OFAC Russia Sanctions: Leading Russian Businessmen, Government Officials and Companies

  • April 9, 2018
  • On April 6, 2018, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) placed seven prominent Russian businessmen, 12 companies, 17 senior Russian government officials, and a state-owned Russian weapons trading company and its subsidiary Russian bank on the SDN List.
  • Effective immediately, U.S. persons are generally prohibited from dealing with these sanctioned persons and must block the property and interests in property of these sanctioned persons that come within such U.S. persons’ possession or control, unless otherwise authorized by OFAC. These restrictions apply not only to the named individuals and entities on the SDN List, but also to any entity that is 50 percent or more owned, directly or indirectly, by one or more SDNs. Additionally, non-U.S. persons can face secondary sanctions for engaging in certain types of transactions with these sanctioned persons.
  • Finally, non-U.S. persons should also consider and avoid transactions that the U.S. government may assert “caused” U.S. persons to deal impermissibly with SDNs.
  • To “minimize immediate disruptions to U.S. persons, partners, and allies,” OFAC issued two general licenses on April 6, 2018, to allow U.S. persons
  • (i) to divest or transfer debt, equity or other holdings of three specific sanctioned entities to non-U.S. persons until May 7, 2018 (and to facilitate such divestment or transfer by non-U.S. persons) and
  • (ii) to wind down operations, contracts or other agreements involving 12 specific sanctioned entities (and entities they own by 50 percent or more) until June 5, 2018. Importantly, these general licenses do not allow U.S. persons to distribute or otherwise provide funds to sanctioned persons.

Background

Although OFAC imposed the April 6, 2018, sanctions designations under executive orders issued in 2014, these sanctions follow the enactment of the Countering America’s Adversaries Through Sanctions Act (CAATSA), a law passed by Congress in August 2017 with overwhelming bipartisan approval, which includes a variety of measures targeting Russia.

As required by CAATSA, on January 29, 2018, the U.S. Department of the Treasury (“Treasury”) submitted to Congress an unclassified report and classified annex regarding “Senior Foreign Political Figures and Oligarchs in the Russian Federation and Russian Parastatal Entities,” listing 114 “senior foreign political figures” in the Russian Federation, including members of the presidential administration, cabinet of ministers and other senior political leaders, as well as 96 individuals who are worth over $1 billion “according to reliable public sources.”1 Although Section 241 of CAATSA required the Trump administration to submit this report to Congress (“Section 241 report”), it did not specifically require sanctions to be imposed on persons included in the report.

Since the release of the Section 241 report, senior Trump administration officials, including Secretary of the Treasury Steven Mnuchin and Under Secretary for Terrorism and Financial Intelligence Sigal Mandelker, indicated in various public fora that Treasury was preparing additional sanctions based on the Section 241 report to “hold Russian government officials and oligarchs accountable for their destabilizing activities by severing their access to the U.S. financial system.”2

The press release issued by Treasury announcing these new sanctions states that OFAC’s sanctions designations on April 6, 2018 “target[] a number of the individuals listed in the Section 241 report, including those who benefit from the Putin regime and play a key role in advancing Russia’s malign activities.”3

The action, taken under pressure from the U.S. Congress, freezes the U.S. assets of oligarchs such as aluminum tycoon Oleg Deripaska, a close associate of Putin, and lawmaker Suleiman Kerimov, whose family controls Russia's largest gold producer, Polyus.

The sanctions largely respond to what U.S. intelligence agencies have said was Russian interference in the presidential election, although the Treasury Department painted them as a response to a series of adversarial actions by Moscow.

U.S. President Donald Trump has been under fire for not taking strong action against Russia after a series of diplomatic disputes reminiscent of the Cold War era. The sanctions could complicate his hopes for good relations with Putin.

Summary of April 6, 2018 OFAC Sanctions Designations

On April 6, 2018, OFAC placed seven Russian individuals, 12 companies, 17 senior Russian government officials, and a state-owned Russian weapons trading company and its subsidiary on the Specially Designated Nationals and Blocked Persons List (“SDN List”). As a result of such actions, U.S. persons4 must generally terminate all dealings with such SDNs and entities that are 50 percent or more owned, directly or indirectly, by one or more SDNs (whether listed on April 6 or previously) (collectively, “blocked persons”). Furthermore, U.S. persons must block any property of such blocked persons that is in, or comes into, their possession or control. As a practical matter, U.S. persons must

(i) transfer blocked funds into a separate blocked, interest-bearing account at a U.S. financial institution that cannot be debited without authorization from OFAC and

(ii) report the blocked property to OFAC within 10 business days. Similarly, U.S. persons must block other property, or interests in property, held by such blocked persons and report such blocked property to OFAC within 10 business days as well.

