The US Treasury Department’s Office of Foreign Assets Control (OFAC) has threatened other countries that the opening of branches or subsidiaries of Russian banks abroad could be an attempt by Russia to evade sanctions imposed over the war in Ukraine.

OFAC warned foreign banks to exercise caution when dealing with newly opened foreign branches or subsidiaries of Russian financial institutions.

This warning includes entities not subject to US sanctions.

Foreign financial institutions dealing with such branches or affiliates should consider that they present significant sanctions risks, including account services, funds transfers or payments, trade finance, and other services such as insurance,’ the statement said.

However, it noted that transactions related to food, agriculture, medicine, energy, and telecommunications are still permitted activities.

OFAC stressed that the Treasury Department ‘has a number of tools at its disposal to thwart Russia’s attempts to finance its defence industry’. One such tool is the Bank Secrecy Act (BSA).

In 2021, the US amended the BSA to empower US regulators to request information from foreign banks with correspondent accounts in the US about any account, including information stored overseas, as part of investigations.

“OFAC’s new warning will lead to an expansion of the practice of closing accounts and suspending other related financial services,” said investment banker Yevgeny Kogan on his Telegram channel.

“The US Treasury has scared everyone so much that it now resembles racial discrimination. There are cases of reluctance to do business with people who do not live or work in Russia, but who also have a Russian passport or whose place of birth is listed in foreign citizenship as the Russian Federation/USSR,” Kogan added.

The Federal Reserve’s preferred measure of inflation held steady at 2.5 per cent in the 12 months to July, according to data released on Friday that could pave the way for the Fed to start cutting interest rates next month.

The Fed’s target for the headline personal consumption expenditure (PCE) index is 2 per cent annually. Core PCE, which strips out volatile food and energy costs, came in at 2.6 per cent, below expectations of 2.7 per cent.

The figures from the Commerce Department came after Fed chairman Jay Powell said last week that it was “time” to start cutting interest rates as inflation fell and the labour market slowed.

The core PCE data, which is expected after yesterday’s strong US growth data, plays an important role in the Fed’s assessment of inflation.

In the US, personal spending rose by 0.5% in July, in line with expectations, and personal income rose by 0.3%, slightly above expectations of 0.2%.

Core PCE measures the rate of inflation faced by consumers when purchasing goods and services, excluding food and energy prices.

US government bond prices fell slightly following the release of the data. The yield on the two-year Treasury note, which rises when prices fall, rose 0.03 percentage point during the day to 3.92%. The S&P 500 was up 0.7% shortly after the opening bell on Wall Street.

Eurozone inflation fell sharply in August to 2.2 per cent, the lowest level in three years.

The rate reinforced expectations that the European Central Bank (ECB) will cut interest rates next month.

Friday’s preliminary figure was in line with the 2.2 per cent forecast in a Reuters poll and below last month’s rate of 2.6 per cent.

The Eurostat data came after Germany and Spain this week reported sharper-than-expected declines in August.

France also reported on Friday that inflation fell to 2.2 per cent, but the figure was higher than expected and some economists attributed the drop to price pressures from the Paris Olympics.

The US Democratic Party’s 2024 platform mentions Europe at the start of its foreign policy section and outlines the party’s Indo-Pacific posture, after highlighting US success in rallying allies against Russia.

The final section of the 90-plus page document, ‘Strengthening American Leadership Around the World’, includes Europe as the first section heading. This is followed by the Indo-Pacific, China, the Middle East and North Africa, the Western Hemisphere and Africa. The 2020 platform had organised these regions in alphabetical order as follows: Africa, the Americas, Asia-Pacific, Europe and the Middle East.

Ivo Daalder, CEO of the Chicago Council on Global Affairs and former US ambassador to NATO under the Obama administration, told Nikkei Asia in an interview that the new platform reflects the thinking of President Joe Biden, whom he described as ‘the last Atlanticist’.

Harris’ foreign policy in the hands of ‘Atlanticists’

“If you go through all of his statements on foreign policy, he talks about alliances, and he puts it in the context of NATO first, and then in the context of everything that is being done in the Indo-Pacific,” Daalder said.

Vice President Kamala Harris, the new Democratic presidential candidate, will be advised on national security by another ‘Atlanticist’, Philip Gordon, who served in the Obama administration as assistant secretary of state for European and Eurasian affairs, Daalder said, adding that there will be a ‘conscious effort to bring the Indo-Pacific and the Atlantic together in addressing global challenges, such as strategic competition with Russia and China, and not try to play one off against the other’.

