Report: Middlemen Handle 50% of Russia’s Payments to China

Sanctions on payments between China and Russia have reportedly created a thriving market for middlemen.

In fact, half of all payments by Russian companies for Chinese products are now handled by intermediaries, Reuters reported Friday (April 26), citing four sources.

As the report noted, the United States Treasury has warned it could impose sanctions on entities that facilitate transactions and have asked foreign banks to increase compliance.

With that thread in mind, Reuters said, banks in China have begun scaling back their dealings with Russian businesses, which in turn are scrambling to open accounts at the only Russian lender with a Chinese branch, leading to a bottleneck.

The sources — which include trade consultants, bankers and importers and exporters — said long transaction and shipment delays have seen businesses use intermediaries in spite of steep fees and risks of shipment seizures in third countries.

“There are a lot of [Russian] businessmen who just go from bank to bank, opening current accounts,” one of the sources told Reuters. “If their payment doesn’t go through, they go to the next one.”

Another source said many companies had begun using payment agents and creating chains of temporary companies, allowing payments to be processed much more quickly.

The middlemen are legal entities from Hong Kong, Kyrgyzstan, Kazakhstan, the United Arab Emirates and other countries seen as “friendly” to Russia, the sources said, using the Kremlin’s term for nations that have not issued sanctions due to Moscow’s war on Ukraine.

The news comes as the government is seeking more authority to sanction hostile foreign powers, particularly in the digital asset space.

Earlier this month, Deputy Treasury Secretary Adewale O. Adeyemo appeared before the Senate Banking Committee to ask lawmakers for greater agency to block terrorist groups and state actors for using things like overseas cryptocurrency exchanges to finance their causes.

“Our problem is that actors are increasingly finding ways to hide their identities and move resources using virtual currency,” Adeyemo said.

These groups consistently “seek new ways to move their resources in light of the actions we are taking to cut them off from accessing the traditional financial system,” he added.

And in March, the Treasury Department’s Office of Foreign Assets Control (OFAC) accused 13 Russia-linked FinTechs of using cryptocurrency to get around U.S. sanctions.

“Russia is increasingly turning to alternative payment mechanisms to circumvent U.S. sanctions and continue to fund its war against Ukraine,” Brian Nelson, under secretary of the U.S. Treasury for terrorism and financial intelligence, said at the time.