According to three people familiar with the situation, President Joe Biden's administration is preparing an initial package of penalties on Russia that includes prohibiting US financial institutions from processing transactions for key Russian banks.
The penalties, which would be enacted only if Russia invaded Ukraine, are intended to harm the Russian economy by severing "correspondent" financial links between targeted Russian banks and US institutions, which permit international transfers.
While US officials have stated that financial limitations would be part of a prospective sanctions package, the administration's proposal to disrupt correspondent banking relationships — which underlie global money flows — has not previously been published.
According to the same sources, the US will also use its most powerful sanctioning tool against certain Russian individuals and companies by placing them on the Specially Designated Nationals (SDN) list, effectively kicking them out of the US banking system, prohibiting their trade with Americans, and freezing their US assets.
Both the White House and the Treasury Department refused to comment.
According to the insiders, the package may alter at any time, and it was unknown who the targets would be. They think big Russian financial organizations such as VTB Bank, Sberbank, VEB, and Gazprombank might be targets.
While the correspondent banking mechanism lacks the punch of an SDN designation, which freezes a bank's assets, experts contacted by Reuters said it could nevertheless deliver a significant blow to the target institutions by making it harder to transact in US dollars, the global reserve currency.
Dollars account for a large portion of world trade.
It is unknown whether Russian banks will be put to the SDN list, but both forms of sanctions might have a significant impact on Russia.
"Because a significant number of global trade transactions are in US dollars, this is a sanction with bite, but without the more complicated and deadly sanction of being placed on the SDN list and having all assets in the US or in the hands of US persons frozen," said Washington trade lawyer Kay Georgi.
According to sources, the government may exempt certain transactions from the limitations if considered essential.
For weeks, the Biden administration has threatened Russia with harsh banking penalties in an attempt to prevent Russian President Vladimir Putin from attacking Ukraine. Moscow has stockpiled up to 150,000 troops on Ukraine's borders, but Putin has rejected any intention of attacking.
Last month, National Security Council member Peter Harrell stated that "hard hitting financial penalties" were part of a strategy to harm Russia's economy while protecting its civilians.
"The purpose of the financial sanctions is basically to impose short-term upfront costs on Russia, to cause capital flight, to cause inflation, and to force the Russian central bank to deliver bailouts to its banks," he said in a speech late last month.
Some financial businesses in the United States are concerned as a result of the harsh warnings. According to reports, members of the financial services and payment industries have been in contact with the US Treasury Department's Office of Foreign Assets Control, which administers sanctions.
Over the weekend, tensions rose as Russia expanded military training in Belarus, raising worries among Western nations of a Russian invasion of Ukraine.
According to France, Biden and Putin agreed in principle to meet on Sunday, raising the prospect of a clash.
