Exclusive-Austria blocks Russian sanctions over Raiffeisen blacklisting - sources

By John O'Donnell

FRANKFURT/BRUSSELS (Reuters) -Austria is seeking to have Raiffeisen Bank International, the biggest Western bank in Russia, struck off a Ukrainian blacklist in return for signing off fresh European Union sanctions on Russia, said two people familiar with the situation.

Austria and the bank wants it to be taken off a Ukrainian list dubbed "international sponsors of war" - which sets out to shame companies doing business in Russia and supporting the war effort by, for instance, paying taxes.

The latest push underscores Austria's deep economic bond with Russia, the bank's determination to keep its profitable business there, as well as a fading wider Western drive to isolate Moscow.

Although Austria publicly supports Ukraine, several officials who spoke to Reuters have said they are reluctant to completely sever decades-old ties with Russia, thinking it will still be possible to restore relations.

Earlier in October, Austria's foreign minister, Alexander Schallenberg, openly criticised that blacklist as arbitrary at a meeting of European ministers in Kyiv, said one person briefed on those discussions.

Raiffeisen is the only Austrian company on the list.

Austrian officials have flagged their concern about the list in Brussels, including at meetings of EU officials and diplomats in recent weeks, said three people with knowledge of the matter.

Bank envoys also met representatives of Ukraine's National Agency of Corruption Prevention, which draws up the list, to discuss how to get the group off it, people familiar with the matter said.

Some companies have been taken off, including Hungary's OTP Bank after the government pushed for its removal, a move that irked Austrian officials and the bank.

"We find it unfair that we are on the list," said a spokesperson for the bank.

The Austrian chancellery said legal documents concerning the EU sanctions had been presented on Tuesday, declining to comment further.

CLOSE BOND

Raiffeisen's presence underlines the depth of relations between Austria and Russia, which maintain close ties through Russian gas pipelines and finance, with Vienna a hub for cash from Russia and its former Soviet neighbours.

Austria's lobbying, echoing similar moves by Hungary, risks undermining Europe's alliance on Ukraine.

Ukraine's Western allies have poured billions of dollars of financial and military aid into Ukraine and backed sweeping sanctions against Russia, but more than 21 months into the war Kyiv is now finding it harder to keep this staunch backing.

Kyiv hopes to secure two major aid packages from the United States and European Union for next year, but both packages have encountered political resistance and become bogged down in debate.

While the blacklist has no legal standing, it is symbolically important, reinforcing public pressure on Raiffeisen to quit Russia, something the bank is said it is willing to do but which has yet to happen.

Although Italy's UniCredit also has a business in Russia, Raiffeisen is far larger and has become a test of western resolve to end ties with Russia.

Raiffeisen (RBI) had intended to spin off its Russian business, which provides a payment lifeline to hundreds of companies there, after coming under pressure from international regulators.

Russian authorities had made it clear to RBI, which has around 2,600 corporate customers, 4 million local account holders and 10,000 staff, that they wish it to stay because it enables international payments, one source told Reuters.

Key Austrian officials are fighting RBI's corner and redoubling efforts to rebuff pressure on the bank, which is part of an industrial combine that underpins the country's economy.

Raiffeisen's presence in Russia has proved divisive within its management as well as among the regional Landesbanks that control the group, with some advocating it leaves.

(Additional reporting by Julia Payne in Brussels and Thomas Balmforth in Kyiv; writing by John O'Donnell; editing by David Evans)