Russian banks should beware blacklisted Syria banks -US official

* Syria's central bank, state-owned bank cited

* Official says US banks may shy away from Russians

By Arshad Mohammed

WASHINGTON, Jan 7 (Reuters) - Major Russian banks should
beware dealing with two blacklisted Syrian financial
institutions, a senior U.S. Treasury official said, saying U.S.
and other banks could shun them as a result.

The U.S. Treasury believes Russian banks continue to deal
with Syria's central bank and with the Commercial Bank of Syria,
a state-owned Syrian financial institution, both of which have
been blacklisted by the United States, the official said.

The official, who spoke to Reuters late Friday on condition
of anonymity, declined to identify the major Russian banks
concerned and his comments appeared aimed as much at them as at
U.S. and other financial institutions who might deal with them.

"These major Russian banks, which are very much integrated
into the global financial system and have worked quite hard over
the last number of years to establish good reputations for
combating illicit finance ... are now faced with really serious
reputational risk for continuing to do work with the Syrian
financial sector, especially these two institutions," he said.

The official said that in addition to being "designated" --
or blacklisted -- by the United States, the two Syrian banks
have also been targeted by the European Union, the Arab League,
Australia and Japan, widening the circle of banks that could shy
away from Russian institutions that deal with them.

"The upshot ... is that it puts the Russian banks that are
continuing to provide financial services to Syria, and in
particular to the Central Bank of Syria and to the Commercial
Bank of Syria, in a particularly vulnerable posture," he added.

Syria's central bank governor has been quoted in media
reports as saying that the Syrian public and private sector
should look to Russian banks to handle their foreign business.

It was unclear why the senior U.S. Treasury official chose
to speak out about the issue now or whether it was part of a
broader U.S. strategy to change Russian policy toward Syria.

The United Nations estimates 60,000 people have died in the
21-month conflict between forces loyal to President Bashar
al-Assad and rebels seeking to end his family's four-decade


Russia, accompanied by China, has used its veto power three
times against U.N. Security Council resolutions that would have
condemned the Syrian government for the violence. It has also
ruled out Security Council sanctions against Syria.

The crux of the U.S.-Russian dispute is whether Assad should
go now, as the rebels, Washington and the Europeans want, or
later, as Moscow would prefer, after a period of transitional
leadership that could include members of Assad's government.

Unlike recent U.S. sanctions against Iran, Washington's
designations of Syria's central bank and of the Commercial Bank
of Syria do not permit the United States to cut off a bank that
deals with them from the U.S. banking sector. U.S. banks are
forbidden from dealing with the blacklisted Syrian institutions.

The potential effect on the Russian banks is indirect by, in
theory, leading U.S. banks to shy away from working with them
because of their dealings with the two Syrian institutions.

The official, in an apparent reference to U.S. designations
of banks in Iran, North Korea and other nations, suggested that
the blacklisting can still have a powerful effect.

Even without a specific legal requirement, many major banks
cut ties with blacklisted firms out of a "self-protective
instinct" to avoid association with companies accused of
supporting weapons proliferation or terrorism, he said.

U.S. President Barack Obama blacklisted the Syrian central
bank under an Aug. 17, 2011 executive order that barred U.S.
firms from dealing with branches of the Syrian government.

The Commercial Bank of Syria, the country's largest
commercial bank, was blacklisted on May 11, 2004 when the U.S.
Treasury identified it as a financial institution of "primary
money laundering concern" under Section 311 of the Patriot Act.

On August 10, 2011 it was also designated under a U.S.
executive order that targets proliferators of weapons of mass
destruction and their supporters.