Two private banks in Turkey suspended their use of Russia’s Mir payments system earlier this week after warning signals from the United States.
The system, a rival to Belgium’s SWIFT network, is not directly the target of sanctions. But US officials say there is concern that Russia is expanding its use of Mir to try to evade sanctions. Experts say banks allowing extended use of Mir could trigger secondary sanctions.
Reuters news agency reports that the issue is expected to be discussed at a meeting of senior officials, including Turkish President Recep Tayyip Erdogan, on Friday.
Turkey’s largest private lender, Is Bankasi, said Monday that it had stopped using Russia’s payments system while assessing new guidance from the US Treasury Department.
Denizbank, another private lender in Turkey, said the same day that it could no longer provide services to Russia’s payment system Mir. Currently owned by Emirates NBD, Denizbank was controlled by Russia’s Sberbank until 2019.
The decision by two banks, announced within hours, follows additional sanctions and further guidance from the US Treasury Department’s Office of Foreign Assets Control, known as OFAC.
OFAC, which is responsible for enforcing economic sanctions imposed by the US, said in a statement earlier this month that Russia was trying to find new ways to process payments in response to crippling Western financial sanctions.
“Directly and indirectly, Russia’s financial technocrats supported the Kremlin’s unprovoked war. Today’s appointments address that effort,” the statement said.
Although the two Russian financial systems themselves are not currently blocked entities under Russia’s sanctions rules for harmful foreign activities, the Treasury Ministry has warned banks that expanded agreements with them risk aiding Russia’s efforts to circumvent US sanctions.
Concerns about sanctions evasion
The Mir payment system was developed by Russia in 2014 as an alternative to the competing SWIFT payment messaging service, which supports payments in more than 200 countries. Mir continued to expand after two credit card giants, Mastercard and Visa, blocked services for Russian financial institutions in accordance with Western sanctions.
When asked about their reaction to the Turkish bank’s suspension, a senior administration official said in a statement to VOA that the steps taken by these Turkish banks were “very sensible.”
“Cutting Mir is one of the best ways to protect a bank from sanctions risk arising from doing business with Russia,” the senior official said Tuesday.
US officials say they expect more banks to deny Mir access “because they don’t want to risk being on the wrong side of coalition sanctions.”
Experts speaking to VOA say OFAC guidelines aim to prevent the systems from being used to circumvent US sanctions.
They say the latest move by the two Turkish banks to suspend Mir reflects their efforts to avoid a possible risk of sanctions while the West steps up economic measures against Russia.
Former State Department sanctions policy coordinator Daniel Fried, who drafted US sanctions against Russia after the 2014 aggression in Ukraine, told VOA that the two Turkish banks are “acting rationally and with great caution.”
Fried, who is also a former US ambassador to Poland and currently a senior fellow at the Washington-based Atlantic Council, said OFAC guidelines suggest “there is some risk” to dealing with Mir.
Timothy Ash, an emerging market analyst at London-based Bluebay Asset Management, believes the two banks have realized the deal may not be worth the risk of being caught up in potential secondary sanctions.
Three other lenders in Turkey – Halkbank, Vakıf Bank and Ziraat Bank, all state-owned – also use Mir.
Halkbank is already involved in a case in which US prosecutors accuse the bank of dodging sanctions against Iran. The case was one of the issues straining US-Turkey relations.
“The state-owned banks will take the lead from the government,” Ash said in comments he sent to VOA on Wednesday. “Perhaps the Turkish government will only restrict Mir transactions through this institution to limit broader risks and damage to the Turkish banking system.”
Steve Hanke, a professor of applied economics at Johns Hopkins University who served on former President Ronald Reagan’s council of economic advisors, said it was hard to predict whether Turkey’s three state banks would also drop the scheme.
He told VOA that completely cutting off the Mir could indirectly hamper Russian visitors if Turkey needs the revenue.
Popular system with Russian visitors
Russian President Vladimir Putin’s order on Wednesday to call up 300,000 reservists has sparked a flight of thousands from the country.
Direct flights from Moscow to Turkey’s Istanbul and Armenia’s capital Yerevan were sold out on Wednesday, according to Russia’s popular flight booking platform Aviasales.
The Russian payment system Mir is widely used by Russian tourists in Turkey.
The Moscow Times reported earlier this week that the Russian Association of Tour Operators, ATOR, is recommending Russians travel to Turkey with cash due to “declining card payment options.”
Increasing pressure expected
According to a Financial Times report last week, Brussels is also preparing to voice its concerns about the risk of Turkish officials evading Russian sanctions.
EU Financial Services Commissioner Mairead McGuinnes is expected to visit Turkey next month.
Former US sanctions coordinator Fried predicts that the US will use many sources to “dry up the channels of the Russians.”
“I think US pressure to take action against sanctions violators will increase. Central Asian and South Caucasus countries will start paying more attention to what their banks are doing to avoid running afoul of sanctions,” he told VOA.
This story is from VOA’s Turkish service.