SDN Designations

The new SDN designations are provided below:

Russian Individuals

OFAC placed certain individuals on the SDN List, and indicated certain positions held by such persons (listed below as indicated by OFAC):

Vladimir Bogdonov, Director General and Vice Chairman of the Board of Directors, Surgutneftegaz

Oleg Deripaska, Owner and/or President of Basic Element, United Company RUSAL, EN+ Group and other aluminum/power entities

Suleiman Kerimov, Member, Russian Federation Council

Igor Rotenberg, Owner, Gazprom Burenie

Kirill Shamalov, who has an ownership interest in Sibur, an oil and gas exploration company

Andrei Skoch, Deputy, Russian Federation’s State Duma

Viktor Vekselberg, Chairman of the Board of Directors, Renova Group.

All of these businessmen were listed in the unclassified version of the Section 241 report except for Igor Rotenberg, who is the nephew of Boris Rotenberg and the son of Arkady Rotenberg, both of whom appear in the Section 241 report and were designated on the SDN List in 2014.

Companies

The following companies were designated by OFAC:

  • B-Finance Ltd.
  • Basic Element Limited
  • EN+ Group
  • EuroSibEnergo
  • United Company RUSAL PLC
  • Russian Machines
  • GAZ Group
  • Agroholding Kuban
  • Gazprom Burenie
  • NPV Engineering OJSC
  • Ladoga Menedzhment
  • Renova Group.

Russian Government Officials

OFAC also placed 17 Russian officials on the SDN List, and indicated certain positions held by such officials (listed below as indicated by OFAC):

Andrey Akimov, Chairman of the Management Board, Gazprombank

Mikhail Fradkov, President, Russian Institute for Strategic Studies

Sergey Fursenko, Member of the Board of Directors, Gazprom Neft

Oleg Govorun, Head, Presidential Directorate for Social and Economic Cooperation with the Commonwealth of Independent States Member Countries

Alexey Dyumin, Governor, Tula Region of Russia

Vladimir Kolokoltsev, Minister of Internal Affairs and General Police

Konstantin Kosachev, Chairman, Foreign Affairs Committee, Russian Federation Council

Andrey Kostin, Chairman of the Management Board and President, VTB Bank

Alexey Miller, Chairman of the Management Committee, Gazprom

Nikolai Patrushev, Secretary, Russian Federation Security Council

Vladislav Reznik, Member, Russian State Duma

Evgeniy Shkolov, Aide to the President of the Russian Federation

Alexander Torshin, State Secretary - Deputy Governor, Central Bank of Russia

Vladimir Ustinov, Plenipotentiary Envoy to the Southern Federal District

Timur Valiulin, Head, General Administration for Combatting Extremism, Ministry of Internal Affairs

Alexander Zharov, Head, Roskomnadzor

Viktor Zolotov, Director, Federal Service of National Guard Troops.

Russian State-owned Companies

OFAC also placed the following two entities on the SDN List (described below as indicated by OFAC):

  • Rosoboronexport, state-owned Russian weapons trading company
  • Russian Financial Corporation (RFC) Bank (owned by Rosoboronexport)

General Licenses

OFAC also issued two general licenses “to minimize immediate disruptions to U.S. persons, partners, and allies,” temporarily authorizing transactions with these blocked persons that would otherwise be prohibited by U.S. sanctions:

  • General License 12 authorizes U.S. persons to engage in transactions until June 5, 2018, “that are ordinarily incident and necessary to the maintenance or wind down of operations, contracts, or other agreements” in effect prior to April 6, 2018, involving the 12 sanctioned companies, as well as any other entities in which such companies own, directly or indirectly, a 50 percent or greater interest.
  • Notably, General License 12 applies only to the 12 companies specifically listed in the license and any other entities in which such companies own, directly or indirectly, a 50 percent or greater interest. General License 12 does not apply to the other two state-owned entities designated (Rosoboronexport and RFC Bank), the individuals designated by the same action on April 6, or entities owned 50 percent or more by such entities and individuals.

