Washington's threat to hit foreign financial institutions with sanctions has made a significant difference in financial flows between Russia and countries such as Turkey, the United Arab Emirates and Kazakhstan, said Deputy Treasury Secretary Wally Adeyemo.
Adeyemo, in an interview with Reuters, said data available to the U.S. Treasury Department - including reports from financial institutions - shows a decline in the movement of funds after Washington in December issued an executive order that threatened sanctions on financial institutions in third countries helping Russia skirt western sanctions imposed over its invasion of Ukraine.
"In the data that I can see, I've seen a significant difference in terms of financial flows that have been transactions...potentially being blocked by institutions," Adeyemo said.
"And I've heard about this also from some of the monitors who are in institutions ... that they're taking a more cautious approach with regard to doing any business with Russia, which is exactly what we wanted."
Reuters reported last week that the U.S. threat to hit financial firms doing business with Russia with sanctions has chilled Turkish-Russian trade, disrupting or slowing some payments for both imported oil and Turkish exports, according to seven sources familiar with the matter.
The executive order did not explicitly target energy, but it has complicated some Turkish payments for Russian crude oil as well as Russian payments for a broader range of Turkish exports, the sources said.
Washington and its allies have imposed thousands of sanctions on Moscow over its invasion of Ukraine two years ago and has since been trying to stop Russia from circumventing the measures.
The United States has repeatedly warned companies against helping Moscow evade the sanctions and has targeted firms in the United Arab Emirates, Turkey and China.
Senior U.S. officials have also traveled to Turkey, the UAE and other countries to warn that companies could lose access to G7 markets if they do business with entities subject to U.S. curbs.
The executive order did not include a common threshold that only penalized firms if they were knowingly engaged in transactions on behalf of those hit with U.S. sanctions or tied to Russia's military industrial base, leaving them at risk of being cut off from the U.S. financial system even if unwittingly involved.
COMPLIANCE SHIFT
Adeyemo said bank compliance departments have taken the executive order seriously since it was the first time Washington said it would use secondary sanctions. Secondary sanctions target foreign people or companies doing business with those already under U.S. sanctions.
"Soon after, from their CEOs on down, they started requesting meetings with us to say 'what can we do to make sure that we keep access to the dollar,'" he said.
"And these were large banks ... who knew that they were in focus and wanted to make sure they're on the right side. Because ultimately for them, even though they may do some business with Russia, it pales in comparison to the amount of business they do with the United States or the business they do in the dollar."
Washington has so far held back from using the new executive order to sanction foreign financial institutions.
Ahead of the latest action, which marked the second anniversary of Russia's invasion, experts were watching to see whether the U.S. made use of the new measures issued in December. But Washington did not target a foreign financial institution in the package.
"What we've seen in terms of the information that we're collecting, is it's putting sand in the gears of the financial network that they were using to get access to goods, and now they're having to find new ways to do that," Adeyemo said of the executive order's effect on Russia.
