Ukrainian Government Imposes Sanctions on Russian State-Owned Banks after Sberbank Recognizes East Ukrainian “Statelets”

On March 16, at the urging of Ukraine’s National Security Defense Council, President Petro Poroshenko imposed year-long sanctions on five Ukrainian subsidiaries of Russian banks. These entities included, Sberbank, VS Bank, Prominvestbank (owned by VEB), VTB Bank, and BM Bank.  The sanctions were prompted by several days of protests in Ukraine against Sberbank’s decision to comply with President Putin’s February 18 decree recognizing identity documents issued by separatist regimes in Ukraine’s Donetsk and Luhansk regions.  The bank’s recognition of these identity documents, however, was retracted on March 9.  The sanctions moved forward anyway.  The five sanctioned banks have a combined market share of 8.6 percent ($1.3 billion).  The sanctions specifically restrict the flow of money out of Ukraine to Russia and their parent entities.

The imposition of these penalties was triggered by outrage over Putin’s decree recognizing the legal status of these “statelets” as well as the consequent rise in nationalist sentiment reflected in the rail blockade against the eastern part of the country by Ukrainian nationalists (which led to pro-Russia separatists seizing 40 coal mines and factories to facilitate the transit of commodities and output to Russia).  Moscow strongly condemned Poroshenko’s decision, warning that the exit of Russian bank capital would have an adverse effect on the Ukrainian economy.

Through the targeting of Russian-state owned banks, it was made clear — despite the retraction — that Ukrainians perceived Moscow to be using these financial institutions as a means to imbue the self-proclaimed statelets with sovereign-like legitimacy (much like the Kremlin honoring fraudulent Donetsk/Luhansk “passports”).  In doing so, this action by Sberbank became a component part of Russian hybrid warfare and soft power against Ukraine.

The Ukrainian government recommended the exit of this large segment of the Russian banking presence in the country through buyouts or a gradual divestment of assets.  President Poroshenko has urged the European Union and United States to take similar measures against these Russian banks in response to their active assistance in the Kremlin campaign to fracture his country.