 

  • General License 12 does not allow
  • (i) the exportation of goods from the United States or
  • (ii) the divestiture or transfer of debt, equity or other holdings in, to or for the benefit of the 12 companies listed in General License 12, or entities in which such companies own, directly or indirectly, a 50 percent or greater interest.

 

  • Importantly, this general license would authorize U.S. persons to receive payments from these entities that are “incident and necessary to” maintenance or wind down of operations, contracts or other agreements, but any payments made by U.S. persons to such entities for these wind-down activities would have to be placed in a blocked, interest-bearing account located in the United States.
  • U.S. persons must also submit a detailed report to OFAC describing each transaction undertaken under this general license within 10 business days of June 5, 2018 (i.e., by June 19, 2018).
  • OFAC also released several FAQs providing further clarifications regarding General License 12:
  • FAQ #569 clarifies that General License 12 provides “authorization for U.S. persons to import goods into the United States from the blocked entities listed in General License 12, provided that any outstanding payment for the goods be deposited in a blocked account at a U.S. financial institution.”

 

  • FAQ #567 explains that U.S. employees of the entities within the scope of the general license are generally authorized to receive salary payments, pension payments or other benefits by such entities, and to provide services to such entities until the general license expires.
  • OFAC encourages U.S. person employees of a designated company to review applicable OFAC regulations, authorizations and public guidance, and to contact OFAC if their “activities as an employee are not authorized.”

 

  • General License 13 authorizes transactions and activities through May 7, 2018 “that are ordinarily incident and necessary to divest or transfer debt, equity, or other holdings” in EN+ Group, GAZ Group and United Company RUSAL to a non-U.S. person (other than a blocked person), and to facilitate such transfers between non-U.S. persons (other than blocked persons), subject to certain conditions and reporting requirements.
  • The transactions and activities authorized include facilitating, clearing and settling transactions to divest to a non-U.S. person debt, equity, or other holdings in EN+ Group, GAZ Group and United Company RUSAL.
  • General License 13 only applies to three of the newly designated entities and, unlike General License 12, General License 13 does not apply to debt, equity or other holdings in entities that are owned 50 percent or more, directly or indirectly, by these three entities.
  • General License 13 also does not permit U.S. persons to sell debt, equity or other holdings to; purchase or invest in debt, equity or other holdings in; or facilitate such transactions, directly or indirectly, with SDNs and blocked persons under the Russia sanctions program.
  • U.S. persons must submit a detailed report to OFAC describing each transaction undertaken under this general license within 10 business days of the expiration of General License 13 (i.e., by May 21, 2018).

Secondary Sanctions Exposure for Non-U.S. Persons

The parties subject to the April 6, 2018 sanctions were designated pursuant to authorities contained in Executive Orders 13661 and 13662. These same executive orders authorize the U.S. government to sanction other non-U.S. persons that provide certain types of support for the sanctioned parties, including:

  • Acting or purporting to act for or on behalf of, directly or indirectly, any of the sanctioned parties; or
  • Materially assisting, sponsoring, or providing financial, material, or technological support for, or goods or services in support of any of the sanctioned parties.

Additionally, two sections of CAATSA may expose non-U.S. persons to potential secondary sanctions if they engage in “significant transactions” with the sanctioned parties, as follows: 

First, section 228 of CAATSA requires the President to impose property-blocking sanctions, subject to certain waiver authority, on any non-U.S. person who knowingly “facilitates a significant5 transaction or transactions, including deceptive or structured transactions, for or on behalf of any person subject to U.S. sanctions with respect to the Russian Federation” or “any child, spouse, parent, or sibling” of such sanctioned persons.

Second, section 226 of CAATSA imposes U.S. correspondent account restrictions on foreign financial institutions that the President determines have “knowingly facilitated a significant financial transaction on behalf of any Russian person included” on the SDN List pursuant to the Russia and Ukraine-related sanctions program.

