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By Alexandra Schwarz-Goerlich and John O'Donnell
VIENNA (Reuters) -Austria's Raiffeisen Bank International (RBI) has dropped a bid for a 1.5 billion euro ($1.6 billion) industrial stake linked to Russian tycoon Oleg Deripaska after intense U.S. pressure.
The deal's collapse is a fresh setback for the biggest Western bank in Russia, which faces criticism for its ties to Moscow more than two years since Russia's invasion of Ukraine.
RBI's announcement followed weeks of pressure over its plan to buy a stake in construction group Strabag, a move designed to unlock bank funds frozen in Russia but opposed by the U.S.
"In recent exchanges with the relevant authorities, RBI has been unable to obtain the required comfort in order to proceed with the proposed transaction," the bank said on Wednesday.
The plan had 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, sources told Reuters.
RBI had wanted to buy a stake in Strabag from a company the Vienna-based construction group identified as being controlled by Deripaska, who has denied any current links to Strabag and dismissed Western sanctions against him as misguided and based on false information.
U.S. officials, however, suspected he would benefit from the sale, sources have told Reuters and some Austrian officials also privately cautioned against the deal, believing it could be declared a breach of sanctions, people with direct knowledge of the matter had told Reuters.
Strabag is one of Europe's biggest construction firms and built the Olympic stadium for the Sochi winter games and luxury apartments in Moscow.
Two years after Russia's invasion of Ukraine, RBI's continued Russian presence 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 Russian business is a money spinner but has tarnished the group's image.
The group, controlled by a network of local banks rooted in the country's farming sector and critical to the economy, holds large sway in Austria. But it buckled to pressure from the United States, which has the power to shut the bank out of the dollar-dominated world of international finance.
Investors took hope at the prospect of the Strabag deal when it was announced in December but the bank was forced to abruptly shelve the sale of a 650 million euro bond when the U.S. objections emerged in a Reuters report.