Yellen urges German banks to step up Russia sanctions compliance

US Treasury Secretary Janet Yellen firmly urged German bank executives on Tuesday to intensify their efforts in complying with sanctions against Russia and shut down any attempts to circumvent them, warning of potential penalties that could cut off their access to the dollar.

During a meeting with bankers in Frankfurt, Yellen said that the Treasury's new authority to impose secondary sanctions on banks aiding Russian military-related transactions had helped frustrate Russia's efforts to procure goods needed for its war in Ukraine, but more work was needed.

She said: "Russia continues to procure sensitive goods and to expand its ability to domestically manufacture these goods. We must remain vigilant and be more ambitious.”

In an unusually direct warning, she told the executives to police sanctions compliance among their banks' foreign branches and subsidiaries and reach out to foreign correspondent banking customers to do the same, especially in high-risk jurisdictions.

"Russia is desperate to obtain critical goods from advanced economies like Germany and the United States," Yellen said. "We must remain vigilant to prevent the Kremlin's ability to supply its defence industrial base, and to access our financial systems to do so."

Yellen's warning comes shortly after the US Treasury successfully pressured Austria's Raiffeisen Bank, the biggest Western bank in Russia, to abandon a deal involving a Russian tycoon.

Earlier this month, Raiffeisen Bank International (RBI) dropped a bid for a €1.5 billion industrial stake linked to Russian tycoon Oleg Deripaska after intense US pressure.

Yellen said the most concerning Russian sanctions evasion activity was coming through China, the United Arab Emirates and Turkey, but added that the Treasury "is working to disrupt evasion wherever we see it, from Central Asia to the Caucasus and throughout Europe."

She also sought the bankers' views on global economic and financial system stability, stating that she sees the global economy as resilient, outperforming expectations with risks broadly balanced and financial conditions eased since last year's banking turmoil.

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