U.S. to Clamp Down on Financial Firms That Help Russia Buy Military Supplies

The Biden administration announced plans to crack down on banks and financial services firms that are helping Russia evade strict sanctions on access to military technology and equipment that are aiding its war against Ukraine.

The move, announced on Friday, comes after attempts by the United States to curb Russia’s access to supplies that it needs to build more missiles and other weapons have proved to be unsuccessful.

The United States and Europe have imposed strict sanctions on Russia over the past two years. But an illicit network of traders and smugglers, working with the assistance of shadowy financial firms, has been helping Russia gain access to banned products that it needs to restock its military arsenal.

Treasury Secretary Janet L. Yellen warned financial institutions on Friday not to help supply Russia’s war machine.

“No one should doubt the resolve of the United States and our partners when weighing the real risks associated with support for Russian evasion,” Ms. Yellen said in a statement. “We expect financial institutions will undertake every effort to ensure that they are not witting or unwitting facilitators of circumvention and evasion.”

Moscow’s intelligence services and Ministry of Defense have turned to networks that are facilitating Russia’s access to banned materials by exporting them to other countries from which they can be shipped to Russia more easily. That has allowed Russia to gain access to critical technology that can aid its military.

Finding new ways to constrain Russia’s ability to restock its military supplies is increasingly important as Western aid to Ukraine is drying up.

On Friday, President Biden signed an executive order giving the Treasury Department the authority to impose sanctions on banks and other financial institutions that are enabling these elicit transactions and allowing smugglers to get paid. Senior administration officials described the new powers as a tool that would allow the United States to throw sand in the gears of Russia’s military industrial complex.

Western financial institutions have largely stopped doing business with Russia. But administration officials said they expected that the threat of new sanctions would encourage American and European financial firms to exert pressure on banks in other countries to steer clear of Russian smuggling schemes.

Daniel Tannebaum, a partner at Oliver Wyman who advises multinational companies on sanctions, said the administration’s move was long overdue.

“Enforcing it will be critical for Russian allies to feel the need to make a choice,” Mr. Tannebaum, who is also a senior fellow at the Atlantic Council, said.

American and European officials have already been working with banks to develop a warning system to alert governments to possible sanctions violations. As of September, American banks had alerted the U.S. government to 400 suspicious transactions.

The Biden administration has been heavily reliant on the private sector to police its sanctions program.

This week, it announced that it would require maritime insurers and financial services firms to more rigorously enforce the price cap that the Group of 7 nations have imposed on Russian oil exports by collecting additional documentation about the contents and prices of oil shipments.

As part of that beefed-up policy, other participants in the energy trade supply chain will have to be ready to provide more information about ancillary costs, such as shipping fees, that traders have been inflating to disguise higher prices that are being paid for Russian oil.