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VTB to Stop Services for U.S. Taxpayers in Russia on Risks

VTB Group, Russia’s second-biggest lender, will wind down banking services to U.S. taxpayers in the former Soviet republic because of a requirement to report details of these accounts to the American authorities.

The state-controlled banking group, which has about 2,000 clients paying U.S. taxes, including businesses and individuals, will not renew contracts in order to minimize the risk of penalties, though it will continue servicing existing accounts, a VTB spokesman said by phone, asking not to be identified because of bank policy. OAO Sberbank, its larger competitor, said it plans to maintain services.

VTB fell 5.2 percent in Moscow, the biggest drop in three months. Sberbank declined 0.4 percent.

U.S. authorities sparked protests from the French government this week after seeking a potential fine of as much as $10 billion for BNP Paribas SA to settle allegations it breached economic sanctions against Iran and Cuba. VTB Chief Executive Officer Andrey Kostin in April said U.S. regulators were being deliberately uncooperative as his bank worked to comply with a requirement to report details of the accounts and transactions of their American customers.

‘Financial Weapon’

Starting in March, the U.S. and the European Union have imposed a series of sanctions against Russia over the annexation of Ukraine’s Crimea Peninsula and the rebellion by pro-Russian separatists in the southeast of the country. VTB has the biggest Wall Street operation of any Russian bank, leaving it vulnerable to U.S. measures.

The Group of Seven leading economies yesterday put off the threat of further sanctions, including those that would target the Russian economy, calling on the Kremlin to convince the separatists to lay down their weapons. Russia has made some concessions in recent weeks, pulling troops back from the Ukrainian border and recognizing the election of Petro Poroshenko as president.

In April, Kostin accused the U.S. of using a “financial weapon” to achieve political goals after Visa and MasterCard cut Bank Rossiya off from their systems following U.S. sanctions on the lender controlled by Yury Kovalchuk, a billionaire associate of Putin.

“The U.S. authorities are forcing Russian banks to participate in this process singlehandedly, which is expensive and difficult to carry out,” Kostin said in a newspaper interview. The U.S. Internal Revenue Service has required VTB to register U.S. taxpayer accounts for the Foreign Account Tax Compliance Act, the bank said.

Sberbank has registered fully with FATCA, “obtaining full status,” Bella Zlatkis, deputy CEO of the state-run bank, told reporters on June 3.

Kostin, a former Soviet diplomat in London, has warned that Russia is in a Cold War with the U.S. and Europe and all of its banks could face sanctions.

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