Chinese banks crack down on Russia-linked transactions
Following Donald Trump's victory in presidential election, Chinese banks have begun to block payments to Russian companies through India, the UAE, and Hong Kong (Photo: REUTERS/Thomas Peter/File Photo)
Chinese banks are increasing their scrutiny on payments originating from India, the UAE, and Hong Kong in an effort to detect any potential connections to Russia, The Moscow Times reported on Nov. 21.
The checks involve analyzing shipping documents to determine the destination, purpose, and origin of goods. Similar measures were previously applied to transfers through Turkey and CIS countries but have now been expanded to other nations.
Banks are now requiring that goods be shipped to the country from where the money originated in an attempt to avoid secondary sanctions. Sources suggest that Chinese banks are taking precautions ahead of Donald Trump's presidency to avoid any reason for the US administration to impose sanctions.
However, there are still alternative options for making payments to China, such as through direct transactions between regional Russian banks and Chinese banks or via payments through Malaysia and Indonesia. The most secure and efficient method is direct payment through a Russian bank branch in China, with a fixed 4% transfer fee.
The United States imposed secondary sanctions on foreign banks for doing business with sanctioned entities. As a result, over 98% of Chinese banks have refused to work with Russian payments, causing serious problems for businesses.
The disputes with Chinese banks in Russia began in late December 2023, after US President Joe Biden issued a decree authorizing the US Treasury Department to impose secondary sanctions on foreign banks for working with sanctioned Russian entities and supporting Russia's military-industrial complex. As of June 24, 2024, the Russian subsidiary of the Bank of China suspended all transactions with Russian banks subject to U.S. sanctions.
In April 2024, several Chinese banks stopped accepting payments in yuan from Russia due to secondary sanctions concerns.
By July 2024, Chinese banks had labeled yuan from Russia as "dirty" and refused to accept it, resulting in approximately 80% of yuan payments being returned to Russia. It has also been reported that the Central Bank of Russia is preparing for a scenario where trading in yuan may need to be halted.
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