These secondary sanctions are a critical consideration for any non-U.S. individual or entity considering doing business with these newly sanctioned parties, as these secondary sanctions authorities extend to business that may be conducted wholly outside of U.S. jurisdiction, including business conducted wholly within the Russian Federation.

Review and Consideration of Potential Risk Exposure

The SDN designations described above target substantial companies and Russian businessmen, as well as entities owned 50 percent or more by such companies and businessmen, making these the toughest and most far-reaching sanctions measures that the Trump administration has imposed against Russia.

Importantly, these sanctions do not affect U.S. persons only. The U.S. government has asserted jurisdiction over non-U.S. persons for “causing” U.S. persons to violate U.S. economic sanctions, including prohibited dealings with SDNs. Secondary sanctions also target non-U.S. companies that engage in “significant transactions” with these sanctioned persons, even if such transactions have no U.S. nexus (e.g., no U.S. persons, no U.S. dollars, etc.).

For these reasons, companies should analyze their business interests that intersect with Russia and these blocked persons to determine the impact of these measures and take any necessary actions to comply with applicable law and reduce sanctions risks. Further, companies should review and update their compliance procedures to ensure that they address these new changes.

Looking ahead, it is currently unclear what actions Russia may take in response to these sanctions and/or whether the European Union or United Kingdom will join the United States in imposing additional sanctions measures against Russia. Furthermore, it remains possible that OFAC could impose additional sanctions targeted at Russian interests, including against other individuals listed in the Section 241 report or others close to President Putin, in the days, weeks and months ahead.

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, are frozen, and U.S. persons are generally prohibited from dealings with them.  Additionally, non-U.S. persons could face sanctions for knowingly facilitating significant transactions for or on behalf of the individuals or entities blocked today.

Designated Russian Oligarchs

Vladimir Bogdanov is being designated for operating in the energy sector of the Russian Federation economy.  Bogdanov is the Director General and Vice Chairman of the Board of Directors of Surgutneftegaz, a vertically integrated oil company operating in Russia. OFAC imposed sectoral sanctions on Surgutneftegaz pursuant to Directive 4 issued under E.O. 13662 in September 2014.

Oleg Deripaska is being designated pursuant to E.O. 13661 for having acted or purported to act for or on behalf of, directly or indirectly, a senior official of the Government of the Russian Federation, as well as pursuant to E.O. 13662 for operating in the energy sector of the Russian Federation economy.  Deripaska has said that he does not separate himself from the Russian state.  He has also acknowledged possessing a Russian diplomatic passport, and claims to have represented the Russian government in other countries.  Deripaska has been investigated for money laundering, and has been accused of threatening the lives of business rivals, illegally wiretapping a government official, and taking part in extortion and racketeering.  There are also allegations that Deripaska bribed a government official, ordered the murder of a businessman, and had links to a Russian organized crime group.

Suleiman Kerimov is being designated for being an official of the Government of the Russian Federation.  Kerimov is a member of the Russian Federation Council.  On November 20, 2017, Kerimov was detained in France and held for two days. He is alleged to have brought hundreds of millions of euros into France – transporting as much as 20 million euros at a time in suitcases, in addition to conducting more conventional funds transfers – without reporting the money to French tax authorities.  Kerimov allegedly launders the funds through the purchase of villas.  Kerimov was also accused of failing to pay 400 million euros in taxes related to villas.

Igor Rotenberg is being designated for operating in the energy sector of the Russian Federation economy.  Rotenberg acquired significant assets from his father, Arkady Rotenberg, after OFAC designated the latter in March 2014.  Specifically Arkady Rotenberg sold Igor Rotenberg 79 percent of the Russian oil and gas drilling company Gazprom Burenie.  Igor Rotenberg’s uncle, Boris Rotenberg, owns 16 percent of the company.  Like his brother Arkady Rotenberg, Boris Rotenberg was designated in March 2014.

Kirill Shamalov is being designated for operating in the energy sector of the Russian Federation economy.  Shamalov married Putin’s daughter Katerina Tikhonova in February 2013 and his fortunes drastically improved following the marriage; within 18 months, he acquired a large portion of shares of Sibur, a Russia-based company involved in oil and gas exploration, production, processing, and refining.  A year later, he was able to borrow more than one $1 billion through a loan from Gazprombank, a state-owned entity subject to sectoral sanctions pursuant to E.O. 13662.  That same year, long-time Putin associate Gennady Timchenko, who is himself designated pursuant to E.O. 13661, sold an additional 17 percent of Sibur’s shares to Shamalov.  Shortly thereafter, Kirill Shamalov joined the ranks of the billionaire elite around Putin. 

