The US prevents Russia from paying bondholders through US banks, increasing the risk of default

The towers of the Kremlin and the Cathedral of Ivan the Great in Moscow.

Kirill Kudryavtsev | Afp | Getty Images

The Biden administration will ban the Russian government from paying bondholders through US banks starting Wednesday morning, the Treasury Department said.

The move increases the chances of Russia defaulting on its outstanding debt.

It is the latest sanction against that country by the United States in response to the Russian invasion of Ukraine.

The Biden administration after the invasion had granted a crucial exception to sanctions against the Russian central bank, allowing that bank to process payments to bondholders through US and international banks.

But that exception will disappear at 12:01 am ET Wednesday, according to a bulletin issued by the Treasury Department titled, “Notice on Penalties for Russian Harmful Foreign Activities 9C General License”.

Research from JPMorgan Chase & Co. said Russia will face nearly $ 400 million in payments due on dollar-denominated bonds on June 23 and June 24, according to a report by Dow Jones.

Timothy Ash, a senior sovereign strategist at BlueBay Asset Management, reported to CNBC earlier this month that the Treasury’s Office of Foreign Assets Control, which administers economic and trade sanctions, “can act at any time to prevent Western institutions from processing bond redemptions” by Russia.

“OFAC can force Russia to default at any time. OFAC is still in the driver’s seat,” Ash said.

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