Banks Close British Firms' Ukraine Trade Accounts Amid Sanction and Money Laundering Worries

Banks are reportedly taking steps to forcibly close the accounts of British companies engaged in trade with Ukrainian counterparts, citing concerns related to Russian sanctions and potential money laundering risks.

This move has been criticized by business leaders who argue that these actions are impeding efforts to support Ukraine's economy, which has been severely affected by ongoing conflicts.

In a letter addressed to U.K. Treasury Minister Andrew Griffith, the British-Ukrainian Chamber of Commerce (BUCC) Co-Chair Bate Toms highlighted the growing apprehension among British firms engaged in trade with Ukraine. These businesses fear that they might face account closures, a phenomenon referred to as "de-banking," due to their business dealings with Ukraine.

The letter, dated July 26 and also shared with U.K. Business and Trade Minister Nusrat Ghani, outlines that the BUCC has received numerous complaints from companies whose bank accounts were closed or whose attempts to establish accounts were rejected based on their Ukraine-related activities. Toms notes that even a single transaction involving Ukraine can result in account closures, as U.K. banks often decline to open accounts if any dealings with Ukraine are anticipated.

While banks argue that they must adhere to legal and regulatory obligations, including compliance with Western sanctions on Russia (which currently occupies parts of Ukraine), business leaders contend that these actions are hindering economic ties between the two nations. Transactions involving regions not under government control in Ukraine are deemed complex by banks, resulting in delays during the verification process. However, banks maintain that trade with Ukraine is not outright prohibited.

Toms urges the government's ongoing review of the de-banking of Politically Exposed Persons (PEPs), initiated after former Brexit Party leader Nigel Farage's dispute with luxury bank Coutts, to consider the broader context of how British banks handle business transactions related to Ukraine. He emphasizes that the inability of small and medium-sized enterprises (SMEs) to engage in trade with Ukraine could adversely impact both economies, undermining Ukraine's defense funding and increasing its dependence on foreign assistance.

Toms' letter also highlights that Ukraine had previously been labeled by British banks as a "risky jurisdiction" for business, but asserts that significant improvements have been made in terms of rule of law in the country.

Another business group, the British-Ukrainian Business Council, which was co-established by the London Chamber of Commerce and Industry, echoed concerns about British banks adopting an overly cautious stance, resulting in economic repercussions for both nations.

Despite these concerns, a spokesperson from the U.K. Treasury indicated that the ongoing review does not encompass issues related to firms trading with Ukraine and its scope is limited to individuals rather than businesses. Business leaders argue that this stance contradicts the U.K. government's commitment to supporting Ukraine's economy during challenging times.

The exact scale of the issue remains uncertain due to the absence of official data and the reluctance of businesses to publicly discuss their banking challenges. However, multiple examples have emerged of companies being de-banked, facing account refusals, or experiencing canceled or delayed transactions due to their Ukraine-related activities.

Challenges for U.K. SMEs trading with Ukraine existed before Russia's invasion in February 2022 but have intensified since the onset of the conflict. Banks play a crucial role in preventing money laundering and adhering to anti-money laundering laws to prevent illicit funds from entering the financial system. As a result, banks are increasingly cautious when facilitating trade with Ukraine and navigating Western sanctions on Russia while also upholding anti-money laundering measures.

In conclusion, the actions of British banks forcibly closing accounts of firms engaged in trade with Ukrainian counterparts have raised concerns among business leaders. While banks emphasize the need to comply with regulations, critics argue that this approach is adversely affecting economic ties between the two nations and potentially hampering Ukraine's recovery efforts in the aftermath of conflict. The issue is part of a broader debate about striking a balance between financial safeguards and supporting trade relationships in challenging geopolitical contexts.

By fLEXI tEAM