By Alexandra Schwarz-Goerlich and John O'Donnell
VIENNA (Reuters) -Raiffeisen Bank International (RBI) could walk away from plans to buy a stake in a construction firm linked to a Russian tycoon if there is a risk of sanctions breaches, the CEO of the biggest Western bank in Russia said on Thursday.
RBI wants to buy a stake in Strabag linked to Oleg Deripaska for 1.5 billion euros ($1.6 billion), a contested deal that has renewed international pressure on the Austrian lender.
On Thursday, its CEO signalled the deal may not happen.
"If we cannot get comfortable with the sanction and compliance risk, we must walk away from this deal," Johann Strobl told analysts, adding that he had learned more about its workability in recent weeks.
RBI is aiming to buy the stake in Vienna-based Strabag from a company the construction group identified as earlier controlled by Deripaska.
The move has come under fire from the U.S. Treasury because Deripaska is sanctioned, exacerbating tensions between Washington and RBI, which is already under scrutiny from U.S. sanctions enforcement agency OFAC.
Austrian authorities have also urged RBI to drop the deal fearing a backlash from the United States, people familiar with the matter told Reuters this week, a blow to RBI's plans to unlock funds stranded in Russia.
"We will not proceed with the acquisition of the Strabag shares ... if we believe there is a risk of sanctions or other repercussions from any of the relevant authorities including the U.S. Treasury and OFAC," Strobl told the analysts.
Strobl said he had "carefully listened" to authorities and that the deal needed further review, promising an update in the coming weeks but refusing to be drawn on the probability of it going ahead.
Two years after Russia's full-scale invasion of Ukraine, RBI's continued presence in Russia underlines the ties between Moscow and Vienna - whether via Russian gas pipelines or Vienna serving as a hub for cash from Russia and former Soviet states.
RBI's Russia business is a money spinner but has tarnished the group's image. Investors welcomed the prospect of the Strabag deal but the bank was forced to drop a planned bond sale when the U.S. objections emerged in a Reuters report.
RBI has resisted pressure to cut ties with Moscow, although it says it has long explored doing so.
Strabag is one of Europe's biggest construction firms and built the Olympic stadium for the Sochi winter games and luxury apartments in Moscow.
Senior U.S. Treasury officials underscored their concerns in meetings with the bank and Austrian authorities earlier this year, sources have told Reuters. They believe Deripaska will benefit.
Deripaska has denied having any ongoing link with Strabag and dismissed Western sanctions against him as misguided and based on false information.
RBI is a financial lifeline for millions of Russian customers who want to send euros or dollars abroad. Western regulators want this to change.
Key Austrian officials, irked by what they see as U.S. bullying of a small, neutral country, have fought the bank's corner. But the Strabag deal prompted many of them to change their tone.