Turkey follows China in move likely to infuriate Putin

Turkish President Recep Tayyip Erdogan, Russian President Vladimir Putin, and Chinese President Xi Jinping at the Second Belt and Road Forum for International Cooperation, in Beijing in 2017.Photographer: Mikhail Svetlov/Getty Images

Turkish banks have started to refuse to work with Russian banks, according to a Russian media report, which follows a similar move by institutions in China to avoid secondary sanctions linked to Vladimir Putin‘s full-scale Ukraine invasion.

Russian business newspaper Kommersant reported on Wednesday that Turkish banks had terminated relationships with almost all Russian credit institutions and suspended payment processing, although there was an exception for foreign subsidiary banks in Russia.

Sources told the paper that dealings between Turkish banks and Russia were complicated by U.S. President Joe Biden‘s executive order in December imposing secondary sanctions against foreign firms that help Moscow in the war.

Biden’s order allows U.S. authorities to disconnect foreign banks from the U.S. financial system that violate sanctions imposed against Moscow.

Logistics companies working with Turkey told Kommersant that cross-border payments have become much more complicated and that more data and documents were required to confirm that sanctions rules were not being violated.

A source in Turkey’s banking sector told Russian state news agency Tass that Turkish institutions were “in a holding pattern.” This was because Biden’s order required additional clarification, as it was “very broadly worded” under the rules of the Office of Foreign Assets Control of the U.S. Treasury Department.

Newsweek reached out to the U.S. Treasury Department for comment.

But the order has caused longer processing times for money transfers and instances where funds are sent back or delayed for days, according to Bloomberg, citing bankers familiar with the matter. The outlet said Turkey wants to be removed from an international “gray” list of jurisdictions considered unable to tackle money laundering which deters foreign investors.

Two Chinese banks have ordered a review of their Russian businesses and plan to sever ties with clients on the U.S. sanction list and stop providing financial services to the Russian military sector, the outlet said.

Roman Prokhorov, from Russia’s Financial Innovations Association, told Kommersant that Turkey is still “interested in being a commodity and transport hub between Russia and Europe,” there was “some kind of other game” behind the current impasse.

Kommersant reported that if the risks turn out to be too great for Turkish banks, the only effective option would be to establish settlements with Turkey through banks of third countries, including those in the former Soviet Union or CIS.

Meanwhile, independent Russian language news outlet The Bell reported that the move by Western countries to block Russian firms from circumventing sanctions “so far looks strong” and that it now meant that “Russia was in trouble with its largest trading partners, China and Turkey.”

The Bell said that “problems with international settlements should also be expected” in other countries that Russia terms “friendly” potentially adding to transaction costs and the prices of imported goods.

Newsweek