U.S. Issues Executive Order, House Resolution and More Sanctions Regarding the Ukraine Situation (with Turza Comment)

On Friday, the European Union issued a new list of twelve individuals (ten Russians and two Ukrainians) subject to travel bans and asset freezes in connection with their role in "undermining or threatening the territorial integrity, sovereignty and independence of Ukraine." Notably, the EU list is limited to officials, lawmakers, and military officers-it does not include any entities or private businessmen (so-called "cronies" of President Putin's administration).

In contrast, the most recent U.S. sanctions list (UKRAINE2), issued Thursday under Executive Order 13661, contained a number of high profile oligarchs who are reportedly close to President Putin, including Gennady Timchenko, the co-founder of the commodity trading company Gunvor, as well as Arkady and Boris Rotenberg. As we reported earlier, Timchenko hastily sold his shares in Gunvor to his business associate, Torbjorn Tornqvist, on March 19. (See our March 20 Cabinet posting) According to this Reuters piece (3/21/2014), "The U.S. Treasury Department said on Thursday the sanctions targeted Timchenko and not Gunvor, but the news still spooked counterparties across the world which trade more than 2 million barrels of crude oil and refined oil products with Gunvor every day, plus other commodities including natural gas and coal." As of Friday evening, OFAC has given no official guidance as to whether Timchenko's sale of his interests in Guvnor was bona fide or whether Timchenko is deemed to have a continuing indirect interest in the commodity trading giant. As to Arkady and Boris Rotenberg, according to the Treasury, these brothers – former Judo sparring partners of President Putin – "have made billions of dollars in contracts for Gazprom and the Sochi Winter Olympics awarded to them by Putin." The most recent U.S. list also included Bank Rossiya, which Treasury describes as "the personal bank for senior officials of the Russian Federation," with "shareholders includ[ing] members of Putin's inner circle." Reports Friday indicated that in response to U.S. sanctions, Visa and MasterCard had stopped handling transactions for Bank Rossiya and another entity, SMP Bank, in which the Rotenberg brothers are major stakeholders.

Also Friday, Congressmen Ed Royce, Chairman of the House Committee on Foreign Affairs, and Eliot Engel, the Committee's ranking Democratic member, introduced a new bill containing support for Ukraine and authorizing sanctions on certain Russian and Ukrainian individuals and entities. (H.R. _) The bill's sanctions provisions largely mirror those of a Senate bill marked up in committee last week and currently pending before the full Senate. In particular, the bill provides for sanctions against foreign persons (individuals and entities) involved in: 1) undermining Ukrainian democracy; 2) threatening Ukrainian peace, security, stability, sovereignty and territorial integrity; 3) committing acts of significant corruption and expropriation in Ukraine; or 4) committing serious human rights abuses against Ukrainian or Russian citizens. The bill also contains "material assistance" provisions, and covers individuals and entities owned or controlled by, or acting on behalf of, a person otherwise subject to sanctions.

Significantly, the draft House bill also includes a section entitled "Report on Certain Foreign Financial Institutions," which provides that "[i]t shall be the policy of the United States to use all of its regulatory and statutory authorities to closely scrutinize all foreign financial institutions, including those in the Russian Federation, that may be complicit in enabling foreign persons and transnational criminal enterprises to evade or otherwise circumvent United States and international sanctions, launder the proceeds of criminal activity," etc. The bill does not specifically authorize sanctions or other measures against foreign financial institutions, but it does require the Secretaries of State and the Treasury jointly to submit a report on entities that are in direct or indirect control of expropriated Ukrainian state-owned assets. Given the bill's focus on this issue, it may prompt increased scrutiny and enforcement from FinCEN and other U.S. regulators.

James Treanor and Keith Gerver, associates in Cadwalader's Washington Office, have been monitoring the U.S. response to the Ukrainian situation.

Turza Comment: It is unclear whether Europe's decision to refrain from naming Russian businessmen and entities reflects a deliberate effort to pursue a moderate course and allow time for diplomacy, or if instead it is the product of internal divisions within the European Union. If the goal is to leave room for diplomacy, any opening for dialogue with Moscow may be narrowed by the steady increase in pressure exerted by the United States, including the Obama Administration's naming of individual businessmen and private entities, the issuance of Executive Order 13662 (see EO 13662), and the introduction Friday of a new House Bill calling for scrutiny of Russian and other foreign financial institutions.

See:Executive Order 13662; H.R. __; EU decision 2014-151-CFSP; Most Recent List of Russian Individuals and Entities Sanctioned by U.S.Related news: More Russians Sanctioned (with Turza Comment) (March 20, 2014); More on Sanctions against Russia (with Turza Comment) (March 19, 2014).