Deep into a seven-hour congressional hearing on Sept. 21, Representative Brad Sherman, a Democrat from California, pressed JPMorgan Chase & Co. CEO Jamie Dimon on whether his bank would sever ties with Russian companies including energy giant Gazprom PJSC, Bloomberg reported.

Banks like Dimon’s, Sherman argued, were exploiting a sanctions loophole to keep doing business in Russia despite its invasion of Ukraine.

"We are following the instructions of the American government as they asked us to do it,” Dimon responded before Sherman cut him off, setting his sights on Citigroup Inc.’s Jane Fraser with a similar inquiry.

The exchange put on display how the country’s largest banks are caught in the push-pull between the Biden administration and Congress on sanctions. Behind the scenes, the Treasury and State Departments have urged banking giants including JPMorgan and Citigroup to keep doing business with certain strategic Russian firms, according to people familiar with the situation.

The quiet effort is part of the administration’s push to minimize the adverse impacts of the sanction regime designed to punish Russia. While some in Congress pound the table for stronger measures against Russia, the administration is trying to hinder Russia’s advances while avoiding a global economic catastrophe.

“Congress needs to understand this -- the US government has not imposed a comprehensive embargo with Russia, there’s still pockets of business that are allowed,” Nnedinma Ifudu Nweke, an attorney who specializes in US economic sanctions and trade embargoes at Akin Gump Strauss Hauer & Feld LLP, said in an interview.

The Treasury Department “will continue to have meetings to educate banks on those pockets of allowable transactions, especially in the humanitarian space,” Nweke said.

The Biden administration has repeatedly said it wants banks and businesses to keep the money flowing to non-sanctioned sectors of Russia’s economy. But the extent of its conversations with the banks hasn’t been previously reported.

Treasury and State Department officials have called on lenders to continue offering basic services such as US dollar settlement, payment transfers and trade finance offerings for those Russian companies exempt from certain aspects of sanctions such as Gazprom or fertilizer producers Uralkali PJSC or PhosAgro PJSC, the people said.

The back and forth highlights the balance both banks and the government must maintain in denying President Vladimir Putin the money he needs to fund the invasion while stemming broader economic shocks.

Banks are expected to enforce restrictions by denying services to sanctioned banks, people and entities, and can be punished with multibillion-dollar fines for failing to comply.

At the same time, they’re also central to keeping money flowing around the globe, even as they’re largely retreating from Russia.

At Citigroup, executives have spent months scaling back operations in Russia, offloading derivatives and trimming its overall exposure to the country to $7.9 billion by Sept. 30, from $9.8 billion at the start of the year.

Long before the invasion, Citigroup had announced it intended to exit consumer banking in Russia. In August the company said it would wind down those operations along with its commercial-banking division. Fraser followed that up with an announcement last month that Citigroup would also wind down its institutional operations in Russia.

“We have been supporting our multinational clients in Russia,” Fraser said last month. “We are now informing them that we will be ending nearly all of the institutional-banking services we offer by the end of the first quarter of next year. At that point, our only operations in Russia will be those necessary to fulfill our remaining legal and regulatory obligations.”

JPMorgan, similarly, began pulling back from most of its Russia operations after the invasion, though the company said “limited activities” would continue.

Representatives for Citigroup and JPMorgan declined to comment, while a spokesperson for Sherman’s office didn’t have a comment when reached by phone. A Treasury Department spokesperson said the department has issued guidance to the banking industry to make sure that activities for humanitarian aid, energy and agriculture are authorized.

Image courtesy: Bloomberg