs to be aware that we’re going to be watching and talking to them,” said James O’Brien, sanctions coordinator at the US State Department.
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