Andrei Skoch is being designated for being an official of the Government of the Russian Federation.  Skoch is a deputy of the Russian Federation’s State Duma.  Skoch has longstanding ties to Russian organized criminal groups, including time spent leading one such enterprise.

Viktor Vekselberg is being designated for operating in the energy sector of the Russian Federation economy.  Vekselberg is the founder and Chairman of the Board of Directors of the Renova Group.  The Renova Group is comprised of asset management companies and investment funds that own and manage assets in several sectors of the Russian economy, including energy.  In 2016, Russian prosecutors raided Renova’s offices and arrested two associates of Vekselberg, including the company’s chief managing director and another top executive, for bribing officials connected to a power generation project in Russia.

Designated Oligarch-Owned Companies

In addition to sanctioning the individuals listed above, OFAC today designated 12 companies that constitute some of the most prominent among the entities that are owned or controlled by the individuals designated today.  This list of 12 companies owned or controlled by the sanctioned oligarchs should not be viewed as exhaustive, and the regulated community remains responsible for compliance with OFAC’s 50 percent rule.  [Insert link to rule here]

B-Finance Ltd., based in the British Virgin Islands, is being designated for being owned or controlled by, directly or indirectly, Oleg Deripaska.

Basic Element Limited is being designated for being owned or controlled by, directly or indirectly, Oleg Deripaska.  Basic Element Limited is based in Jersey and is the private investment and management company for Deripaska’s various business interests.

EN+ Group is being designated for being owned or controlled by, directly or indirectly, Oleg Deripaska, B-Finance Ltd., and Basic Element Limited.  EN+ Group is located in Jersey and is a leading international vertically integrated aluminum and power producer.

EuroSibEnergo is being designated for being owned or controlled by, directly or indirectly, Oleg Deripaska and EN+ Group. EuroSibEnergo is one of the largest independent power companies in Russia, operating power plants across Russia and producing around nine percent of Russia’s total electricity.

United Company RUSAL PLC is being designated for being owned or controlled by, directly or indirectly, EN+ Group.  United Company RUSAL PLC is based in Jersey and is one of the world’s largest aluminum producers, responsible for seven percent of global aluminum production.

Russian Machines is being designated for being owned or controlled by, directly or indirectly, Oleg Deripaska and Basic Element Limited.  Russian Machines was established to manage the machinery assets of Basic Element Limited.

GAZ Group is being designated for being owned or controlled by, directly or indirectly, Oleg Deripaska and Russian Machines.  GAZ Group is Russia’s leading manufacturer of commercial vehicles.

Agroholding Kuban, located in Russia, is being designated for being owned or controlled by, directly or indirectly, Oleg Deripaska and Basic Element Limited.

Gazprom Burenie, OOO is being designated for being owned or controlled by Igor Rotenberg.  Gazprom Burenie, OOO provides oil and gas exploration services in Russia.

NPV Engineering Open Joint Stock Company is being designated for being owned or controlled by Igor Rotenberg.  NPV Engineering Open Joint Stock Company provides management and consulting services in Russia.

Ladoga Menedzhment, OOO is being designated for being owned or controlled by Kirill Shamalov.  Ladoga Menedzhment, OOO is located in Russia and engaged in deposit banking.

Renova Group is being designated for being owned or controlled by Viktor Vekselberg.  Renova Group, based in Russia, is comprised of investment funds and management companies operating in the energy sector, among others, in Russia’s economy.

Designated Russian State-Owned Firms

Russia has contributed to the instability of the Government of Syria through the sales and transfer of Russian-origin military equipment in support of Assad’s regime, enabling Assad to continue carrying out attacks against Syrian citizens.  These attacks have included chemical weapons attacks, which claimed the lives of hundreds of Syrian citizens.

Rosoboroneksport is a state-owned Russian weapons trading company with longstanding and ongoing ties to the Government of Syria, with billions of dollars’ worth of weapons sales over more than a decade.  Rosoboroneksport is being designated under E.O. 13582 for having materially assisted, sponsored, or provided financial, material, or technological support for, or goods or services in support of, the Government of Syria.

