According to three people familiar with the situation, President Joe Biden’s administration is preparing an initial package of penalties on Russia that includes prohibiting U.S. financial institutions from processing transactions for key Russian banks.

The restrictions, which would only be enforced if Russia invaded Ukraine, are designed to harm the Russian economy by severing “correspondent” banking links between targeted Russian banks and US banks, which allow international payments to be made.

While the US government has stated that financial limitations will be part of a future sanctions package, the administration’s proposal to disrupt correspondent banking relationships – which underlie global money flows – has not been previously revealed.

According to the same sources, the US will use its most powerful sanctioning tool against certain Russian individuals and companies, placing them on the Specially Designated Nationals (SDN) list, effectively kicking them out of the US banking system, prohibiting their trade with Americans, and freezing their US assets.

The White House and the US Treasury Department made no comments.

The package might alter at any time, according to reports citing sources, and it remained unknown who the targets would be. Top Russian financial organizations such as VTB Bank, Sberbank, VEB, and Gazprombank, they feel, might be targeted.

Even though the correspondent banking mechanism does not have the punch of an SDN designation, which freezes a bank’s assets, experts contacted by Reuters said it could nevertheless deliver a significant blow to the target banks by making it harder to transact in US dollars, the world’s reserve currency.

Dollars are used in a lot of worldwide trade.

Although it is uncertain whether Russian banks will be included to the SDN list, both forms of penalties could be extremely damaging to Russia.

“Since a significant number of global trade transactions are in U.S. dollars this is a sanction with bite, but without the more complicated and deadly sanction of being placed on the SDN list and having all assets in the U.S. or in the hands of U.S. persons frozen,” said Washington lawyer Kay Georgi, who specializes in international trade.

According to sources, if the administration deems it necessary, certain transactions could be exempted from the limits.

For weeks, the Biden administration has threatened Russia with harsh banking sanctions in an attempt to prevent Russian President Vladimir Putin from attacking Ukraine. Despite the fact that Moscow has gathered upwards of 150,000 troops on Ukraine’s borders, Putin has denied any preparations to attack.

Last month, National Security Council member Peter Harrell stated that “heavy-hitting financial penalties” were part of a strategy to harm Russia’s economy while sparing its civilians.

“The goal of the financial sanctions is really to have short-term upfront costs on Russia, to trigger capital flight, to trigger inflation, to make the Russian central bank provide bailouts to its banks,” he said in a speech late last month.

Some financial companies in the United States are jittery as a result of the harsh warnings. Financial services and payment industry representatives have been in contact with the US Treasury Department’s Office of Foreign Assets Control, which administers sanctions, in recent days, according to sources.

Tensions rose over the weekend as Russia expanded military training in Belarus, raising fears of a Russian invasion of Ukraine among Western nations.

According to France, Biden and Putin agreed in principle to meet on Sunday, indicating that a conflict may be avoided.

If the Kremlin orders an invasion, British Prime Minister Boris Johnson stated the US and Britain would shut off Russian enterprises’ access to US dollars and British pounds.

Similarly, the Biden administration has been outspoken in its rhetoric. Deputy National Security Advisor Daleep Singh told reporters on Friday that an invasion would cost Russia “immensely, both in terms of its economic and its strategic position in the globe.”

(Adapted from Reuters.com)

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