Article by: Olena Makarenko
The cards of the international payment system Visa are now operating in occupied Crimea. This news appeared on the site of Russia’s Genbank on 20 January 2016. It states that Visa cards will be accepted both for payment and cash withdrawal. However, the bank itself is under sanctions of U.S. Department of The Treasury and Visa together with MasterCard officially stopped working on the peninsula a year ago. How did this operation become possible?
Genbank is a Russian bank which started operating in 1993. On 1 March 2015, the bank’s assets amounted to over RUB 18 bn (USD 229.86 mn), own capital – RUB 1.95 bn (USD 24.9015 mn). At the end of 2014, Genbank‘s net profit was RUB 305 mn (USD 3.89 mn).
Now the bank describes itself out as “a base bank of the Crimean government (in August 2015, the executive authorities of the Republic of Crimea and the city of Federal significance Sevastopol became 50% of the shareholders of JSC Genbank) […] Today on the peninsula over 170 branches have been opened, the bank has more than 580 ATMs and 960 POS terminals.”
When the self-proclaimed government of Crimea received 50% of nominal capital of the bank, Sergey Aksyonov, the “prime-minister” of Crimea said that “authorities” of Crimea use equity participation in the nominal capital of Genbank for the development of new banking products, including loans for small businesses. The bank activities in occupied Crimea could not have been left unnoticed.
International payment systems Visa and MasterCard refused to operate with Russian banks in occupied Crimea already in December 2014. However, Russia found a way to work with the cards and avoid sanctions: by creating the inner National System of Payment Cards (NSPK). Banks should have transferred the traffic to NSPK by 31 March 2015.
MasterCard passed traffic in time, but Visa only on May 27. Formally, the traffic was handed over the cards of both systems, but, according to Russian media, only MasterCard worked in Crimea.
Visa was promised that problems with its operation would be resolved in the nearest feature. It’s noteworthy that MasterCard and Visa use different technologies of transmitting information, according to the Russian outlet Vedomosti referring to the words of an employee of a large bank. According to him, with MasterCard, it was easy, but to start operations through NSPK by Visa, sanctions banks had to “crack” Visa files and NSPK learned to do it only at the end of 2015. “Banks which are under sanctions are served under such scheme,” concluded the employee.
Such an approach is dangerous for banks through which an international payment system is connected. International payment systems can send a notification to a principal bank that its partner bank violates sanctions, and the former may stop or reduce cooperation.
Overall, information about the operation of MasterCard on the peninsula is contradicting. In the end of May 2015, Russian media hurried up to inform that it works, but some sources wrote about complaints of people who did not manage to receive their money using the card.
At the end of December 2015, the USA released its new list of sanctions. As Genbank was in it, international payment systems Visa and MasterCard stopped working with the bank. In fact, it does not matter anymore if the system of NSPK really works. So that the happy message of “Genbank” on it’s site appeared because of solving technical problems with VISA and NSPK which they faced before the new sanction least appeared.
Visa started to work in Crimea only now because its traffic was not fully localized before. “When Genbank‘s transaction data was transmitted from Crimea to the NSPK, it did not pass because NSPK sent a part of the information to Visa and it blocked the operation,” a banker told to Vedomosti. Also, according to Kommersant journalists, the new list of sanctions even accelerated the process of finding new ways to work with Visa, as before the operations were conducted not fully bypassing Visa and the difficulties with cards of Russian banks could appear only abroad.
Now the message of Genbank states:
“1. In all trade and service enterprises connected through JSC Genbank Visa cards of all Russian issuing banks are accepted within the National System of payment cards;
2. In all cash machines of Genbank Visa cards of all Russian issuing banks under the National System of Payment Cards are accepted.”
The question which remains is: if the system of NSPK really works, how can sanctions against Russian banks be implemented in practice?