The Biden administration on Monday blocked Russia from paying holders of its sovereign debt more than $600 million from reserves held at American banks — ratcheting up the pressure on the Kremlin as it tries to avoid a bond default.
The move comes as images from Ukraine reveal horrific war crimes, including massacred civilians who are believed to have died at the hands of Russian soldiers.
On Monday, as the largest of the payments came due, including a $552.4 million principal payment on a maturing bond, the US government decided to cut off Moscow’s access to the frozen funds, according to a US Treasury spokesperson.
The move was meant to force Moscow to make the difficult decision of whether it would use dollars that it has access to for payments on its debt or for other purposes, including supporting its war effort, the spokesperson said.
Russia faces a historic default if it chooses to not do so.
“Russia must choose between draining remaining valuable dollar reserves or new revenue coming in, or default,” the spokesperson said.
An $84 million coupon payment was also due on Monday on a 2042 sovereign dollar bond.
Under sanctions put in place after Russia invaded Ukraine on Feb. 24, foreign currency reserves held by the Russian central bank at US financial institutions were frozen.
But the Treasury Department had been allowing the Russian government to use those funds to make coupon payments on dollar-denominated sovereign debt on a case-by-case basis.
JPMorgan Chase & Co., which had been processing payments as a correspondent bank so far, was stopped by the Treasury, a source familiar with the matter told Reuters.
The correspondent bank processes the coupon payments from Russia, sending them to the payment agent to distribute to overseas bondholders.
The country has a 30-day grace period to make the payment, the source said.
Last week, Russia again avoided a default on its foreign debt as the Kremlin transferred a $447 million bond payment.
The payment was processed by JPMorgan. It was then transferred to the admin agent, which in this instance is BNY Mellon, sources familiar with the matter told The Post.
Holders of Russian bonds received $87.5 million in coupons as well as $359 million in principal payments.
Since Russia was hit with sanctions, bond payments are taking longer to be processed through the system.
This is the second time in as many months that Russia avoided defaulting on its debt.
With Post wires