LONDON — Banks are forcibly closing the accounts of British firms that trade with Ukrainian counterparts due to concerns over Russian sanctions and money laundering, business leaders have warned, hampering wider efforts to support Ukraine’s war-ravaged economy.
In a letter to U.K. Treasury Minister Andrew Griffith, seen by POLITICO, British-Ukrainian Chamber of Commerce (BUCC) Co-Chair Bate Toms said British firms are increasingly “afraid to trade with Ukraine from the U.K.” due to the risk of being de-banked.
The letter, dated July 26 and also copied to U.K. Business and Trade Minister Nusrat Ghani, states the BUCC has received multiple complaints from firms who have had bank accounts closed — or their attempts to set up accounts rejected — because of dealings in Ukraine.
“Conducting even one Ukrainian transaction can lead to an account being closed,” Toms wrote. “U.K. banks generally refuse to open accounts if any Ukrainian trade is contemplated.”
Banks insist they must abide by their legal and regulatory obligations, including those concerning compliance with Western sanctions on Russia — which currently occupies parts of Ukraine. Transactions with non-government-controlled regions in Ukraine are complex, banks argue, and delays can occur while checks are completed. They insist trade with Ukraine is not prohibited outright.
Toms, however, wants the government’s recently-launched review of the de-banking of Politically Exposed Persons (PEPs) — triggered by former Brexit Party leader Nigel Farage’s dispute with luxury bank Coutts — to also consider how British banks are handling business transactions with Ukraine.
“If trade from the U.K. with Ukraine is not possible for SMEs [small and medium-sized enterprises], the U.K.’s and Ukraine’s economies will suffer, harming Ukraine’s ability to fund its defense and making Ukraine even more dependent on foreign assistance,” he warned.
Toms’ letter notes that “decades ago,” Ukraine had been designated by British banks as a “risky jurisdiction for their customers to do business with” — but insists that “Ukraine has since greatly improved its rule of law.”
A second business group contacted by POLITICO, the British-Ukrainian Business Council — co-established by the London Chamber of Commerce and Industry back in January — agreed an overly-cautious approach by British banks was hampering economic ties between the two nations.
U.K. banks’ interventions are “having a big impact on all of us who are doing our level best to support Ukraine during this traumatic period for the country,” said James Watkins, secretariat of the British-Ukrainian Business Council, and head of policy at the London Chamber of Commerce and Industry.
Bank account closures are an “ongoing problem [for U.K. SMEs],” he added, “not just actually with Ukraine but a whole range of other markets.”
Holding back Ukraine’s recovery
Discussions around rebuilding Ukraine’s shattered economy are a live issue in Whitehall, and in June the British government co-hosted a Ukraine Recovery Conference for world leaders and financiers in central London.
Opening the conference, U.K. Prime Minister Rishi Sunak called for governments to work in tandem with international financial institutions and business leaders to help “fast-track” Ukraine’s recovery. “The British government will continue to play its full part,” he pledged, announcing a “multiyear commitment to support Ukraine’s economy.”
But responding to Toms’ letter, a U.K. Treasury spokesperson said the issue of firms trading with Ukraine is “not in scope” of its ongoing PEP / de-banking review, which pertains to individuals rather than businesses. The spokesperson added: “We continue to stand firm in our support for Ukraine, with significant military and humanitarian assistance.”
Tom Keatinge, director of the Centre for Financial Crime and Security Studies at the Royal United Services Institute (RUSI) think tank, said this would be of little comfort to affected businesses.
“While the government seems willing to act on the concerns of Nigel Farage,” he noted, “it does not seem willing to facilitate the continued operation of trading relationships between U.K. and Ukrainian companies.”
Watkins added: “The government has been well aware of this issue for a number of years now. Nonetheless, it’s having a bad impact on British businesses and also on Britain’s effort to support Ukraine.”
Risky business?
The exact scale of the problem is unclear, given no official data is published and with businesses often nervous about discussing their banking difficulties in public. Both business groups quoted above cited multiple anecdotal examples of members being either de-banked, refused accounts or having transactions cancelled or delayed due to their dealings with Ukraine.
Challenges for U.K. SMEs trading with Ukraine predate Vladimir Putin’s invasion in February 2022, but exporters say they have intensified since the start of the war.
Banks are viewed as the first line of defense against money laundering to prevent dirty money from entering the financial system. Regulators expect them to flag suspicious transactions and check the money is legitimate in the wake of scandals such as the €200 billion laundered through Danske Bank’s Estonian branch between 2007 and 2015.
Supporting trade with Ukraine has become much more complex since the war broke out, with banks navigating Western sanctions on Russia — which now occupies parts of Ukraine — while also applying anti-money laundering laws.
Ukraine is not, however, on the U.K.’s list of high-risk third countries for anti-money laundering purposes, which requires companies to apply enhanced customer due diligence measures.
HSBC, one of the banks named in Toms’ letter, declined to comment.
Another, Santander UK, which he said has been known to “suspend … or refuse the crediting of wire transfers from Ukraine,” responded via a spokesperson: “Santander UK abides by its legal and regulatory obligations, including those concerning sanctions compliance. We do not prohibit transactions or client relationships associated with Ukraine.
“However, transactions with Ukraine’s non-government controlled regions are complex, and sometimes there can be delays while all necessary checks are completed, and in some instances, certain payments may not be possible.”
Many of the affected businesses believe banks are simply too risk-averse.
Watkins said he understood banks’ concerns, but called for a “common-sense approach” whereby “you mitigate the risk as much as possible while accepting there is a very difficult situation taking place.”
An agricultural products exporter who has experienced challenges trading with Ukraine and other countries, granted anonymity to speak freely on sensitive issues, added: “We are operating with a more strict set of rules than the British government wants us to, more than any other country in Europe has to abide by, simply because of the nervousness of banks to support business where you’re generating sales overseas.”
The exporter, whose case was referred to in Toms’ letter, trades in more than 30 countries and has been selling to Ukraine for more than a decade.
“We face ever-more stringent tests that it seems are not imposed on our European-based competitors, and are not strictly based on U.K. government sanctions or restrictions,” they said, “but rather on the banking sector’s own interpretation of risk — which is impenetrable to the business.”
Hannah Brenton contributed reporting.
