By Kylie MacLellan and William James
LONDON (Reuters) -Britain on Tuesday imposed sanctions on Gennady Timchenko and two other billionaires with close links to Vladimir Putin after the Russian president deployed military forces into two breakaway regions of eastern Ukraine.
British Prime Minister Boris Johnson said Russia was heading towards "pariah status" and that the world must now brace for the next stage of Putin's plan, saying that the Kremlin was laying the ground for a full-scale invasion of Ukraine.
He told parliament that five banks - Rossiya, IS Bank, GenBank, Promsvyazbank and the Black Sea Bank - were being sanctioned, along with three people - Timchenko, and the brothers Igor and Boris Rotenberg.
But the Conservative prime minister refrained from targeting Russia's biggest state banks, cutting off capital for Russian companies or ejecting other prominent so-called Russian oligarchs from Britain.
"It is absolutely vital that we hold in reserve further powerful sanctions...in view of what President Putin may do next," Johnson said in response to calls for tougher action.
Of the five targeted banks only Promsvyazbank is on the Russian central bank's list of systemically important credit institutions.
Shares in Russia's two largest lenders, Sberbank and VTB reversed early losses to trade higher after escaping the British sanctions.
The British government said Timchenko was a major shareholder in Bank Rossiya, which played a role in the destabilisation of Ukraine after Russia's 2014 annexation of Crimea.
"Bank Rossiya has supported the consolidation of Crimea into the Russian Federation by integrating the financial system following the annexation of Crimea," said a statement listing the sanctions.
Timchenko is a close ally of Putin, as are the Rotenbergs, Johnson said.
Hundreds of billions of dollars have flowed into London and Britain's overseas territories from Russia since the fall of the Soviet Union in 1991, and London has become the Western city of choice for the super-wealthy of Russia and other former Soviet republics.
"We want to stop Russian companies from being able to raise funds in sterling or indeed in dollars," Johnson said.
PUTIN'S CIRCLE
Though Johnson warned Putin more sanctions would follow, Britain's initial package goes little further than what the United States did in 2014 and 2018 when it sanctioned Timchenko and the Rotenbergs.
"The risk is that today's slap on the wrist will not deter anything," opposition Labour Party lawmaker Liam Byrne said. "The prime minister's got to recognise that pulling our punches does not work with President Putin."
A Western official, speaking on condition of anonymity, said Britain would also limit Russian access to sovereign debt markets and its ability to clear transactions.
The U.S. Treasury said in 2014 that Bank Rossiya shareholders included members of Putin's inner circle and that Boris Rotenberg had amassed a fortune under Putin.
Johnson saluted German Chancellor Olaf Scholz's decision to halt the Nord Stream 2 pipeline despite Europe's reliance on Russian energy supplies.
He later spoke to French President Emmanuel Macron and they agreed they needed to work in "lockstep to target Russian individuals and entities bankrolling President Putin’s aggressive approach", Johnson's spokesperson said.
Former Conservative Party leader Iain Duncan Smith asked Johnson to go further on sanctions and said that China would be watching the West's response carefully.