Subsidiaries of foreign banks working in Russia will be affected by the amendment to the bill that introduces fines of up to 60 million rubles for state-owned enterprises and companies working with the banks, not approved by the government. This was told to RBC by a source close to the bill authors, and a federal official confirmed it. The ban will affect the operations on maintenance of accounts and the placement of deposits.

Finance Ministry proposes to give the government the right to ban state-owned enterprises to work with banks that formally comply with the general requirements (minimum capital, participation in the deposit insurance system, etc.), but limited credit "of individual enterprises and organizations" because of the anti-Russian sanctions. The same penalty can be applied to subsidiaries of foreign banks, if the government decides that they can impose sanctions on any companies in Russia. Earlier, an amendment was published on the portal of the disclosure regulations (RBC wrote about it), but the Ministry of Finance didn't comment upon the sense of the initiative. 

The amendment suggests that work with state-owned enterprises and state-owned companies could be prohibited for the Russian subsidiaries of foreign banks, says one of the interlocutors of RBC. According to him, the ban can be introduced in cases where the government sees the risk of sanctions against the Russian resident banks belonging to foreign banking groups whose parent companies apply sanctions against Russian companies and firms under the laws of their respective countries.

Under current law, all Russian units of foreign banks are Russian organizations (foreign banks are banned from creating their branches in Russia); parent banks are involved in their creation by contributing in the share capital. Nevertheless, the parent banks have the opportunity to force their Russian subsidiaries to follow the anti-Russian sanctions regime, RBC interlocutors agree.

Formally, the jurisdiction of the EU and US sanctions do not apply to subsidiaries of the relevant foreign companies established under Russian law, but is a gray zone: the parent companies must not be involved into potentially prohibited transactions and, in addition, the western headquarters may informally instruct the Russian subsidiaries to adhere to the sanctions regime, as if they were American / European legal entities. For example, in November 2014 ZAO Raiffeisenbank helped Vnesheconombank (under sectoral sanctions the EU and the US) to arrange the placement of domestic bonds by 10 billion rubles, and European regulators examined the deal for violations of sanctions as reported by Bloomberg (violations have not been found, as later reported the parent company of Raiffeisen Bank International). The agency wrote that it was aware of two Western European banks, which told their subsidiaries to comply with the Western sanctions regime in Russia.

According to the information (.pdf) of the Bank of Russia on October 1, 2016 (more recent data are not available on the regulator's website) license to conduct banking operations in Russia were obtained by 183 credit institutions with the participation of non-residents. The total authorized capital of such companies exceeded 2.4 trillion rubles. The total amount of foreign investment in their authorized capital amounted to 414.8 billion rubles. 66 banks and four non-bank credit institutions registered capital 100% formed by non-residents. In 26 banks the share of non-residents exceeds 50%.

The banks excluced by the government will not be able to work with the federal unitary enterprises and companies, included, respectively, in the presidential and governmental lists of federal state unitary enterprises and business entities of strategic importance for the military-industrial complex and the security of the state. The current list of such enterprises and companies included state-owned defense industry companies, Presidential Administration (in particular venture for overseas property management), all of Russia's state-owned media (First Channel, RTR, TASS, RIA Novosti), as well as major companies with state participation: Gazprom, Rosneft, Russian Railways, Aeroflot, etc. The prohibition to work with strategically important state-owned enterprises, established in the form of federal state unitary enterprise, extends to companies controlled by the Federal State Unitary Enterprise as follows from the amendments to the Ministry of Finance.

Bank representatives surveyed by RBC could not assess the scale of cooperation subsidiaries of foreign banks with state companies. According to them, it is obvious only that they have more credit business with the state entities than the business to raise funds (which is covered by the Ministry of Finance's amendment). "Thus, the ban on lending, which is not incorporated, since, obviously, would be a very stupid and would spoil the history of these companies in the global debt market, would hit harder the subsidiaries of foreign banks, than the ban on raising funds from Russian government agencies," says the top manager of one of these subsidiaries.

Obviously, the federal state unitary enterprises are not the clientele of subsidiaries of foreign banks, but with the major public state companies, the foreign banks in Russia, of course, do business, having not only a certain liquidity inflows but also the commission income in the forex market: "it will be the possible loss", says RBC interlocutor at another major subsidiary of foreign banks.

RBC has sent requests to the largest subsidiaries of foreign banks in Russia, the press service of Citibank declined to comment; both Rosbank (group Societe Generale) and UniCredit Bank did not respond. Raiffeisenbank spokesman said the bank is actively developing its business in Russia, but the Ministry of Finance's initiative will not be commented, until the final version of the document.

Unofficially RBC's interlocutors from the subsidiaries of foreign banks point out on the negative impact of potential restrictions not only for them but also for the companies affected by the ban on the placement of funds. And for the companies, this effect will manifest itself in a much greater extent. They will face more difficulties and it will be more expensive to carry out foreign exchange transactions, cross-border payments and work in the derivatives market, predict the interlocutors of RBC.

The draft law on protection of interests of the state with regard to placement of the budget funds by state-owned enterprises, state corporations and state-owned companies has been submitted to the Duma by the Government in July 2016, in December it passed its first reading and is now preparing for the second. The document gives the government the right to establish requirements for banks in which the state-owned enterprises and companies will be able to open accounts and keep deposits. The list of banks complying with these requirements, will be published by the Central Bank monthly. For work with the banks, not included in the list of the Central Bank, both state-owned enterprises and the banks themselves will face fines of up to 60 million rubles. These officials will be fined in the amount of up to 1 million rubles. However, the government will be able to admit to working with state-owned enterprises and companies the banks, which do not formally meet the established requirements to them. This exception will be made for Russian banks under the personal sanctions (such as Russia Bank or SMP Bank included into the US sanctions list), said deputies and officials of the Ministry of Finance during the first reading of the bill in the State Duma. Press service of the Ministry of Finance did not answer to questions at the time of this publication.