How Correspondent Banking Becomes a Sanctions Evasion Tool
A Chinese regional bank with deep ties to Central Asian economies illustrates how correspondent banking networks can help circumvent sanctions.
Zhejiang Chouzhou Commercial Bank, a regional lender based in China, has established significant presences across Kyrgyzstan, Mongolia, Kazakhstan and Uzbekistan — former Soviet republics that maintain close economic and trade relationships with Russia. That geographic footprint has drawn scrutiny from analysts and regulators examining how financial institutions operating in sanctions-adjacent corridors can facilitate the movement of money that Western penalties were designed to block.
Correspondent banking — the system by which banks hold accounts with one another to process cross-border transactions — is a foundational pillar of global commerce. But the same infrastructure that allows businesses to pay suppliers abroad can, when exploited, route funds through jurisdictions where enforcement of international sanctions is limited or inconsistent. Central Asia has emerged as a particular area of concern as Western governments have sought to curtail Russia's access to hard currency and foreign goods since the invasion of Ukraine.
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Institutions operating in multiple Central Asian markets can serve as intermediary nodes, giving sanctioned entities indirect access to dollar- or euro-denominated systems without triggering the filters that major Western correspondent banks apply. Regulators in the United States and Europe have intensified pressure on so-called gateway banks — smaller foreign lenders that maintain correspondent relationships with large Western institutions — to strengthen their due-diligence practices or risk losing access to the global financial system.
The case of Zhejiang Chouzhou underscores a broader challenge in sanctions enforcement: the gap between designating targets and actually cutting off their financial lifelines. As long as alternative correspondent pathways exist through third-country banks, the practical effect of sanctions can be diluted, requiring ongoing cooperation between Western regulators and the financial institutions that serve as the first line of defense.
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