On April 6, 2018, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) designated seven Russian oligarchs and 12 companies they own or control, 17 senior Russian government officials, and a state-owned Russian weapons trading company and its subsidiary, a Russian bank.[1]
Simultaneously with the action, OFAC issued two general licenses (General Licenses 12[2] and 13[3] as well as related FAQs)[4] to minimize immediate disruptions to U.S. persons, partners, and allies.
The designation freezes all assets subject to U.S. jurisdiction of the designated individuals and entities, and of any other entities blocked by operation of law as a result of their ownership by a sanctioned party. U.S. persons are generally prohibited from dealings with them as well as with entities owned 50% or more by them directly or indirectly, unless authorized by an OFAC license. U.S. persons must block the property and interests in property of the SDNs that come within their possession or control. In addition, under § 228 of CAATSA, non-U.S. persons could be subject to sanctions for knowingly facilitating significant transactions for or on behalf of the individuals or entities blocked.[5]
Designated Russian Oligarchs and Government Officials
The list targets Putin’s inner circle. The seven oligarchs include Vladimir Bogdanov, the Director General and Vice Chairman of Surgutneftegaz, a vertically-integrated oil company, and Oleg Deripaksa, who operates an energy company, has a Russian diplomatic passport, and has been investigated for money laundering, and accused of threatening the lives of business rivals, illegally wiretapping a government official, and participating in extortion and racketeering.
Among the long list of Russian government officials that OFAC designated are: Andrey Akimov, Chairman and the Management Board of thestate-owned Gazprombank; Mikhail Fradkov, President of the Russian Institute for Strategic Studies (RISS), a major research and analytical center established by the President of the Russian Federation, providing information support to the Presidential Administration, Federation Council State Duma, and Security Council; and Sergey Fursenko.
Analysis
In effect, the new OFAC action prevents the oligarchs from traveling to the U.S., doing business, or even opening a bank account with any major company or bank in the West. In addition, it restricts foreign individuals from facilitating transactions on their behalf.[6]
Since many of Russia’s oligarchs have significant personal and financial ties to the West, where they own hundreds of millions of dollars in property, the new action heightens the pressure on them. Some of the targeted oligarchs, however, have likely taken action to protect some their assets in the wake of prior OFAC announcements.
U.S. Treasury Secretary Steven T. Mnuchin characterized the new action as responding to Russian occupation of Crimea and instigation of violence in eastern Ukraine, furnishing the Assad regime with material and weaponry as they bomb their own civilians, trying to subvert Western democracies, and malicious cyber activities.[7] He not mentions the poisoning of Sergei V. Skripal, a former Russian double agent, and his daughter, in response to which the U.S. expelled 60 Russian diplomats, prompting Russia to retaliate by closing its Seattle consulate.
According to Forbes, Russian billionaires have lost over $12 billion in one day as a result of the U.S. sanctions. The Russian stock market has fallen due to the new sanctions on Russian businessmen. Out of the oligarchs targeted, Oleg Deripaska, who owns En +, and US Rusal, among other companies, has been affected the most. After the announcement of the sanctions on April 6, 2018, quotations of the aluminum producer fell by more than 50% on the Hong Kong Stock Exchange, and Deripaska’s wealth decreased by $1.3 billion.[8]
Russian Prime Minister Dmitry Medvedev instructed the Government to prepare options for supporting companies of the oligarchs, whose companies were targeted by new U.S. sanctions. On April 9, 2018, Deputy Prime Minister Arkady Dvorkovich announced that the Russian Government would support the companies that fell under U.S. sanctions.[9]
According to the press-secretary of the Head of state Dmitry Peskov, Russian President Vladimir Putin does not plan to meet with oligarchs who are put on the U.S. sanctions list. However, such a meeting may appear in his schedule.[10]
According to the International Consortium of Investigative Journalists, Deripaska and Arkady Rotenberg, who was designated in March 2014, have used offshore legal entities to hide assets.[11] The U.S. or other persons dealing with such offshore legal entities will need to use due diligence to avoid being subject to sanctions themselves.
A full version of this article will appear in the April issue of the International Enforcement Law Reporter.
[1] U.S. Department of the Treasury, Treasury Designates Russian Oligarchs, Officials, and Entities in Response to Worldwide Malign Activity, April 6, 2018.
[2] OFAC, General License No. 12 https://www.treasury.gov/resource-center/sanctions/Programs/Documents/ukraine_gl12.pdf.
[3] OFAC General License 13 https://www.treasury.gov/resource-center/sanctions/Programs/Documents/ukraine_gl13.pdf.
[4] For the updated FAQs, see https://www.treasury.gov/resource-center/faqs/Sanctions/Pages/faq_other.aspx#542.
[5] U.S. Department of the Treasury, Treasury Designates Russian Oligarchs, Officials, and Entities in Response to Worldwide Malign Activity, supra.
[6] Gardiner Harris, U.S. Puts New Sanctions on Putin’s Inner Circle, N.Y. Times, Apr. 7, 2018, at A, col. 1.
[7] U.S. Department of the Treasury, Treasury Designates Russian Oligarchs, Officials, and Entities in Response to Worldwide Malign Activity, supra.
[8] Russian oligarchs lose almost $12 billion in one day, Crime Russia, Apr. 9, 2018 https://en.crimerussia.com/oligarchs/russian-oligarchs-lose-almost-12-billion-in-one-day
[9] Russian Government to support companies under U.S. sanctions, Crime Russia, Apr. 9, 2018 https://en.crimerussia.com/oligarchs/russian-government-to-support-companies-under-u-s-sanctions-/
[10] Id.
[11] International Consortium of Investigative Journalists, The U.S. list of wealthy Russians and our offshore investigations, Feb. 5, 2018.
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