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2022.08.04 08:00

Fears of another Kaliningrad transit crisis as Lithuanian banks halt Russian payments

Lithuanian Railways resumed transportation of goods between mainland Russia and Kaliningrad last month, following a bitter stand-off between the EU and Moscow. Now, Lithuanian banks plan to stop processing all payments from Russia – including those for the Kaliningrad transit, leading to fears of another crisis.

Šiaulių Bankas currently remains the only financial institution through which Russia can pay Lithuanian Railways for transporting goods to and from Kaliningrad. However, the bank recently announced it would stop processing these payments as of September.

Last week, the Russian envoy delivered a note to Lithuania’s Foreign Ministry about it.

“I personally handed over a note on Šiaulių Bankas: please clarify, there is still time until September 1, after all you have solved the Kaliningrad transit issue, you have removed all tensions. [...] Then why are you preparing a second blow to cargo transit?” Sergey Ryabokon, Moscow’s acting chargé d’affaires in Lithuania, told the Russian media.

The Foreign Ministry initially said little about the issue, but on Tuesday, Foreign Minister Gabrielius Landsbergis commented further.

Read more: Russian envoy hands note to Lithuania over Kaliningrad transit payments

“We have received the note, read it and forwarded it to our colleagues in the Ministry of Transport and Communications. Sanctions in the field of transport to any extent are the responsibility of the Ministry of Transport and Communications,” he said.

He added that Ryabokon raising the issue in the media was another attempt by Moscow to escalate tensions over the Kaliningrad transit.

“Diplomatic notes are delivered frequently. Not all notes are discussed in the media. So I understand that there is an opportunity here to create an impression of pressure by using you [the journalists] to put pressure on the government,” Landsbergis said.

Transport Minister Marius Skuodis commented that the issue is between Russia and private banks.

“The state cannot force banks in any way, it will depend on their own decisions,” the minister told LRT RADIO on Wednesday.

Later the same day, Skuodis said the country's financial crime watchdog will play an important role when banks decide on whether to service payments from Russian firms.

"Since the the FNTT [Financial Crime Investigation Service] is responsible for the implementation of financial sanctions, their say is crucial. The position of the Ministry of Transport and Communications and the Ministry of Foreign Affairs and other ministries is important, but the FNTT is in control," he told reporters in Vilnius.

He added, however, that the ministry believes the payments should be allowed. Skuodis also called the existing situation confusing due to the constantly changing implementation of the sanctions.

"I cannot guarantee that something is not going to get stuck at any time because the sanctions are ever-changing, and the ownership of legal entities and beneficiaries change. If the EU does not change the sanctions, it doesn't mean other jurisdictions don't change them. The situation will be confusing, and we have to recognize that ", Skuodis said.

Read more: Russia exploits media interest in Kaliningrad issue, says Lithuanian FM

However, not everyone is so nonchalant. Opposition parties say this is potentially yet another looming foreign policy crisis this government is walking into.

“This is the second time we have stepped on the same rake, where first we leave it to the companies to decide, to Lithuanian Railways or individual banks, and then we have to change these decisions,” said Juozas Olekas, former defence minister and currently a social democratic member of the European Parliament.

While banks say they are stopping transactions with Russia in order to comply with EU sanctions, exceptions can be made when payments are made to ensure state functions.

“We are currently cooperating with the relevant authorities to clarify whether we can classify the transit service as a state function, and then we will consider the possibility of granting an exemption for this service in accordance with the risks acceptable to the bank,” Šiaulių Bankas said in a comment.

The ruling conservatives insist, however, that this is Russia’s problem, not Lithuania’s.

“The Lithuanian government can forbid banks to do something, but it cannot tell them what to do,” said conservative MEP Andrius Kubilius, a former prime minister.

“Let them [Russians] look for other banks in the West. If Lithuanian banks see a risk in this, maybe other banks in other countries don’t see such a risk. Maybe Lithuanian banks would then accept payments from those other European banks,” Kubilius added.

However, according to Olekas, Moscow is not sending diplomatic notes to commercial banks, it is sending them to the Lithuanian government, which must have a policy and a plan how to deal with it, rather than just brushing it aside.

“If the banks have taken one decision now, and after a while another decisions will be taken, then it will be bad,” said Olekas.

President Gitanas Nausėda has also been mum on the issue. He was asked about it by reporters at the centenary celebrations of US-Lithuanian diplomatic relations on Tuesday. “On such a festive day, let’s not talk about these matters,” he replied.