What does adding Russia to EU blacklist mean and how will it affect the Russian economy?
On December 3, the European Commission finally added Russia to its list of high-risk countries with insufficient controls against money laundering and terrorist financing.
The long-awaited decision means that European banks and firms are now legally obligated to perform enhanced due diligence on clients with a Russian nexus.
The goal is to further restrict the Kremlin’s access to the European economy.
Read more about whether this punitive measure will work in the column by Miles Kellerman of International Organization and Multi-level Governance at Leiden University: When FATF is powerless: what effect will adding Russia to EU blacklist have.
The author explains that with this decision the EU wants to increase pressure on Russia to end its invasion of Ukraine, especially as Putin seeks to leverage his camaraderie with US President Donald Trump to settle the war on his terms.
But many European banks and financial institutions already treat clients with Russian connections as high-risk to avoid exposure to sanctions, suggesting that these measures – which only require that private firms perform enhanced due diligence – will not significantly alter their operations, Kellerman emphasizes.
"The harsh glare of regulatory scrutiny may incentivize large institutions to reduce their exposure to Russia-connected clients," the associate professor writes.
But smaller players – including auditors, lawyers, corporate service providers, real-estate agents, digital-currency platforms, and providers of gambling services – have less mature compliance controls, the author explains.
According to him, Russia’s exclusion from the FATF and the EU’s lists has enabled some of these actors to accept unsavory clients.
"Placing countries on a money-laundering blacklist is a blunt instrument that effectively creates legal obligations for banks and other regulated firms to scrutinize more closely certain people simply because of their jurisdictional connections. While the EU’s listing may be felt in the Kremlin, it will also cause substantial collateral damage to innocent Russian civilians, including dissidents living in Europe who actively oppose Putin’s regime," Kellerman stresses.
In his view, blacklisting Russia will marginally improve the EU’s pressure campaign by closing loopholes in the AML system
And the symbolism of exercising independence from the FATF (the international body that maintains the global blacklist) is important in the author’s view, even if it took far too long. But policymakers have not solved the problem of collateral damage.
Until this is addressed, the author believes, the EU’s ability to list high-risk countries will remain a painful tool of economic statecraft.