By Timothy Gardner and Daphne Psaledakis

WASHINGTON (Reuters) -The United States imposed new sanctions on Russia’s Gazprombank on Thursday, the Treasury Department said, as President Joe Biden steps up actions to punish Moscow for its invasion of Ukraine before he leaves office in January.

The move, which wields the department’s most powerful sanctions tool, means Gazprombank cannot handle any new energy-related transactions that touch the U.S. financial system, bans its trade with Americans and freezes its U.S. assets.

Gazprombank is one of Russia’s largest banks and is partially owned by Kremlin-owned gas company Gazprom. Ukraine has been urging the U.S. since the February, 2022 invasion, to impose more sanctions on the bank, which receives payments for natural gas from Gazprom’s customers in Europe.

The sanctions came days after the Biden administration allowed Kyiv to use U.S. ATACMS missiles to strike Russian territory. On Tuesday, Ukraine fired the weapons, the longest range missiles Washington has supplied for such attacks on Russia, on the war’s 1,000th day. 

The Treasury also imposed sanctions on 50 small-to-medium Russian banks to curtail the country’s connections to the international financial system and prevent it from abusing it to pay for technology and equipment needed for the war. It warned that foreign financial institutions that maintain correspondent relationships with the targeted banks “entails significant sanctions risk.”

“This sweeping action will make it harder for the Kremlin to evade U.S. sanctions and fund and equip its military,” Treasury Secretary Janet Yellen said. “We will continue to take decisive steps against any financial channels Russia uses to support its illegal and unprovoked war in Ukraine.”

Gazprombank said Washington’s latest move would not affect its operations. The Russian embassy in Washington did not respond to requests for comment.

Treasury also issued two new general licenses authorizing U.S. entities to wind down transactions involving Gazprombank, among other financial institutions, and to take steps to divest from debt or equity issued by Gazprombank.

Gazprombank is a conduit for Russia to purchase military materiel in its war against Ukraine, the Treasury said. The Russian government also uses the bank to pay its soldiers, including for combat bonuses, and to compensate the families of its soldiers killed in the war.

The administration believes the new sanctions improve Ukraine’s position on the battlefield and ability to achieve a just peace, a source familiar with the matter said.

COLLATERAL IMPACT

While Gazprombank has been on the administration’s radar for years, it has been seen as a last resort because of its focus on energy and the desire to avoid collateral impact on Europe, a Washington-based trade lawyer said.

Douglas Jacobson, the lawyer, said other banks outside the U.S. financial system will be more hesitant to deal with Gazprombank.

Officials in Slovakia and Hungary said they were studying the impacts of the new U.S. sanctions.

President-elect Donald Trump would have the power to remove the sanctions, which were imposed under an executive order by Biden, if he wants to take a different stance, said Jacobson.

The Trump transition team did not immediately respond to a request for comment.

Edward Fishman, a former U.S. official now a research scholar at Columbia University, said Thursday’s action was an important step taking aim at Russia’s energy revenues.

“This signals that the Biden administration is actually serious about cutting off flows of funds to Russia for energy during the lame duck period, which is … a significant development,” Fishman said.

The Biden administration may take further actions before leaving office to toughen up the energy sanctions, Fishman said. “It’s a very big step, but I don’t think that it’s the last we’ll hear from the Biden administration on energy sanctions.”

(Reporting by Timothy Gardner, Daphne Psaledakis, additional reporting by Susan Heavey in Washington, Moscow bureau, Alexander Marrow in London, Jan Lopatkal in Prague; Editing by Katharine Jackson, Chizu Nomiyama and Angus MacSwan)

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