In a significant escalation of its sanctions regime against Russia, the European Union has moved to sanction two Chinese banks believed to be facilitating Moscow’s efforts to bypass international trade restrictions. The proposal, still pending approval by all 27 EU member states, marks the bloc’s first direct move against Chinese financial institutions in the context of the Ukraine war. These banks, though small and regionally based near the China-Russia border, are accused of playing a critical role in enabling sanctioned Russian entities to access international markets and financial services.
According to internal EU documents seen by multiple media outlets, the two banks allegedly processed transactions and offered export financing mechanisms that allowed Russian firms to continue trade activities in violation of European sanctions. They are also suspected of providing crypto-related services to obscure the origins of funds, a method increasingly used to sidestep traditional compliance frameworks.
This proposal is part of the EU’s 18th sanctions package—a sweeping new round of measures designed to tighten restrictions on Russia and eliminate remaining loopholes that allow financial and industrial support to flow to the Kremlin.
Part of a Broader, More Aggressive 18th Sanctions Package
Since the full-scale Russian invasion of Ukraine began in February 2022, the EU has gradually intensified its sanctions framework, rolling out multiple packages targeting nearly every aspect of the Russian economy. The 18th package, now under negotiation, represents a notable shift: it targets not just Russian institutions and companies but foreign entities allegedly enabling Russia’s wartime economy. In this case, Chinese financial institutions are front and center.
European Commission President Ursula von der Leyen said the latest measures were intended to close persistent gaps in enforcement, especially regarding third-country actors.
“Our sanctions must be effective not just on paper but in practice. That means cutting off all remaining financial lifelines Russia has through indirect channels,”
she stated during a press conference in Brussels.
This new sanctions round includes further restrictions on Russian banks, extended bans on dual-use exports, and tighter controls on maritime operations, particularly crude oil shipments. However, the most politically sensitive element by far remains the targeting of Chinese financial entities—an unprecedented move that could have implications well beyond Europe’s eastern borders.
Chinese Banks Accused of Quietly Sustaining Russia’s Trade
Though the EU has not officially disclosed the names of the banks in question, sources familiar with the matter report that both are small institutions operating close to China’s border with Russia. These banks, the EU alleges, have been instrumental in helping Russian companies gain access to trade financing, conduct cross-border payments, and receive logistical support despite existing restrictions. Their regional size does not diminish their significance; their strategic location and specialization in border trade make them critical to Moscow’s evasion tactics.
Leaked documents show that the banks were involved in structuring financial services that allowed Russian firms to route funds through intermediary entities and convert them into crypto assets—a rapidly growing method of sanctions evasion. The use of digital currencies complicates monitoring, as blockchain systems offer pseudo-anonymity and cross-jurisdictional reach.
A senior EU official, speaking anonymously due to the sensitivity of the negotiations, explained the logic behind the inclusion:
“We are not targeting China as a country, but specific actors that are knowingly helping Russia to circumvent our laws. These banks have become conduits for illicit finance.”
China Denounces the Move, Citing International Law
Beijing responded sharply to the EU’s proposal. During a regular briefing, Chinese Foreign Ministry spokesperson Lin Jian condemned the draft sanctions and warned of their potential impact on global trade stability.
“We firmly oppose illegal unilateral sanctions and long-arm jurisdiction. These measures are not mandated by the United Nations Security Council and are therefore a violation of international law,”
Lin stated, adding that China reserves the right to respond as necessary.
Lin also emphasized that China maintains normal trade relations with Russia and that such relations are
“lawful, open, and transparent.”
The government argued that third-party punitive measures would not only harm Chinese entities but also
“undermine trust and cooperation”
in global trade systems.
Beijing’s reaction reflects the broader tension between Western sanctions frameworks and the geopolitical stance of China, which has refused to condemn Russia’s invasion of Ukraine outright and instead positioned itself as a neutral actor. However, data from 2023 and early 2024 show a sharp rise in exports from China to Russia, including technologies and components with potential military applications.
Implications for EU-China Relations
The inclusion of Chinese financial institutions in the EU sanctions list signals a turning point in Europe’s approach to enforcement. Previously, the bloc avoided directly targeting Chinese entities out of concern for diplomatic fallout and economic retaliation. China remains the EU’s largest trading partner, and many member states maintain strong bilateral economic ties with Beijing.
The proposal still needs unanimous approval from all EU member states, and early indicators suggest it may face resistance from countries like Hungary and Germany, where Chinese investment plays a significant role in key industries. Despite these challenges, Brussels appears determined to send a clear message that sanctions evasion—no matter the source—will be punished.
An EU diplomat involved in the negotiations noted,
“If we don’t act now, we risk losing the credibility of our entire sanctions framework. This is about deterrence, not escalation.”
A Complex Financial Web and Evolving Evasion Tactics
The targeting of Chinese banks also reflects a growing awareness in Brussels of the sophistication of sanctions evasion tactics. Russia, under increasing international pressure, has leveraged decentralized finance, proxy traders, shell companies, and crypto-based mechanisms to maintain economic resilience. By sanctioning facilitators rather than just end-users, the EU aims to disrupt this web of illicit activity.
Recent investigations have also shown that Chinese entities have played a role in supplying Russia with semiconductors, drone components, and other high-tech goods that can be repurposed for military use. Although the Chinese government has denied direct military support, the evidence suggests a pattern of indirect assistance through commercial and financial backchannels.
This is where the role of small regional banks becomes critical. Their low profile and specialized services enable them to operate under the radar, facilitating trade that larger international institutions would typically flag and block due to compliance concerns.
A Sanctions Package with Far-Reaching Consequences
Beyond the proposed penalties against Chinese banks, the 18th sanctions package includes measures to disrupt Russia’s broader economic apparatus. These include:
- Lowering the oil price cap on Russian exports from $60 to $45 per barrel.
- Expanding the blacklist of dual-use items that can be diverted to military use.
- Targeting companies and vessels involved in the “shadow fleet” of oil tankers that mask the origin of crude to evade restrictions.
The package also introduces transaction bans for third-country institutions financing sanctioned Russian trade, meaning entities based outside the EU that facilitate Russian deals could find themselves cut off from European markets. This extraterritorial reach echoes similar tactics used by the United States and signals closer coordination between Brussels and Washington.
A Crucial Test for Europe’s Sanctions Credibility
As the EU continues refining its sanctions policy, the credibility of its enforcement mechanisms remains under scrutiny. Analysts warn that without concrete action against enablers—particularly outside Europe—Russia will continue to find ways to blunt the effect of Western restrictions.
“This move represents a necessary evolution in the EU’s sanctions doctrine,”
said a senior policy analyst at the European Council on Foreign Relations.
“Sanctioning Chinese banks carries risks, yes—but inaction carries even more.”
The final approval process is expected to be contentious, especially with rising global tensions and the economic complexities of punishing third-party actors. Yet the stakes are high: for the EU, this is not just about punishing Russia—it’s about preserving the integrity of a rules-based global economic system.
Drawing Red Lines in a Shifting Geopolitical Order
The EU’s proposed sanctions against two Chinese banks mark a bold and strategic step in the bloc’s ongoing efforts to enforce its Russia sanctions regime. By moving beyond domestic enforcement and signaling readiness to penalize foreign enablers, Brussels is expanding its toolkit to confront the realities of globalized finance.
Whether the proposal is approved in full remains to be seen. But its message is clear: no actor—state, private, or financial—should expect impunity if they assist in undermining international sanctions.
As the global community continues to grapple with the consequences of the Ukraine war, this latest development could have profound implications for the balance of economic power and the future of global sanctions governance.
