IMGL Magazine April 2022

War in Europe

the face of operational challenges. Internally, the movement of money has also been impacted making life difficult for Russian consumers and retailers. Banks in the region are reported to be exploring the possibility of issuing co-badged payment cards linking Russia’s Mir and China’s UnionPay systems. Despite being used mainly by cardholders in China, UnionPay is the largest card payments network in the world by volume and second- largest, behind Visa, in terms of transactions. UnionPay cards are accepted in 180 countries and supported by mobile payments providers like Apple and Samsung Pay. Chinese- issued cards limit cash withdrawals in line with China’s capital controls, but this should not affect those issued by Russian institutions. Concerns have been raised that wealthy Russian individuals may try to use cryptocurrencies to avoid sanctions. Steps to close off this route have been taken by Western governments. In the US, the government formed the Task Force KleptoCapture which seeks to eradicate potential evasion of AML and KYC methods using cryptocurrency by oligarchs. They are hoping this will also encourage other jurisdictions to maximise sanctions and asset seizures disconnecting oligarchs and those potentially seen as a money-laundering risk from embracing the anonymity of the blockchain. Others have highlighted the limitations of virtual currencies when it comes to circumventing sanctions. They point out that, despite the noisy headlines, cryptocurrencies do not have the scale to be of much practical use. Unless individuals have existing large holdings of Bitcoin or other currencies they face significant hurdles preventing them transferring money into the system. Even if they do have holdings, the anonymity which many claim for crypto transactions is only partially effective at best. The most effective way to move money via crypto is to hide in casino gaming and that sector is still subscale. Sanctions have been supported by attempts to track down and seize the assets of Russian oligarchs in an attempt to encourage them to apply pressure on the regime. Sports properties from football to Formula 1 motor racing have found their backers sanctioned and their operating room severely restricted. Several super yachts have been impounded in European ports and knees have jerked in London and other financial capitals to tackle dirty Russian money. Commentators have pointed out that nothing new has come to light on the origin of money siphoned from Russian companies and washed through financial centres. Actions clamping down on assets and individuals linked to the Putin regime are likely to have come too late to cause

most of their targets any more than minor inconvenience. Whether the strategy will be effective is also questionable when Russia’s elite enjoy the positions they do under license from Putin himself. Roman Abramovich’s unlikely emergence as a peace broker lends weight to this assertion. There is likely to be at least as much pressure on those advisers who have worked with oligarchs as on the regime. It is worth noting that the imposition of sanctions has been far from a universal response around the world. Countries like China might have been expected to remain at least neutral if not actively pro Russia, but others, like India, the UAE, Mexico some Latin-American countries and those which share a border with Russia have been careful with their condemnations and many have sat on their hands when it comes to sanctions. From the perspective of NATO countries this may look like appeasement but the fact that NATO is unwilling to commit its forces in defence of Russia’s immediate neighbours shows there is a logic to their position. Some countries, particularly those in Eastern Europe must now try to face both ways to preserve their own trade and economic positions. In the longer term, some observers have counselled that this may be the moment where the US dollar is no longer the reserve currency of choice. It has been declining for a while but the unwinding of dollar positions in Russia and China plus the forecast expansion of cryptocurrencies will see this trend accelerated. Trade sanctions and disruption Decoupling the Russian supply chain from the international financial system throws up the real possibility of unintended consequences in the real world. Sanctions have ensured that Russia is suffering economically. Its planes may not be able to fly and it is locked out of global markets, but it is the impact on global supplies of key commodities which will hit hardest and not just in Russia. The spike in global energy prices, although not linked exclusively to war in Ukraine, shows the extent of the world’s dependency on supplies from Russia. Mainland Europe, in particular, relies on Russia for around 40 percent of its gas ensuring any sanctions would come at a significant cost to consumers. Germany blocked the certification of the Nordstream 2 pipeline in late February but it will continue to import almost half its gas from Russia. Russia’s threat to cut off supplies to “non-friendly countries” who refused to pay in roubles seems designed to support its currency (which duly rebounded). The fact that the gas (and €billions in payments for it keep flowing shows the mutual dependency

IMGL Magazine • April 2022 • 9

Made with FlippingBook flipbook maker