Butterfly effect

The most painful punishment is the one that is so ambiguous that it is unclear what it actually is, when it starts and where it ends. Although, technically, the sanctions imposed on Russia concern only a narrow group of companies and individuals, the ultimate effect will go far beyond the few who seem to have been targeted.

Against a background of general nervousness caused by the Kremlin's plans to bring back money that left the country, fears associated with the strange behaviour of western financial institutions intensify. The problem is not even that scrutiny of Russia-related transactions was increased and that many superfluous complications arose. The real problem is that the requirements are so blurred that they do not seem clear to the bankers themselves.

In the eyes of many Russians Vladimir Putin's words that Russian businesses abroad are not reckoned with and "can be fleeced like sheep" acquire fresh, unambiguous meaning.

Paradoxically, this situation, in the long run, is detrimental to the banks themselves. Although the establishment of European, primarily British, capital markets was created by a variety of important elements, a key factor was the separation of politics and business: the Soviet Union and the Arab countries were of the opinion that regardless of political confrontation with the West, primarily with the United States, European financial institutions would stay out of politics.

Today, however, it seems that Europe in the heat of geopolitical games has forgotten that money is about trust.

The first warning lights flashed in 2008 when the British government acting upon anti-terrorist legislation seized the assets of Landsbanki, a major Icelandic bank. It was astonishing to see not only how easily both Houses of the British Parliament approved Gordon Brown's actions, but also the amount involved, £4 billion. This sum, comparatively small for the British economy was still enough to make the politicians give up their principles.

"The Haircut on deposits" that took place in Cyprus under pressure from the European Union was essentially the confiscation of depositors' money, an act bizarre in its unlawfulness since depositors are neither shareholders nor managers and cannot be responsible for the fate of insolvent banks.

The situation is complicated by the United States involvement. European banks are global and cannot ignore US requirements. Last year, the French BNP Paribas entered a deal with the US Department of Justice to pay $8.9 billion for violation of sanctions imposed by the US against Iran, Sudan and Cuba.

The penalties are so high that banks have to expand their compliance departments while cutting down units engaged in the actual business of banking. While lending departments shrink, the number of controllers is growing by leaps and bounds.

Now it can take 4-5 weeks to open a bank account by a company that has nothing to do with Russia: the bureaucratic pressure is harsh and banks, quite simply, cannot cope. And this bell tolls for the banking sector itself.