JPMorgan, Goldman exploited ‘loophole’ in Russia sanctions: Lawmakers

A pair of Democratic lawmakers, Sen. Elizabeth Warren of Massachusetts and Rep. Katie Porter of California, are questioning whether Goldman Sachs and JPMorgan Chase are inappropriately exploiting a “loophole” in Russia sanctions.

In letters sent to the CEOs of both banks, the two lawmakers cited recent reports that the megabanks are buying up massive amounts of Russian sovereign debt, as well as debt from Russian companies tied to the government, to be resold to American-based hedge funds and other investors.

Goldman and JPMorgan have both announced plans to cease pursuing new business in Russia following the country’s invasion of Ukraine. But Warren and Porter argued that the secondary-market trades, which are legal under sanctions designed to cut Russia off from global financial markets, amount to war profiteering.

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“JP Morgan and Goldman Sachs, both of which won plaudits for winding down their operations in Russia, have engaged in the sales and trades of Russian debt on the secondary market, ‘pouncing on Russia’s cheap corporate debt’ to profit off of the war,” the lawmakers wrote in the letters, citing recent news reports.

The banks’ dealings “may undermine the work of the U.S. Treasury and the international community” to hold Russian President Vladimir Putin to account, Warren and Porter wrote.

The lawmakers acknowledged that the trading activity is legal because the sanctions framework does not bar secondary market deals with counterparties who are not subject to the restrictions and as long as the Russian sovereign debt was issued before March 1.

A JPMorgan spokesperson declined to comment. The nation’s largest bank by assets has previously stated that as “a market-maker, we have been helping clients reduce their risks and manage their exposures to Russia in the secondary markets. None of the trades violate sanctions or benefit Russia.”

Goldman Sachs did not immediately respond to a request for comment. During the first quarter, Goldman recorded a net loss of roughly $300 million as a direct impact from Russian and Ukrainian financial instruments.

“Our positions were relatively limited, but we've been focused on closing them out and reducing our exposure,” Goldman CEO David Solomon said during the company’s April 14 earnings call.

But Warren and Porter wrote that the volume of Russian corporate debt this year is trading at double the daily average rate from two years ago. And the $7 billion volume in Russian sovereign debt traded between Feb. 24 and April 7 was 35% higher than during the same period last year, according to the Democratic legislators.

The lawmakers asked each bank to detail how many trades they have facilitated since the Russian invasion began on Feb. 24 and to disclose the profits those transactions have yielded.