Bloomberg — Russia is ramping up a lobbying campaign to avoid new financial restrictions against money-laundering that may plunge its economy deeper into isolation over the war in Ukraine.
Moscow has approached more than half a dozen countries including Saudi Arabia, Turkey, Mexico and the United Arab Emirates in recent weeks to spell out the negative consequences for trade ties if the Financial Action Task Force imposes more restrictions this month.
Investments and cooperation in defense and energy projects would also suffer, according to documents seen by Bloomberg and accounts by officials in NATO countries familiar with the situation.
The Paris-based FATF, an inter-governmental organization that sets standards for combating dirty money, took the unprecedented step of suspending Russia from membership in February over its invasion of Ukraine. The government in Kyiv is now seeking to add Russia to the “black list” or “gray list” of states at the FATF’s June 19-23 meeting.
Designation on the first list would place Russia alongside North Korea, Iran and Myanmar. It would oblige FATF member states as well as banks, investment houses and payment-processing companies to conduct enhanced due diligence and in the most serious cases take counter-measures to protect the international financial system.
Another 23 countries are on the “gray list,” including Turkey, South Africa, the UAE and Jordan. A report by the International Monetary Fund in 2021 found that this penalty, which involves closer monitoring requirements, results in a “large and statistically significant reduction in capital inflows.”
The Kremlin is warning countries that an FATF listing would make it more difficult and costly for them to continue doing business with Russia. Calculations shared in documents for officials in Turkey and the UAE estimate the two countries would each suffer a hit of almost 1% of their gross domestic product in lost trade and investment.
Bloomberg has previously reported that Russia has urged India to oppose either listing at the meeting. Russia’s Federal Financial Monitoring Service, Rosfinmonitoring, is now seeking to convene a virtual meeting this week with counterparts from Brazil, India, China and South Africa in the BRICS grouping, where the issue is likely to be on the agenda, according to one of the people, who asked not to be identified because the matter is sensitive.
Discussion of the “geopolitical situation” is beyond the FATF’s sphere of competence, while Russia has complied with its obligations to the body, Rosfinmonitoring’s press service said in a statement. Russia’s suspension was a “politicized decision” and further measures would discredit the FATF and disrupt international cooperation against financial criminals, it said.
The intensity of the Kremlin’s efforts underscores the risks facing President Vladimir Putin’s government if either measure is adopted, and offers an insight into the way Russia transacts with some of its commercial partners.
While the US and its allies have already imposed unprecedented sanctions on Russia over the war, the Kremlin has so far been able to cushion some of the blow to its economy by boosting ties with countries like China and India, Gulf nations and other states in the so-called global south that have stayed mostly neutral.
Moscow has also sought to evade some restrictions by importing banned technologies through third countries, operations that could become more difficult if those jurisdictions implemented enhanced due diligence in response to FATF actions.
European officials confirmed that the issue of listing Russia would be on the agenda at the FATF meeting. While the bar is likely to be high for imposing the strongest sanction on Russia, there are other steps the watchdog could take to require more intensive checks if support for the measure falls short, according to one person familiar with the situation, who also asked not to be named.
Ukraine’s Finance Ministry has put together a case detailing alleged Russian violations of FATF standards since Moscow’s suspension, including last week’s destruction of the giant Kakhovka dam as an “act of terror.” Russia has denied blame for the dam’s collapse. Several European officials have said Russia is likely responsible but they have yet to reach a definitive assessment as they continue to gather evidence.
The ministry also cites Putin’s decision to move tactical nuclear weapons to neighboring Belarus, which Kyiv said amounted to financing of proliferation, cyber attacks against European countries, and Russian weapons trading with United Nations-sanctioned states such as Iran and North Korea.
In the UAE’s case, an FATF designation of Russia would offset some of the gains in bilateral trade that reached record levels last year driven by energy, related investments and commerce in other commodities, Moscow warned.
“The UAE recognizes and respects the importance of FATF’s independence as it fulfills its essential mandate,” a UAE official said in a statement. The Gulf nation “takes its role in protecting the integrity of the global financial system extremely seriously,” the official said.
Russia said Turkey would lose revenue from Russian tourists as potential difficulties in processing payments put off visitors, while contractual disruptions to major projects such as the Akkuyu nuclear power plant or the Turkstream gas pipeline could result in billions of losses. The same document noted that Turkey imports several key goods from Russia, including coal, metals, petroleum products, natural gas and wheat.
Russia’s trade with the UAE and Turkey surged after the February 2022 invasion of Ukraine. The two nations are among several that have emerged as conduits through which Russian firms can obtain sanctioned goods as shipments to Russia of technologies such as semiconductors and integrated circuits from Europe and the US mostly dried up.
Ankara has also played a central role in facilitating a deal with Moscow, Kyiv and the UN to permit Black Sea grain exports that helped ease surging food prices globally.
Russia warned Saudi Arabia that a project for state-owned Rosatom to build a nuclear power plant in the country could be at risk, as could investments made by billionaire Prince Alwaleed Bin Talal’s Kingdom Holding Co. in Russian energy firms Gazprom PSJC, Lukoil PJSC and Rosneft PJSC.
It reminded Malaysian authorities in another document that they import substantial amounts of petroleum products and aluminum from Russia. Other projects relating to the supply of helicopters and fertilizers to Kuala Lumpur may also be at risk, as well as projects Malaysian companies are implementing in Russia pertaining to oils, synthetic rubber and rubber compounds, and fiberboards, according to the document.
A Russian state agency warned counterparts in Mexico of “serious difficulties” in joint development projects involving Lukoil and the roll-out of Moscow’s Mir card payment system if action by the FATF isn’t averted. Trade relations would be damaged, including Russian supplies of fertilizers, steel products, aluminum and synthetic rubber to Mexico, it said.
Officials from Turkey, Saudi Arabia, Mexico and Malaysia didn’t respond to requests to comment.
Moscow sent more generic pleas to a number of other governments, according to the documents.
Throughout their communications with the target countries, Russia urged opposition to attempts by Ukraine and others to add it to the two lists and voiced disappointment that nations didn’t speak against its suspension from the FATF.
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