More Russians Sanctioned (with Turza Comment)
On Thursday, President Obama announced additional list-based sanctions against Russia under Executive Order 13661, while also signing a new Executive Order authorizing a potentially significant expansion of list-based sanctions to cover individuals and entities operating in sectors across the Russian economy. (See attached March 20 Executive Order.)
Also on Thursday, lawyers from the U.S. Securities and Exchange Commission reportedly contacted public investment funds with exposure to Russia to ensure that they are aware of and preparing for the potential impact of sanctions. Finally, Russia carried through on threats earlier this week, announcing its first round of retaliatory sanctions against nine U.S. officials and lawmakers. (See link - list provided in English and Russian.)
The additional 20 names added to OFAC's SDN list on Thursday include Russian government officials and so-called "cronies" of President Vladimir Putin and his administration. Significantly, the list also includes Bank Rossiya, the first entity specifically named by the United States. According to a press release from the U.S. Department of the Treasury, Bank Rossiya "is the personal bank for senior officials of the Russian Federation," with assets of approximately $10 billion and "shareholders includ[ing] members of Putin's inner circle." This includes Yuri Kovalchuk, the bank's largest shareholder, who is described as "a close advisor to President Putin and has been referred to as one of his 'cashiers.'" (Kovalchuk's name was among the 20 added to the SDN list on Thursday.) The release also states that the bank has strong ties to the energy sector and maintains correspondent relationships with banks in the United States, Europe and elsewhere. (See Treasury Sanctions Russian Officials, Members of the Russian Leadership's Inner Circle, and an Entity for Involvement in the Situation in Ukraine.)
Among the individuals named on Thursday is Gennady Timchenko, cofounder of the commodity trading company Gunvor. The Treasury alleges that "Timchenko's activities in the energy sector have been directly linked to Putin" and "Putin has investments in Gunvor and may have access to Gunvor funds." Gunvor announced on Thursday that, in anticipation of U.S. sanctions, Timchenko sold his shares in the company to his business partner, Torbjorn Törnqvist, on March 19. According to the Gunvor press release, Törnqvist is now the 87% owner of the company. (See Gunvor Ensures Continued Operations.)
Also targeted for sanctions by the United States on Thursday were brothers Arkady and Boris Rotenberg who, according to the Treasury, "have made billions of dollars in contracts for Gazprom and the Sochi Winter Olympics awarded to them by Putin."
In a signal that the United States is prepared to further increase pressure on Russia to reverse course in Ukraine, on Thursday, President Obama signed a new Executive Order expanding the national emergency declared in Executive Orders 13660 and 13661. The new Order authorizes the Secretary of the Treasury, in consultation with the Secretary of State, to freeze the assets of persons (individuals and entities) operating in sectors of the Russian economy "such as financial services, energy, metals and mining, engineering, and defense and related materials."
Another sign of the Obama Administration's intention (or threat) to pursue additional sanctions can be gleaned from reports that lawyers from the SEC contacted public funds on Thursday, inquiring as to their readiness to respond to different sanctions-related scenarios and outcomes. The SEC was also interested in the funds' openness with investors regarding the potential consequences of sanctions.
Making good on promises to respond to U.S. and European sanctions, the Russian Ministry of Foreign Affairs announced on Thursday that it would prohibit entry into the Russian Federation by nine U.S. officials and lawmakers. The list includes Deputy National Security Advisor Caroline Atkinson, as well as Senators Harry Reid and John McCain, and Speaker of the House of Representative John Boehner. Others on the list include Daniel Pfeiffer (Senior Advisor to President Obama), Benjamin Rhodes (Deputy National Security Adviser), and Senators Robert Menendez, Mary Landrieu and Daniel Coats. The Russian announcement provides that the list was formulated "on the basis of reciprocity and in connection with American sanctions related to Ukraine and Crimea." (See link - text of quote in Russian.) In an accompanying statement, the Ministry concludes sternly: "There should be no doubt: with every hostile attack we will respond appropriately." (See link - text in Russian.)
James Treanor and Keith Gerver, associates in Cadwalader's Washington Office, have been monitoring the U.S. response to the Ukrainian situation.
Turza Comment: While the additional names added to the UKRAINE2 sanctions list, the President's new Executive Order and Russia's response were all foreseeable, the reported SEC inquiries - if true - may portend further, more draconian measures to come from the Obama Administration. In Europe, meanwhile, EU leaders have reportedly agreed to add twelve names to the list of persons subject to travel bans and asset freezes, and more serious financial sanctions (so-called "phase-three" sanctions) are being considered in the event the situation worsens. With Canada having added an additional seventeen names to its own sanctions list, the momentum behind further escalation shows no signs of abating.