It’s time to cut Russia out of the global financial system

The writer is Ukraine Minister of Finance

After the Cold War, world powers established systems of global governance. The aim was to protect liberal values, human rights and the world economy and to eliminate the threat of nuclear annihilation.

The undeniable success of this new rules-based international order was its reach, which included Russia and post-Soviet states, as well as other emerging economies such as China and India.

But such a system only works if its members stick to the rules. With its violent and unprovoked invasion of Ukraine, toxic support for corruption, and documented financing of terrorism, Vladimir Putin’s Russia makes a mockery of the rules-based international order that has bestowed upon us a unique era of peace and economic development.

Despite everything, Russia maintains its footing in the global system and is doing everything it can to undermine it. Russia sits on the UN Security Council and other UN bodies. The Security Council was created with the specific aim of preventing wars. So how can Russia remain a member after starting its war of aggression against Ukraine?

We also have an international body to ensure global financial security – the Financial Action Task Force. Established by the G7, the FATF sets standards and promotes the effective implementation of legal, regulatory and operational measures to limit three main risks: money laundering, terrorist financing and proliferation of weapons of mass destruction.

Today the FATF has 37 member states. This includes Russia, although there is evidence that the country is failing to meet FATF standards on all three fronts.

This month, FATF members will gather in Paris to discuss further action against Russia on a symbolic date, exactly one year after the invasion of Ukraine.

Countless investigations have uncovered Russia’s complicity in money laundering, which has only increased after sweeping sanctions were imposed since the full-scale invasion. Russia has also been found to have facilitated or otherwise collaborated with various blacklisted terrorist groups and states, including the Wagner Group, the Taliban, Hezbollah, the Assad regime in Syria, North Korea and Iran.

Iranian kamikaze drones were found to have been used to attack civilian targets in Ukraine, leading to further US sanctions in November 2022. In addition, in March 2022, Russian individuals and organizations were also sanctioned by the US for actions in support of North Korea’s weapons of mass destruction ballistic programs.

However, these examples hardly scratch the surface. Russia is also responsible for state-sponsored and criminal cyber threats against critical infrastructure. Their war on Ukraine is exacerbating the global energy crisis and drastically increasing the cost of food, wreaking havoc worldwide, especially in developing countries.

In short, Russia is not simply undermining the global economic system. It holds us all to ransom. So more needs to be done.

Ukraine is asking the FATF to expel and blacklist Russia. This would arguably be the most effective tool to restrict terrorists’ access to the global economy, as it would force all states to apply enhanced due diligence to all transactions involving the financial system of a blacklisted jurisdiction.

Sanctions are imposed by specific jurisdictions and enforced by their subjects. This leaves a large part of the world economy, which has not introduced sanctions, open to Russia.

A blacklist by the FATF would create universal controls and require increased due diligence. Every transaction with the Russian financial system would be checked and audited.

This would greatly increase the cost of doing business with Russia and effectively stifle Putin’s ability to fund his illegal war of aggression. Equally important, it would help us build a stronger and more resilient global financial system over the long term.

The EU, the G7, and all other nations committed to a rules-based international order should urgently acknowledge the risks Russia poses to the integrity of the global financial system. They must also act to put Russia on their own lists of “high risk areas” and issue appropriate market guidance.

Russia has been allowed to subvert the system from within for too long. The international order can only survive if the rules are observed. We have powerful mechanisms in place to enforce these rules. It’s time to use them.