Report

U.S. Sanctions More Russians

U.S. Sanctions More Russians

The Obama administration moved Monday to ratchet up sanctions against Russian officials and companies, saying Russian President Vladimir Putin and the Kremlin have done "precisely nothing" to meet the terms of a recent agreement to help de-escalate the tense situation in neighboring Ukraine.

The latest round of sanctions includes seven Russian government officials and 17 Russian companies. The short list incrementally deepens earlier sanctions by further restricting politicians and businesspeople close to Putin, but the designation of top oil executive Igor Sechin is a symbolic shot across the bow of an industry that is crucial to the Russian economy and Putin’s power.

Obama administration officials specifically noted the inclusion of Sechin and Sergei Chemezov, on Monday, saying the inclusion underscores the severity of the sanctions. Sechin is president of the state-owned Rosneft oil company and a key Putin adviser, according to Treasury. Sechin’s personal assets will be frozen, but Treasury officials said the designation wouldn’t impact U.S. companies’ ability to do business with Rosneft because Sechin does not control the firm.

Chemezov is the CEO of the Russian state development organization Rostec Corp. and the former director general of Rosoboronexport, Russia’s state arms dealer. Rostec also is involved in selling some military equipment, however, including helicopters and the ubiquitous Kalashnikov rifle.

"Russia is the world’s largest producer of military helicopters," Chemezov told Bloomberg News in an interview in March. "They’re cheaper than European or American helicopters, and the quality is no worse."

Monday’s move extended the reach of earlier sanctions by adding several banks and firms to the list that the Treasury Department says are controlled by people who were blacklisted last month.

Ratings firm Standard & Poor’s downgraded Russia’s debt Friday, saying that the economy faced increased risk because people have moved so much money — $51 billion so far this year — out of the country. That compares to $63 billion in all of 2013. Following the downgrade, Russia’s central bank increased benchmark interest rates a half point to seven percent to combat inflation caused by the declining value of the ruble, which has fallen almost eight percent against the dollar so far this year.

The financial hits, however, have failed to persuade Putin to reverse his annexation of Crimea or remove any of the tens of thousands of troops he’s massed along his country’s border with Ukraine.

U.S. officials hope the new measures will have more bite. Two banks and a pipeline company were added to the list Monday because they are owned by billionaire brothers Arkady and Boris Rotenberg, who were sanctioned on March 20. Three other firms were listed because they are alleged part of Bank Rossiya, which Treasury said is the personal bank for Putin and his associates, when it was added to the list. Eleven companies belonging to Gennaddy Timchenko were also designated, including at least four construction firms, a company that makes soft drinks and an oil transport business.

In March, Treasury blacklisted Timchenko, the founder of commodities business Gunvor Group, saying that Putin had investments in the firm, which the firm has denied.* The U.S. effort to pressure Putin through sanctions highlights the murky nature of the Russian leader’s financial holdings, which the New York Times reported Sunday could be as high as $70 billion.

Standard Bank analyst Tim Ash, who has followed the Ukraine crisis closely, said the list mainly included smaller "pocket" banks.

"What is striking is the relative absence of any banks/corporates at the ‘commanding’ heights of the Russian economy," Ash said in a research note.

Visa and Mastercard shut down service to two banks, SMP Bank and InvestCapitalBank, that were added to the list Monday. The card companies already stopped processing transactions for Bank Rossiya and one of its subsidiaries after that bank was sanctioned last month.

U.S. officials warned that even harsher economic penalties against Moscow – including sectoral sanctions that would likely hurt the global economy if imposed – are still on the table if the Kremlin launches a full-blown invasion of eastern Ukraine. Their implementation could make it illegal for Americans to do business with certain industries, like energy, finance or defense.

"What we’re doing is having a very significant impact," one U.S. official said. "These are calibrated and firm moves… that have had significant impact on the Russian economy."

The U.S. Commerce Department also expanded earlier restrictions on what American companies can export to Russia. The department stopped issuing new licenses in March, but will now explicitly deny some applications and could revoke earlier issued permissions. Any applications from U.S. companies that want to export items that could contribute to Russia’s military capability will be rejected, Commerce said. Thirteen Russian companies were also added to a further restricted "entity list," which means permission to export to them will likely be denied.

It’s unclear which products will be restricted under the tighter export controls. Commerce oversees so-called “dual use” items, which can be used for civilian or military purposes, so if the new measure were interpreted broadly the restrictions could apply to all the products that the agency controls. A Commerce spokesman did not respond to requests for comment.

Tom Keatinge, an independent finance and security analyst, said the U.S. was probably sending few military items to Russia, even before the tighter measures.

“I cannot imagine that anything is being exported that can’t be sourced elsewhere from China or the like,” said Keatinge, who is also a former J.P. Morgan investment banker, in an email.

While the direct effects may be limited, export lawyer Farhad Alavi said the increased complication of sending products to Russia may discourage smaller companies from even applying for the licenses.

“They’re just going to say screw it, we’re not going to deal with Russia,” said Alavi, a partner with Akrivis Law Group.

President Obama said in Kuala Lumpur, Malaysia Sunday that the U.S. was opting to coordinate with Europe, rather than charging ahead alone.

"The notion that for us to go forward with sectoral sanctions on our own without the Europeans would be the most effective deterrent to Mr. Putin I think is factually wrong," Obama said at a joint press conference with Malaysian Prime Minister Najib Razak. "We’re going to be in a stronger position to deter Mr. Putin when he sees that the world is unified and the United States and Europe is unified, rather than this is just a U.S.-Russian conflict."

The government in Kiev has pleaded for the United States to offer more military aid to Ukraine, including weapons, but U.S. officials said there is no scenario in which the Ukrainian military is going to be built up to the point that it can withstand Russian military might. The European Union is expected to announce similar economic sanctions soon.

Keith Johnson contributed this this article.

This article has been updated and corrected.

*Correction, April 30, 2014: The Treasury Department said on March 20, 2014 that the U.S. was sanctioning Timchenko bec
ause Putin had access to Gunvor funds, but did not sanction Gunvor.  An earlier version of this story misstated that the firm had also been blacklisted. (Return to reading.)