Russia’s relationship with the international financial system has received a new status: “It’s complicated.” A regulation officially entered into force in the EU declaring Russia and Russians a financial risk zone. NEWSROOM IN breaks down how this happened and what the future holds for transfers, accounts, and business operations.
Financial Risk Zone: The Cause
The EU aims to protect its financial system from “dirty money.” To achieve this, the bloc maintains a list of countries whose weak laws concerning Anti-Money Laundering and Countering the Financing of Terrorism (AML/CFT) pose a threat to the EU single market. The new regulation formally adds Russia to this list.
Why Russia Specifically?
The primary formal reason for placing Russia on the “blacklist” was the suspension of its membership in the FATF (Financial Action Task Force, the international “financial intelligence group,” FATF) starting February 24, 2023.
According to the FATF statement, the reason for the membership suspension was Russia’s military aggression against Ukraine, which grossly violates the obligations regarding international cooperation and mutual respect upon which the group’s work is built. At the time, the organization expressed deep concern over the risks associated with Russia potentially circumventing sanctions, its malicious cyber activities, and its arms trade with jurisdictions under UN sanctions.
The EU conducted its own assessment and identified strategic weaknesses in Russia’s financial system:
- Weak Financial Intelligence: The Russian agency responsible for tracking suspicious transactions is considered insufficiently independent and ineffective in cooperating with foreign counterparts.
- Ownership Opacity: Reliable mechanisms for identifying the true owners (beneficiaries) of companies and assets are lacking.
- Vulnerability of the Crypto Sector: Anti-money laundering laws are ineffectively applied to crypto-asset transactions.
Since Russia is not included in the official FATF monitoring lists, the EU created a new category for it in the regulation: “Countries whose FATF membership has been suspended.”
What Does This Mean in Practice?
While placing Russia on the list is not a direct prohibition on transactions, it triggers mechanisms that effectively block them through two levels of pressure.
1. Direct Effect in the EU: Strict Checks and Refusals
All banks and financial institutions in the European Union are now legally required to apply Enhanced Due Diligence (EDD) procedures to Russian clients and transactions. In practice, this means:
- Mass refusals to open accounts and execute payments.
- Colossal delays, even for legal transfers (for tuition, contracts, services).
- Sharp increase in fees for conducting transactions.
- Closure of existing accounts held by both individuals and legal entities with EU banks.
2. Global Domino Effect: The Main Threat to Transactions via Third Countries
The regulation generates a wave of apprehension across the entire global financial system. Banks outside the EU (in Turkey, Armenia, Kazakhstan, the UAE, and Asia) will start acting proactively, fearing the loss of access to Euro-Dollar settlements through their correspondent banks in the EU/US:
- De-risking: Banks will preemptively refuse to serve Russian clients (especially individuals and small businesses) because the risks and costs associated with verifying them become prohibitive.
- Severance of Correspondent Relationships: For example, a bank in Germany may terminate its relationship with a bank in Turkey if it suspects the latter is processing “dubious” Russian payments.
- “Witch Hunt” Effect: Even entirely legal transactions will fall under suspicion if they are simply difficult or time-consuming to explain to regulators.
Ultimately, the EU regulation itself does not compel, say, a Turkish or Armenian bank to refuse service to a specific Russian client. However, it creates such a systemic wave of fear and additional requirements throughout the global financial system that refusals and account closures become a rational and predictable decision for any international bank wishing to maintain ties with the West.
The most affected groups will be small businesses and less wealthy (including anti-war) Russians living abroad. International transfers will become a rare, expensive, and extremely slow service. Access will remain only through a limited number of financial “islands” willing to assume high reputational and regulatory risks—and their services will come at a very high cost.
