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Top US official warns Austria over banking with Russia

FILE PHOTO: The U.S Treasury building in Washington.

By Alexandra Schwarz-Goerlich and John O'Donnell

VIENNA (Reuters) -A top U.S. sanctions official will this week warn Austria and Raiffeisen Bank International of the dangers of doing business in Russia, piling pressure on the biggest Western bank there.

As part of a renewed push by Washington on sanctions enforcement, Anna Morris, a U.S. Treasury official focused on illicit money flows, will encourage banks in Austria to examine their Russian exposure and "take mitigation measures".

Morris will speak about a new U.S. sanctions authority that "heightened risks for banks" and encourage them to "protect themselves from trade related to Russia's military industrial base, or risk being cut off from the U.S. financial system," the U.S. embassy in Vienna said on Wednesday.

The United States is the globe's most powerful regulator chiefly because it can sever a bank's access to the dollar, a cornerstone of international finance. Losing access to the dollar would be likely to plunge any bank into a crisis.

Morris is the latest U.S. official to visit Austria, one of the European countries with the closest ties to Russia. Her stark warning represents another attempt to pressure RBI, which processes large volumes of payments to and from Russia.

RESISTANCE

The visit follows an executive order from U.S. President Joe Biden last December threatening penalties for financial institutions that help Russia skirt sanctions.

A spokesperson for Austria's finance ministry said the Morris would visit government authorities and companies to talk, in general, about money laundering and sanctions.

RBI, part of an industrial combine that underpins Austria's economy, said that it often discussed sanctions with regulators and that it always respected such rules.

Washington is facing stiff resistance from Austrian politicians and officials, some of whom have defended RBI.

Although Austria publicly supports Ukraine, several officials who spoke to Reuters have said they are reluctant to completely sever decades-old ties with Russia, thinking it will still be possible to restore relations.

Recently, Austria pressured Ukraine to suspend RBI from a Ukrainian blacklist, holding out on backing fresh European Union sanctions on Russia until they did, people familiar with the situation have told Reuters.

Austria and the bank wanted it to be taken off a Ukrainian list dubbed "international sponsors of war" - which sets out to shame companies doing business in Russia and supporting the war effort by, for instance, paying taxes.

Vienna remains a hub for cash from Russia and its former Soviet neighbours and Austria maintains close ties with Russia through critical gas pipelines and finance.

Although Italy's UniCredit also has a business in Russia and is similarly reluctant to leave, RBI is far larger and has become a test of western resolve to end ties with Russia.

RBI had intended to spin off its Russian business, which provides a payment lifeline to hundreds of companies there, after coming under pressure from international regulators. But two years into war, little has changed.

Russian authorities had made it clear to RBI, which has around 2,600 corporate customers, 4 million local account holders and 10,000 staff, that they wish it to stay because it enables international payments, one source told Reuters.

RBI's presence in Russia has proved divisive within its management as well as among the regional Landesbanks that control it, with some advocating the bank leaves.

(Editing by xxxxxx)