Kyrgyzstan Prohibits Payment Transfers With Russian Banks

Beginning on August 19th, several banks in Kyrgyzstan announced they will no longer process money transfers to Russian banks using mobile apps. The announcement comes after Kyrgyzstan’s Elkart Interbank Processing Center said that the country’s banks will no longer process transactions with Russian Mir payment cards in early April because of Western sanctions..Ban on Mobile Transfers to Russian BanksOn August 16th, Kyrgyz MBank announced that the online bank stopped servicing money transfer transactions to and from Russia. The statement said that “money transfers via Russian banks, including Sberbank, Tinkoff, and MTS Bank, have been suspended in both directions” and will be “temporarily unavailable for an indefinite period.” However, Kyrgyzstan announced that incoming transfers can be made through banks that will not be subject to sanctions and using Russian Rubles. On August 20th, OJSC Keremet Bank said that money transfers using mobile applications to Sberbank, MTS Bank, Tbank (Tinkoff), and the country’s NSPK have been suspended “for an indefinite period.” However, the banks said that individuals could transfer money to Russia using five international money transfer systems: Astrasend, Golden Crown, Ria, Unistream, and Western Union. .Ten other Kyrgyz banks also announced the indefinite suspension of transfers to and from Russian banks using mobile applications because of sanctions against Russia. However, some of the banks said transfers to and from Russia are still possible using Moneygram, Unistream, Western Union, and Zolotaya transfer systems. The banks that announced the suspension of transactions are: Bakai Bank, Bank of Asia, Demir Bank, Dos-Credobank, Commercial Bank KSB, Eldik Bank, FinanceCreditBank, Optima Bank, Kyrgyzkommertsbank, and Kyrgyz Investment and Credit Bank. Three banks, however, still allow transactions to and from Russian banks. The banks are: Aiyl Bank, Eurasian Savings Bank, and Kompanionbank.The National Bank of Kyrgyzstan (NBK) said that commercial banks in the country “are required to comply with anti-terrorist financing and anti-money laundering legislation.” The statement said that banks are “responsible for the safety of depositors’ funds and are obligated to assess and minimize risks, including compliance with requirements in the area of combating the financing of terrorism and legalization of criminal proceeds.” Furthermore, the banks suspended the transfers “to mitigate any negative consequences of international sanctions” on the Kyrgyz banking system. The NBK said the measures are to mitigate risks posed by secondary sanctions; “control over clients and counterparties has been strengthened," and a check was carried out to ensure that they are not on the sanctions list.Previous Bans on Transactions and Transfers to Russian Financial InstitutionsThe suspension of money transfers to Russian banks is not the first time that Kyrgyz banks stopped processing transactions involving the country. In April 2024, Elkart Interbank Processing Center announced that Kyrgyz banks will no longer process transactions with Russian Mir payment cards because of Western sanctions enacted against the country for its invasion of Ukraine. In early June, several Kyrgyz banks enacted a temporary restriction on accounts and cards that use Rubles, which resulted in the suspension of replenishment, transfers, and currency conversions. The banks said they introduced the restrictions because of the exchange rate’s volatility and the potential for “sharp fluctuations in the currency market.” However, the banks enacted the restriction one day after the European Union and the United States issued new sanctions against Russian companies and individuals. The sanctions negatively affected the Moscow Exchange, which suspended trading and settlements in both US Dollars and Euros..Sanction Compliance Illustrate How Central Asia is Reorienting Its Financial Relationship with RussiaKyrgyzstan suspending money transfers and transactions against Russian financial institutions shows the country’s willingness to enact measures to prevent it from being affected by Western sanctions. However, the suspensions also show how the Central Asia region is reorienting itself to decrease its reliance on Russia. Kyrgyzstan complied with various western sanctions against Russian banks and Mir payment cards to reduce its exposure to the same sanctions. The country knows that any sanctions would adversely affect its banks and its financial system, so it sought to mitigate this risk. The government decided that it would rather risk angering Russia instead of facing sanctions for continuing to process the transactions. However, Kyrgyzstan likely hedged its risk of angering Russia by having three banks continue to process transfers and other transactions with the country. This course of action also allows Kyrgyz migrant workers to continue to send remittances and other funds back to the country because it makes around 30 percent of its GDP.The suspensions illustrate the larger effort by the countries in the region to mitigate the risks associated with having relations with Russia after the 2022 invasion of Ukraine. Kyrgyzstan was not the only country to order banks to comply with Western sanctions against Russian financial institutions. Kazakhstan, Tajikistan, and Uzbekistan ordered their banks and other financial institutions to suspend processing payments using the Mir card, stop money transfers, and divest from Russian securities beginning in 2022. The countries complied with the sanctions against Russian banks because they feared that their banking systems would be negatively affected by the sanctions. However, the region's compliance with western sanctions shows a reorientation of Central Asia towards engagement with other countries such as China, France, the United States, and the UK in an effort to decrease its dependence on Russia. The rationale behind this pivot is to decrease the potential for sanctions while increasing economic and diplomatic opportunities.Another reason is that these countries also fear that Russia would use the same argument it used to invade Ukraine to justify aggressive actions. Russia dominated Central Asia from the mid-18th century until the end of the Cold War. However, Russian President Vladmir Putin justified Russia's invasion of Ukraine by saying the country was historically part of Russia and that there is no Ukrainian culture. The countries in Central Asia are concerned that Russia could justify any actions against them using a similar argument because they have historical and cultural ties with the country. Kazakhstan is very concerned because it has the most russified culture in the region. The country is also concerned because it shares a long border with Russia, which would allow it to invade with relative ease. Kyrgyzstan is concerned because it shares significant ties with Russia, but more importantly, Russia maintains a military base in the country.