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By John O'Donnell and Alexandra Schwarz-Goerlich
FRANKFURT/VIENNA (Reuters) -Raiffeisen Bank International was warned by the U.S. Treasury in writing that its access to the U.S. financial system could be curbed because of its Russia dealings, according to a person who has seen the correspondence.
On May 6, Deputy Secretary of the Treasury Wally Adeyemo sent a letter to RBI, expressing concern about RBI's presence in Russia as well as a $1.5 billion deal with a sanctioned Russian tycoon that the bank has since scrapped, according to the person, who requested anonymity because the matter is private.
While the deal linked to Oleg Deripaska was ditched by Raiffeisen days after the letter arrived, the source said that the U.S. Treasury's concerns over the Austrian bank's business in Russia remain.
The warning is the strongest yet to the biggest Western bank in Russia and follows months of pressure from Washington, which has been looking into RBI's business in the nation for more than a year.
It underscores the deep frustration in Washington with the lender despite its recent decision to abandon a deal that had exacerbated those tensions.
While many Western governments and corporations have radically reduced ties to Moscow since it invaded Ukraine over two years ago, Austria remains linked with Russia through critical gas pipelines, with Vienna still serving as a hub for cash from Russia and its ex-Soviet neighbours.
Reuters reported in March about strong U.S. opposition to the Deripaska transaction, which Raiffeisen had billed as a means of unlocking some of its funds stranded in Russia.
Raiffeisen shares dropped 3% as trading opened, making it the top loser among European banks.
A spokesperson for Raiffeisen said that it had walked away from the deal and had not entered into any such transactions.
The spokesperson said RBI had "significantly reduced" activities in Russia and taken broad measures to mitigate the risks from sanctions.
"RBI will continue to work towards the de-consolidation of its Russian subsidiary," the spokesperson told Reuters.
In the letter, Adeyemo, the U.S. Treasury's second-highest ranking official, said Raiffeisen's extending activities would contradict assurances RBI had given to the Treasury that they were trying to wind down in Russia, according to the source.
Adeyemo warned that RBI's actions increased the risk of Treasury taking action to restrict its access to the U.S. financial system given concerns that its behaviour put U.S. national security at risk.
"The U.S. is losing patience. Enough is enough," said Richard Portes, a professor of economics at London Business School who has written about sanctions. He said there had been "too much" Russian money flowing through Raifeissen and other Western banks, frustrating the Americans.
"That (money) has clearly blunted the effectiveness of U.S. sanctions," he added, "This is a big signal."
PILING PRESSURE
The United States is the world's most powerful regulator chiefly because it can sever a bank's access to the dollar, a cornerstone of international finance. Losing access to the U.S. currency would be likely to plunge any bank into a crisis.
In the letter, Adeyemo also made reference to U.S. President Joe Biden's Executive Order authorizing U.S. secondary sanctions on foreign financial institutions that conduct significant transactions involving Russia's military-industrial base.
The warning piles more pressure on Raiffeisen, a critical financial bridge for Russian individuals and companies to the West, giving them access to euros and dollars.
RBI had vowed to spin off its Russian business, which provides a payment lifeline to hundreds of companies there, after coming under pressure from international regulators. But two years into war, little has changed.
A spokesperson for Austria's finance ministry noted the bank's pledge to de-consolidate its business in Russia and said that it assumed all sanctions were being respected.
Russian authorities had made it clear to RBI, which has around 2,600 corporate customers, 4 million local account holders and 10,000 staff, that they wish it to stay because it enables international payments, one source has told Reuters.
Although Italy's UniCredit also has a business in Russia and is similarly reluctant to leave, RBI is far larger and has become a test of western resolve to end ties with Russia.
(Reporting by John O'Donnell and Alexandra Schwarz-GoerlichAdditional reporting by Tommy Reggiori WilkesEditing by Elisa Martinuzzi, Louise Heavens and Tomasz Janowski)
