Battle for Ukraine - US eyes Iran-style bank sanctions

The Obama administration is considering placing Iran-style banking sanctions on selected Russian financial institutions if Moscow were to send troops into eastern Ukraine.
The banking sanctions are one of a series of measures the administration has been discussing with Congress in recent days as it seeks to find ways to isolate Moscow diplomatically and economically, according to congressional aides and officials.
Banking sanctions are a powerful tool that take advantage of America's central role in the international financial system and which have helped place pressure on the Iranian economy over the past two years. If a Russian bank were targeted, then any bank in the world that continues to do business with it can be cut off from the US financial system.
The banking sanctions are being examined as secondary measures aimed more at deterring Russia from taking military action in eastern Ukraine. In response to the immediate crisis in Crimea, the administration is considering placing senior Russian officials on a visa ban and asset freeze list. Broader trade and investment sanctions, which secretary of state John Kerry alluded to at the weekend, are only being analysed as a much more distant prospect.
Debate in Washington over what sort of economic tools to use against Russia comes amid signs of friction between the US and Europe over how quickly - and how aggressively - to apply economic pressure.
European diplomats have expressed frustration that they are portrayed as dithering while the US is seen as decisive, when the stakes are far higher on their side.
Within the EU (European Union), attitudes towards tough measures against Moscow vary. Central European nations say that an early threat of sanctions is needed to stop Russian troops moving into eastern Ukraine. They are frustrated that countries such as Italy, Germany and the Netherlands have been far more guarded.
While American rhetoric has been tougher, both US and European officials have made it a priority to find "off-ramps" and ways to "de-escalate" the crisis.
"It's good cop, bad cop," said a senior EU official. "The major Europeans [UK, France, Germany] said it would be counterproductive to tell Russia they should de-escalate and at the same time issue sanctions."
Even as EU diplomats weighed sanctions, they agreed on Tuesday to freeze the assets of 18 people in the deposed Ukrainian regime of Viktor Yanukovich.
The decision, taken at a meeting of EU ambassadors in Brussels, does not include travel bans, according to EU diplomats. It will be officially approved on Wednesday and become effective from Thursday.
Banking sanctions are being held in reserve as an option if the crisis escalates. Two sources briefed on the talks said that the idea had some support from both within the US administration and in Congress, but that officials recognised that this would be a major step which could have a big economic impact in Europe.
"We have to accept that if we make Russia the target of financial isolation, we will be using the same tactics we have used to go against rogue actors in the past," said Juan Zarate, a former Treasury and White House official in the George W Bush administration who helped develop some of these sanctions. "If we use that playbook, there is no going back. It would put a heavy taint on the Russian banking system."
If the US wanted to target particular Russian banks, one route would be for the Treasury to allege involvement in money laundering or in supporting organised crime. Experts said it might already have evidence linking Russian banks to financing weapons shipments to Syria, which could be used to make the case for sanctions.
Harry Reid, Senate majority leader, said on Monday banking sanctions could create havoc for the Russian economy, but that Washington needed to move with Europe. "The most important thing is for the United States is to make sure that we don't go off without the Europeans. Their interests are paramount if we are going to do sanctions of some kind."
BRUSSELS' FIREPOWER: MEASURES EU COULD TAKE TO PUNISH MOSCOW
Travel bans: Immediate visa bans against Russian citizens. The US imposed travel restrictions on 20 former Ukrainian officials last month and Barack Obama, US president, signed the Magnitsky Act in 2012 banning 18 Russian officials from entering the US as punishment for their role in a fraud case. How likely? Likely. This should be relatively easy to implement and would hurt several wealthy Russian individuals with financial interests in Europe, particularly in London and Cyprus. However, identifying targets could take time.
Talks suspension: This could include talks on EU-Russia visa liberalisation - which have been a significant objective of Mr Putin's engagement with Brussels for several years - and interrupting negotiations for a new strategic agreement between the two, which aims to bolster co-operation on investment, research and education. How likely? Likely as it should be fairly straightforward to implement. The move would certainly irritate Moscow but is unlikely to be decisive in ending the crisis.
Trade: Impose embargoes on trade in areas ranging from arms to energy-related services, such as insurance and transport of Russian oil, and a ban on the export of hydrocarbon exploration technology. An extreme response would be to block the flow of oil and gas from Russia to Europe. How likely? An arms embargo is likely but would have little effect as Russia makes much of its own weaponry. Energy-related sanctions are unlikely given the EU is dependent on Russian gas supplies for 30 per cent of its energy needs. But such a measure has been implemented against Iran.
Diplomacy: EU leaders could boycott the Group of Eight summit in June in the Russian resort of Sochi, as well as the 2018 World Cup, which Russia will host. More traditional measures include recalling and expelling diplomats. How likely? The Group of Seven has pulled out of preparations for the G8 summit so there is a strong likelihood that the EU would take this a step further. Embarrassing Mr Putin on his home turf would hurt the Russian president, but Italy and Germany are wary of a full boycott. Calling off the World Cup is a long shot. Finally, closing down diplomatic avenues is highly unlikely as EU leaders will continue to seek dialogue at all times.
Financial: Freeze assets of rich Russian individuals in Europe and block state-controlled banks' access to EU financial markets, including banning listings of Russian companies on European exchanges. The British government has already come under fire after an official was pictured walking with a document warning the UK should not "close London's financial centre to Russians". How likely?  Unlikely. This would be fairly easy to implement but politically sensitive as it could hurt European economic interests - Russians hold billions of euros and pounds in European banks.
The wild card: Impose tough penalties on Russian energy company Gazprom for anti-competitive pricing of its gas in Europe. How likely? Unlikely. The European Commission, which is in charge of the investigation into Gazprom's pricing model, is not keen to.
Additional reporting by                       Andrew Byrne in Brussels.                       FT Syndication Service