It takes time to mitigate sanctions.
Any bank using CIPS to circumvent Swift would also face the risk of secondary sanctions, said Nicholas Turner, a lawyer at Steptoe & Johnson LLP. “A secondary sanction applies to pretty ordinary commercial activity,” he said.
One longer-term option, if Western sanctions stay in place and cause long-term damage to the Russian economy and China’s strategic interests, would be for Beijing to tap smaller lenders to deal with Russia.
“It’s very easy to create a lot of single-purpose banks just to engage in sanction evading activities to help China’s friends,” said Prof. Chen. “If the conflict in Ukraine lasts for a few years, a number of such small single-purpose banks could be created as vehicles.”
Some small Chinese banks have previously facilitated trade with sanctioned countries such as North Korea and Iran.
In 2009 the oil major China National Petroleum Corp. bought a Xinjiang-based commercial bank, which was later renamed Bank of Kunlun. After that, the bank relied on deposits and other businesses from the CNPC family of companies, according to its annual reports.
In 2012, the Treasury Department sanctioned Bank of Kunlun, together with an Iraqi bank, for helping Iranian banks move millions of dollars, and barred it from accessing the U.S. financial system. Bank of Kunlun has in recent years wound down its activities in Iran, as China diversifies its energy sources.
“Even if Kunlun Bank is sanctioned by the U.S. and other countries, what’s the damage? Nothing. You have no business in any of the developed countries to begin with,” said Prof. Chen, who was an independent director of
, the listed arm of CNPC, between 2011 and 2017.