The European Commission has added Russia to its list of countries with strategic deficiencies in their anti-money laundering and counterterrorist financing frameworks: the European equivalent of the Financial Action Task Force (FATF) blacklist, which typically includes rogue states like Iran and North Korea. The decision was lobbied for by Kyiv, the European Parliament, and several countries in central and northern Europe, which wanted to see Brussels increase the pressure on Moscow amid the Ukraine negotiations to demonstrate that Europe’s sanctions arsenal is not yet exhausted.
In practice, however, this decision will not harm the Kremlin, nor the segment of Russian business fueling the war. For the Russian economy, which has been operating under unprecedented sanctions for three years now and has reoriented itself toward Asia, it will be a drop in the ocean. Instead, it will impact an entirely different group of people: Russian passport holders in Europe, and small and medium-sized companies that are simply attempting to conduct legal business.
The issue of including Russia in the FATF’s list of “high-risk third countries” has been under discussion for over two years. Ukraine and several central European countries have sought regulatory sanctions against Moscow from both the European Commission and the FATF: the main international organization fighting money laundering. Having failed to secure a blacklisting decision from the FATF, Brussels added Russia to its own.
The EU list doesn’t prohibit transactions with the countries included on it, but it does require time-consuming and complex enhanced due diligence (EDD). While standard customer due diligence (CDD) involves basic verification of a customer’s passport data, address, and source of income, EDD involves comprehensive and continuous monitoring, turning every transaction into a multilayered quest.
EDD includes several mandatory components, starting with additional identification procedures. Financial institutions are required to ascertain not only passport data, but also a full employment history, detailed source of funds, and beneficial ownership information for legal entities, as well as performing adverse media screening.
The second component is that all the levels of approval have to be done manually, rather than automated. This means that each transaction takes weeks instead of hours. Thirdly, regular updates are required: even if a client has already passed verification, the bank has to request new confirmation of the origin of funds for every significant transaction.
The European Union’s Fourth Anti-Money Laundering Directive makes EDD automatically mandatory for all clients from countries on the FATF or EU lists. Banks will often simply decline to enter into any dealings with such clients.
Nor will the consequences of the EU decision be limited to European territory, since the influence of European financial regulation extends to other countries through several channels. For a start, a number of countries are bringing their legislation in line with EU law as part of efforts to integrate with the organization. These include the Western Balkans, Ukraine, Moldova, and Georgia, for which the EU blacklist is de facto now their own blacklist.
Secondly, international banks with operations in Europe are forced to adhere to EU standards around the world in order to avoid the risk of fines and the loss of their European licenses.
Thirdly, the effect extends to former Soviet countries through which Russians still transfer money. Kazakhstan, Uzbekistan, and Armenia—all financial hubs for Russian capital—will now face a sharp tightening of requirements for clients with Russian citizenship. Banks in those countries, fearing secondary sanctions and problems in their correspondent relationships with Western banks, will likely be more careful when working with Russian clients, if not avoid them altogether.
The cryptocurrency industry was the last relatively accessible loophole enabling Russians to conduct cross-border financial transactions, but here too, European regulators are taking no prisoners. The EU’s nineteenth sanctions package adopted in October 2025 explicitly included crypto platforms on the sanctions list for the first time, prohibiting the provision of any cryptocurrency services to Russian nationals or residents, as well as legal entities registered there.
European branches of global crypto exchanges are required to comply with this ban. In the cryptosphere, EDD means detailed disclosure of the origins of crypto assets (which is practically impossible for legacy wallets), the constant monitoring of transactions to detect the use of mixers (services that mix cryptocurrency from various users to enhance transaction anonymity) and privacy coins, and blocking accounts on the slightest suspicion.
Following the adoption of the nineteenth sanctions package, Neobank Revolut began closing the accounts of Russians living in the EU—even those in possession of EU residence permits—citing the new restrictions. And after migrating from Bybit NL, Bybit EU began refusing to reverify clients with Russian passports, even if they had previously been verified using the same documents.
The paradox of the European Commission’s decision is that the main victims will not be those it formally targets. Major Russian businesses associated with the Putin regime have long adapted to sanctions with the help of complex schemes involving third countries, offshore companies, and nonpublic entities.
The real losers will be three categories of people and companies. The first is Russian nationals legally residing in the EU. Even with a residence permit or permanent resident status, they will face constant setbacks, from problems with money transfers and having their bank accounts closed to being unable to secure a mortgage or open a brokerage account.
The second category is small and medium-sized companies from Russia and the EU doing legal business that is not subject to sanctions. Interaction between them—already difficult due to stricter regulations—could cease entirely, as every transaction will now have to be accompanied by a huge amount of paperwork.
The third category is European tech startups with Russian founders or roots. The amount of paperwork they need to provide for each transaction will increase exponentially, which will inevitably impact their operating model.
Ironically, the EU’s decision could actually boost the shadow economy. When legal channels are blocked or made extremely difficult, people and companies inevitably turn to murky schemes: informal exchanges, shadow banking, and dubious crypto platforms without Know Your Client due diligence processes. Ultimately, this creates additional risks and makes the financial system less transparent.
The European Commission’s decision to blacklist Russia is clearly primarily political rather than economic. It serves the symbolic functions of demonstrating Western unity, satisfying European hawks, and creating the appearance of putting additional pressure on Moscow. But in practice, this new measure will affect neither the Putin regime nor businesses associated with that regime.