The emphasis on Europe is causing concern among some foreign policy and security analysts, who fear it will diminish interest in Asia.

Japanese uneasy about return to Europe

For example, Koichi Isobe, a retired three-star general from Japan’s Ground Self-Defence Force, argued that Harris’s foreign policy priorities were not clear.

‘From Japan’s perspective, we understand where former President Donald Trump stands on national security and China. The same is not true of Harris,’ Isobe said.

Noting that the bilateral alliance had made ‘tremendous progress’ under Biden, Isobe said the platform suggested that Harris’ Asia policy could be similar to that of the Obama administration, which floated the idea of a ‘pivot to Asia’ but failed to implement it.

The failed ‘Asia Pivot’ policy

In their recent article ‘The Lost Decade: The US Pivot to Asia and the Rise of Chinese Power’, foreign policy analysts Robert Blackwill and Richard Fontaine describe the failure of successive US administrations to stick to the ‘Asia Pivot’ strategy as one of the three biggest foreign policy blunders since the Second World War, along with the escalation in Vietnam in 1965 and the invasion of Iraq in 2003.

Speaking at a Chicago Council on Global Affairs online event last month, Blackwill said that while the US has been distracted by the Middle East and other regions over the past decade, China has made ‘an astonishing rise in power and influence in the Indo-Pacific and then globally’.

The ‘pivot to Asia’ strategy, first outlined by then-Secretary of State Hillary Clinton in 2011, was a ‘radical’ shift, Blackwill said, adding that ‘for the first time in American history, Europe is no longer the top priority of American foreign policy’.

Reaction from Trump’s foreign policy adviser

Former Pentagon official Elbridge Colby, who is expected to play a key national security role in a possible second Trump administration, tweeted that prioritising Europe was the wrong foreign policy for America and that the US should prioritise Asia and China.

“This is asking for trouble,” Colby wrote, quoting vice-presidential candidate JD Vance as saying the US would prioritise Asia and China.

Democrats’ China policy: ‘Tough but smart’

The 2024 platform was adopted last Monday at the Democratic National Convention.

The platform is a compilation of domestic and foreign policies that could help shape Harris’ presidency if he wins the election in November.

“During President Biden’s first term, no region of the world has better demonstrated the importance of our alliances than Europe,” the foreign policy chapter says, describing NATO as ‘stronger and more united than ever’ after Sweden and Finland joined the alliance.

The chapter also notes that the transatlantic alliance will play a key role in responding to China. It states that Biden is ‘working with our European allies to manage competition with China’.

During President Biden’s first term, no region of the world has better demonstrated the importance of our alliances than Europe,” the foreign policy chapter says, describing NATO as “stronger and more united than ever” after Sweden and Finland joined.

The chapter also notes that the transatlantic alliance will play a key role in responding to China. It states that Biden is ‘working with our European allies to manage competition with China’.

The section on China describes the country as ‘America’s most important strategic competitor’ and the only global actor with the intent and capacity to fundamentally reshape the US-led international order.

Nevertheless, a Democratic presidential administration would ‘responsibly manage’ competition with the country and cooperate in areas such as the safe use of artificial intelligence. The platform states that it ‘does not seek conflict’ with China.

It refers to Biden’s ‘tough but smart’ China policy, which ‘relentlessly advances American interests and values while providing a foundation for stability in the relationship’.

On Taiwan, the foreign policy section sticks to Biden’s basic position on the island, stressing that the party will ‘ensure that there are no unilateral changes to the status quo by either side’.

Trump criticised over Iran

On Ukraine, the platform stresses that Russian President Vladimir Putin ‘miscalculated with his invasion’ and notes that the United States has brought together a coalition of nearly 50 countries to provide security assistance to Ukraine to enable it to defend itself.

The platform also presents a more nuanced approach to Iran than Trump’s ‘maximum pressure’ approach. In this context, the number of sanctions has increased from 370 under the Obama administration to more than 1,500 under the Trump presidency.

While stressing the need to confront and ‘deter’ Iran and prevent it and its ‘terrorist proxies from threatening regional security’, he criticised Trump’s move to withdraw from the Iran nuclear deal in 2018 as ‘reckless and short-sighted’ and a ‘costly mistake’.

This was in line with Gordon’s long-standing views on the region. In his 2007 book Winning the Just War: The Path to Security for America and the World, Gordon wrote that both containing and engaging Iran was the right way forward.

Gordon urged the United States to build a ‘serious relationship’ with Iran in a way that respected its ‘legitimate interests’.