The Russian Financial Corporation Bank (RFC Bank) is being designated for being owned by Rosoboroneksport.  RFC Bank incorporated in Moscow, Russia and its operations include deposit banking activities.

Designated Russian Government Officials

Andrey Akimov is the Chairman of the Management Board of state-owned Gazprombank. Akimov is being designated pursuant E.O. 13661 for being an official of the Government of the Russian Federation.

Mikhail Fradkov is the President of the Russian Institute for Strategic Studies (RISS), a major research and analytical center established by the President of the Russian Federation, which provides information support to the Presidential Administration, Federation Council, State Duma, and Security Council.  Fradkov is being designated pursuant E.O. 13661 for being an official of the Government of the Russian Federation.

Sergey Fursenko is a member of the board of directors of Gazprom Neft, a subsidiary of state-owned Gazprom.  Fursenko is being designated pursuant to E.O. 13661 for being an official of the Government of the Russian Federation.

Oleg Govorun is the Head of the Presidential Directorate for Social and Economic Cooperation with the Commonwealth of Independent States Member Countries.  Govorun is being designated pursuant to E.O. 13661 for being an official of the Government of the Russian Federation.

Alexey Dyumin is the Governor of the Tula region of Russia.  He previously headed the Special Operations Forces, which played a key role in Russia’s purported annexation of Crimea.  Dyumin is being designated pursuant to E.O. 13661 for being an official of the Government of the Russian Federation.

Vladimir Kolokoltsev is the Minister of Internal Affairs and General Police of the Russian Federation.  Kolokoltsev is being designated pursuant to E.O. 13661 for being an official of the Government of the Russian Federation.

Konstantin Kosachev is the Chairperson of the Council of the Federation Committee on Foreign Affairs.  Kosachev is being designated pursuant to E.O. 13661 for being an official of the Government of the Russian Federation.

Andrey Kostin is the President, Chairman of the Management Board, and Member of the Supervisory Council of state-owned VTB Bank.  Kostin is being designated pursuant to E.O. 13661 for being an official of the Government of the Russian Federation.

Alexey Miller is the Chairman of the Management Committee and Deputy Chairman of the Board of Directors of state-owned company Gazprom.  Miller is being designated pursuant to E.O. 13661 for being an official of the Government of the Russian Federation.

Nikolai Patrushev is Secretary of the Russian Federation Security Council.  Patrushev is being designated pursuant to E.O. 13661 for being an official of the Government of the Russian Federation.

Vladislav Reznik is a member of the Russian State Duma.  Reznik is being designated pursuant to E.O. 13661 for being an official of the Government of the Russian Federation.

Evgeniy Shkolov is an Aide to the President of the Russian Federation.  Shkolov is being designated pursuant to E.O. 13661 for being an official of the Government of the Russian Federation.

Alexander Torshin is the State Secretary – Deputy Governor of the Central Bank of the Russian Federation.  Torshin is being designated pursuant to E.O. 13661 for being an official of the Government of the Russian Federation.

Vladimir Ustinov is the Plenipotentiary Envoy to Russia’s Southern Federal District. Ustinov is being designated pursuant to E.O. 13661 for being an official of the Government of the Russian Federation.

Timur Valiulin is the head of the General Administration for Combatting Extremism within Russia’s Ministry of Interior.  Valiulin is being designated pursuant to E.O. 13661 for being an official of the Government of the Russian Federation.

Alexander Zharov is the head of Roskomnadzor (the Federal Service for the Supervision of Communications, Information Technology, and Mass Media).  Zharov is being designated pursuant to E.O. 13661 for being an official of the Government of the Russian Federation.

Viktor Zolotov is the Director of the Federal Service of National Guard Troops and Commander of the National Guard Troops of the Russian Federation.  Zolotov is being designated pursuant to E.O. 13661 for being an official of the Government of the Russian Federation.

Source:

US Department of Treasury

https://home.treasury.gov/news/featured-stories/treasury-designates-russian-oligarchs-officials-and-entities-in-response-to

AkinGump

https://www.akingump.com/en/news-insights/ofac-sanctions-leading-russian-businessmen-government-officials.html

Download File