Russia Pushes India for Help to Avert Global Financial Isolation

The Kremlin is pressuring governments including India behind the scenes، threatening to upend defense and energy deals unless they help block expected moves aimed at turning Russia into a financial pariah state over its invasion of Ukraine.

Documents seen by Bloomberg and accounts by officials in NATO countries familiar with the situation offer a rare insight into how Russia is targeting commercial partners ahead of a June meeting of the global watchdog against money-laundering.

Combating dirty money

The Financial Action Task Force، an inter-governmental organization that sets standards for combating dirty money، suspended Russia from membership in February and Ukraine is pushing for the body to impose further restrictions by adding Moscow to its “black list” or “gray list.”

Blacklisting by the FATF would put Putin’s government in the same company as North Korea، Iran and Myanmar، the only countries with that designation، and plunge his economy even deeper into isolation over the war. If the measure comes to pass، member states as well as banks، investment houses and payment-processing companies would be obliged to conduct enhanced due diligence and in the most serious cases take counter-measures to protect the international financial system.

Attitude of the Global South

Many countries in the so-called Global South including India have stayed mostly neutral over Russia’s aggression against Ukraine. That balancing act was on display at a Group of Seven summit in Japan this past weekend، where Indian Prime Minister Narendra Modi and Ukrainian President Volodymyr Zelenskiy met in person for the first time since the war began.

While there’s no indication of any immediate shift in India’s position، the meeting likely made uncomfortable viewing for Russian President Vladimir Putin، whose own travels have been restricted since the invasion and an arrest warrant for alleged war crimes issued in March by the International Criminal Court.

Zelenskiy، by contrast، spent the weekend at the G-7 with several of the leaders that Putin has sought to woo as Russian allies، and that is far more significant than any tensions on the sidelines of the summit، a senior UK official said.

A Russian state agency earlier this month warned counterparts in India of a cascade of unpredictable and negative consequences for cooperation in defense، energy and transportation if the FATF adopts new measures against Russia، according to the officials، who asked not be identified because the issue is sensitive.

Adding Russia to the black list

The agency urged India in May to “vocally” oppose any moves by Ukraine to add Russia to the “black list” of high-risk countries at the meeting، and said even being placed on the lesser “gray list” would cause difficulties.

Bloomberg is unable to verify whether India responded to the warnings. The Russian and Indian governments didn’t respond to requests to comment.Ukrainian Finance Minister Serhiy Marchenko responded with an official statement: “Russia’s bullying behaviour is concerning but unsurprising. When faced with hard evidence of noncompliance with the FATF standards، Russia turned to blackmailing and political pressure.”

In one document، the Russian agency called the FATF’s unprecedented suspension of the country politicized and illegal، while making no reference to the fact that it was in response to Putin’s invasion of Ukraine.

Among projects with India that Russia warned would be under threat if more measures are passed were:

• Cooperation between oil giant Rosneft and Nayara Energy Limited
• Exports of Russian weapons and military equipment to India as well as defense sector technical cooperation
• Russian proposals for new joint aviation projects presented at the Aero India 2023 exhibition in February
• Technology and energy cooperation at India’s Kudankulam nuclear power plant
• An agreement between Russian Railways’ RZD Logistics and the Container Corporation of India on cargo transportation services linked to development of a North-South trading corridor

While the US and its allies have already turned Russia into the world’s most sanctioned country over the war، the Kremlin has cushioned the blow to its economy by boosting ties with China، India and other countries that have stayed neutral.

Blacklisting by the FATF، however، would make it extremely difficult for these countries to continue doing business with Russia، and would intensify the economic pain for the Kremlin.

The sectors Russia identified as at risk are particularly sensitive in the strategic partnership with India. Russia is India’s largest provider of weapons though defense supplies have stalled for lack of a payment mechanism that doesn’t violate US sanctions.

Cheap Russian oil

India has also scooped up cheap Russian oil after the US and its allies imposed a price cap and Europe rejected supplies.

Another 23 countries are on the FATF’s “gray list،” including Albania، Turkey، South Africa and the United Arab Emirates. A report by the International Monetary Fund in 2021 found that being gray-listed، which comes with closer monitoring requirements، results in a “large and statistically significant reduction in capital inflows.”

Senior Russian officials have corresponded with counterparts in partner governments asking them to oppose any such proposals، said other people with knowledge of the situation، who asked not to be identified as the matter is sensitive.

Russia warned that being on the “gray list” would make it hard to fulfill commitments on weapons supplies and other projects to India، said an official with knowledge of the situation. Moscow has repeatedly appealed to Delhi for assistance at meetings of the watchdog since the invasion، the official said.

Special credibility

Russia noted in a document in early May that India held “special credibility” within the FATF and it was regrettable that Delhi didn’t speak up to oppose Russia’s suspension.

The Paris-based FATF said Moscow remained “accountable” for implementing the organization’s standards after its suspension and that the body would consider whether to lift or modify the restrictions at every plenary meeting.

Ukraine welcomed the suspension and said it would continue to push for Russia’s inclusion on the black list. Russia’s ambassador to the US called it a dangerous step that could lead to the destruction of the global architecture for countering the financing of terrorism.