The US and western allies will place sanctions on the Russian central bank and remove some Russian lenders from the Swift global payments system, in their harshest response yet to the invasion of Ukraine.
In a joint statement, the US, UK, Canada, France, Germany, Italy and the European Commission said they would prevent the Russian central bank from using its internal reserves to undermine broader sanctions.
“[Vladimir] Putin’s government is getting kicked off the international financial system,” said a senior US official, who added that the measures would result in the Russian currency going “into freefall”.
The leaders said they would eject some Russian banks from Swift, ensuring they are “disconnected from the international financial system” and harming their ability to operate. They also vowed to crack down on “golden passports” that let wealthy Russians buy citizenship, and to impose sanctions on officials and elites close to the Russian government.
The joint action is an escalation in the west’s response to Russia’s invasion of Ukraine. The US has only previously sanctioned the central banks of Iran, Venezuela and North Korea. “We will hold Russia to account and collectively ensure that this war is a strategic failure for Putin,” the leaders said in their joint statement.
The Biden administration official said Putin had turned Russia into a “global economic and financial pariah” with his invasion of Ukraine.
“What we are committing to do here is to disarm the central bank,” the official said about the sanctions on the central bank, adding that the action would affect all of the institution’s roughly $630bn in foreign reserves.
“Without being able to buy the rouble from western financial institutions . . . Putin’s central bank will lose the ability to offset the impact of our sanctions,” he said. “The rouble will fall even further, inflation will spike and the central bank will be left defenceless.”
In a separate statement, European Commission president Ursula von der Leyen said she would propose to EU leaders that they should “paralyse the assets of Russia’s central bank” in order to freeze its transactions and make it impossible for it to liquidate its assets.
Josh Lipsky, a former IMF adviser at the Atlantic Council, said before the actions that hitting the central bank would be an “extraordinarily significant and damaging move” to Russia’s economy.
“A G20 central bank has never been sanctioned before. This is not Iran. This is not Venezuela,” said Lipsky.
Edward Fishman, a former US official now at the Center for a New American Security, said it could present a “devastating blow” to the Russian economy that would eclipse the significance of a ban on Swift.
A US official declined to say if the US would sanction the central bank by adding it the Treasury’s “Specially Designated Nationals” list, which Fishman described as “the single most impactful sanction that you could apply to Russia, and you could do it with a stroke of the pen”.
“It would render a sizeable chunk of their foreign exchange reserves unusable overnight,” Fishman said.
The move would ban US entities from dealing with the central bank, which would mean that everyone would be “skittish about moving any assets on behalf of the Russian central bank”, he said.
The joint statement did not list the banks that will be ejected from the Swift messaging system.
The move follows pleas by Ukrainian president Volodymyr Zelensky for Western capitals to leverage access to Swift to pressure Russia. Cutting Russian banks out of Swift will make it more difficult for Russians to make cross-border transactions, intensifying pressure on the country’s financial system.
Swift, a Belgian enterprise owned by more than 2,000 banks and financial institutions, provides secure messaging services for trillions of dollars’ worth of payments between banks.
The enterprise has found itself in the spotlight during international crises, most notably over Iran’s nuclear programme. In 2012, and again in 2018, it was pushed to shut out Iranian banks targeted by sanctions. The US official said the new move against Russia was the “Iran model”.
The goal with the Swift-related sanctions will be to avoid undermining mechanisms for western economies to purchase energy from Russia.
The allies have not finalised the mechanism, but will either carve out certain energy-focused banks from being ejected or use product definitions within the Swift system to permit energy-related transactions to continue.
In the joint statement, the leaders said additional measures would include limiting the sale of “golden passports” that “let wealthy Russians connected to the Russian government become citizens of our countries and gain access to our financial systems”.
They also pledged to launch in the coming week a “transatlantic task force” charged with tracking down and freezing the assets of sanctioned individuals and companies.
This will also entail sanctions and other enforcement measures on additional Russian officials and elites close to the Kremlin, as well as their families and their enablers, the statement said.
“We will also engage other governments and work to detect and disrupt the movement of ill-gotten gains, and to deny these individuals the ability to hide their assets in jurisdictions across the world,” the statement said.