For more than four months, US envoys have delivered increasingly strident warnings to Austria’s Raiffeisen Bank International to scrap a deal they say has links to one of Russia’s most powerful oligarchs. In May, Washington’s patience ran out.
In a written ultimatum to the bank, its parent European Central Bank and the Austrian government on May 8, Washington threatened to limit Raiffeisen’s access to the dollar, a potential death sentence for Russia’s biggest Western lender, according to one person who saw the letter.
Within hours, Raiffeisen called off the deal, which was first announced in December, but the damage was done: By pushing Washington to the sidelines, the seeds of mistrust were sown, said one person with knowledge of American thinking.
Now, nearly two months later, pressure on the bank to loosen its ties with Russia is intensifying from both Washington and the ECB, three people with knowledge of the process said.
Raiffeisen and Austria are at the forefront of the United States’ global push to isolate Russia by tightening banking sanctions and blocking access to Western goods more than two years after the invasion of Ukraine.
Reuters spoke to more than a dozen people, including senior officials involved in discussions with the United States, Austria and European regulators, as well as sources with direct knowledge of the bank’s strategy.
The talks show he remains under immediate international pressure to pull out of Russia — despite terminating a deal to buy a stake in Austrian construction firm Strabag, which the U.S. Treasury said belonged to sanctioned Russian businessman Oleg Deripashek in May.
Deripaska told Reuters that the US reaction to the deal was “balderdash”, and a spokesman for the businessman reiterated that “Deripaska has zero interest in Strabag at this point”.
The interviews also show that Raiffeisen ignored warnings from European regulators more than a year ago that it was playing a high-risk game with Washington over its business in Russia.
Washington’s threat to penalize Raiffeisen has not been withdrawn and it continues to closely monitor the bank, its relations with Russia and any possible sanctions violations, two people with knowledge of the process said.
Raiffeisen could be taking other risks if it were prepared to do the deal Washington has tied with Deripaska, who the United States accuses of participating in a Kremlin-backed campaign to interfere in his 2016 presidential election, a person familiar with U.S. thinking said.
A Raiffeisen spokesman said the exchange with the US Treasury Department regarding Russia had been “generally friendly” and that it was steadily scaling back its presence in the country.
The U.S. Treasury declined to comment for this story.
Washington has the power to fine banks that violate sanctions or cut them off from the dollar. For example, it hit French bank BNP Paribas in 2014 with a $9 billion fine for violating US sanctions against Sudan, Iran and Cuba.
“Raiffeisen and Austria are playing with fire,” said Nina Tomaselli, an Austrian lawmaker from the Greens party, which is part of the country’s ruling coalition. “Like it or not, America has a whip in its hand.”
‘flying blind’
While many Western governments have shunned Russia, some Austrian politicians have been reluctant to sever ties with the country, which remains grateful for allowing Austria’s rehabilitation in 1955 after World War II. In return, Austria pledged to remain neutral.
Austria still relies heavily on Russian gas, while Vienna has acted as a hub for cash from Russia and its former Soviet neighbors through a financial network built up after the fall of communism.
But Raiffeisen’s European supervisors want immediate action. ECB officials attended a meeting of the bank’s supervisory board in June to urge the lender to act quickly, and the regulator has demanded it outline what steps it will take in the coming weeks, one of the people with knowledge of the process said.
A top international regulator said the scrapped Strabag deal had soured relations with the ECB’s banking supervisors and that they considered Raiffeisen dishonest. Regulators also fear they are “flying blind” and know too little about Raiffeisen’s Russian operations, the second person said.
Raiffeisen said the bank had reduced the volume of loans and payments in Russia and was taking steps to reduce deposits, of which it has 14 billion euros ($15 billion) there.
The ECB declined to comment for this story.
With vast industrial holdings, more than 18 million customers from Vienna to Moscow and 44,000 employees, Raiffeisen is a financial pillar for Austria and a large part of Eastern Europe.
Since the start of the Ukraine war in 2022, Russia has become an even bigger money spinner for the bank – accounting for about half of the group’s profits in the first three months of this year – as fees for payments abroad have risen.
Still, the U.S. Treasury’s threat to pull the rug out from under Raiffeisen continues to resonate deeply with its leadership, a person familiar with the bank’s thinking said, adding that such a move would be “fatal,” in part because large corporations that use it for international payments would leave.
U.S. authorities are aware of the seismic impact such a move would have on Raiffeisen, as well as the potential spillover into the broader financial system, and are proceeding cautiously, one of the people with knowledge of U.S. thinking said.
Preparing for the worst
That’s why Washington would prefer European regulators to force the bank to loosen its ties to Russia, two people with direct knowledge of the process said.
However, European efforts to take control of Raiffeisen as part of measures to dampen the Russian economy following Moscow’s invasion of Ukraine have been confirmed.
In the early months of 2023, the ECB and European regulators at the Single Resolution Board, the body that resolves troubled banks, discussed various scenarios if Raiffeisen ran into trouble, two people with knowledge of the talks said.
The conversations, which were not previously reported, prompted a conversation between officials and Raiffeisen about preparing a plan to deal with the existential crisis that could be triggered by the US penalty.
The US Treasury Department’s Office of Foreign Assets Control (OFAC) opened an investigation into Raiffeisen’s Russian activities in early 2023.
One of those sources said regulators were exploring a potential breakup of the bank but had been reluctant to prepare an emergency liquidation plan in talks with Raiffeisen — and won the support of Austrian officials who feared such a discussion could trigger panic if a leak occurred .
Discussions were abandoned in March 2023 when two U.S. banks and Credit Suisse collapsed, distracting regulators, the person said.
Raiffeisen said it ended the deal with Strabag when regulatory conditions were not met, that no money changed hands and that it did not consider its access to the US financial system to be at risk.
The Single Resolution Board and Austria’s finance ministry declined to comment on the 2023 discussions.
“Finding Gaps”
While the countries of the European Union create joint sanctions against Russia together, it is left to the countries to enforce them. In Austria, various ministries and authorities are responsible for monitoring and enforcing sanctions.
Austrian officials in various Raiffeisen government departments privately advised against the deal with Strabag, but it went ahead anyway, three people familiar with the matter said.
Talking to Raiffeisen, which is part of a powerful group rooted in Alpine agriculture and with broad political influence, is difficult in Austria, one public official said.
Austria’s central bank, which has the power to freeze assets, said it was up to the banks themselves to ensure the deals did not breach sanctions.
“We have a lot of legislation, but enforcement is extremely weak. If countries have an economic interest, that often prevails,” said Sophia in’t Veld, a European Union lawmaker who helped pass the sanctions rules.
To be sure, Russia has made it clear that it wants Western banks like Raiffeisen to stay, which could make it harder for them to get permission to leave — and get their money out.
Italian bank UniCredit, also present in Russia, albeit on a smaller scale than Raiffeisen, has legally challenged the ECB over pressure from the central bank to force it to leave Russia.
According to one of the sources, Raiffeisen has about 5 billion euros of capital locked up in Russia, and the Strabag deal was designed to free up $1.5 billion of that.
The bank has repeatedly said it intends to exit Russia, but cannot say when that might happen.
“Instead of withdrawing from Russia, Raiffeisen spent more than two years looking for loopholes and loopholes to get its money out,” Austrian lawmaker Tomaselli said.
