U.S. Freezes Assets of Russian Businessmen and Bank Close to Putin

The United States increased the economic pressure on Moscow in response to its invasion and annexation of Crimea, freezing the assets of a Russian bank with billions of dollars in holdings and several prominent businessmen with close ties to Russian President Vladimir Putin.

In retaliation, Moscow banned nine American officials from traveling to Russia. It was mostly a symbolic move — one that was embraced as a badge of honor by several of the Americans on the list — but it could also signal the beginning of reciprocal reprisals between the two countries that could quickly escalate into a damaging economic battle.

The U.S. added 20 new names to its blacklist Thursday as well as Bank Rossiya, which senior administration officials said has $10 billion in assets. Americans and American businesses will now have to sever all ties with the bank and stop doing business with all of the newly named officials and businessmen. Any assets in the U.S. owned by individuals on the list will be frozen and inaccessible. The administration, on Monday, targeted seven Russian officials, many of whom scoffed at the move as ineffectual because they don’t have assets in the U.S. or Europe.

Going after Russian executives close to Putin is a significant escalation of the earlier sanctions because they are far more likely to have assets abroad. Gennady Timchenko, founder of commodity trading company Gunvor, was added to the list Thursday because of Putin’s alleged investment in the company, according to the Treasury Department.

Gunvor rejected the claim that the Russian president has a stake in the company and called the accusations "misinformed and outrageous."

"President Putin has not and never has had any ownership, beneficial or otherwise in Gunvor. He is not a beneficiary of Gunvor or its activities," the company said in the statement, issued through a Washington-based public relations firm.

Also newly blacklisted are the brothers Arkady Rotenberg and Boris Rotenberg, who the Treasury Department says have amassed vast wealth – including $2.5 billion over the last two years — through their relationship with Putin. The Rotenbergs received about $7 billion in government contracts related to the Sochi Olympics, according to Treasury.

The most prominent name on the list is Yuri Kovalchuk, a man who has been frequently described in press reports as Putin’s banker. While reports that Kovalchuk handles Putin’s personal wealth are little more than rumors, the veteran banker occupies a central role in the world of Russia’s lucrative energy sector.

As a key player and chairman at Bank Rossiya, Kovalchuk has steered what used to be an obscure St. Petersburg bank onto the center-stage of Russia’s energy sector. Through a series of controversial deals, Bank Rossiya – and Kovalchuk – have gained control of several Gazprom subsidiaries, including its pension fund and insurance arm. Investors allege that through these acquisitions — funded by capital the source of which remains unclear — Bank Rossiya was able to leech value from Gazprom and enrich the oligarchs behind the bank to the tune of billions of dollars. 

In a White House press conference, President Obama said the U.S. sanctions were in response to what Russia has already done in Crimea, but threatened harsher measures if Russia moved further into Ukraine.

"The world is watching with grave concern as Russia has positioned its military in a way that could lead to further incursions into southern and eastern Ukraine," Obama said.

Obama outlined further steps the U.S. could take in an executive order that would allow the U.S. to target sectors of the Russian economy, including banking, energy and defense. But he emphasized that he hoped those measures wouldn’t have to be taken.

"These sanctions would not only have a significant impact on the Russian economy, but could also be disruptive to the global economy," Obama said.

Going after Russia’s energy sector could deal a powerful blow to the Russian government, which relies on oil and gas exports for about half its funding.  But it would also be a very costly move for Europe, which gets about 30% of its natural gas from Russia with no ready alternative supply.

If the Obama administration decided to go ahead with isolating the Russian energy sector, it could then decide to blacklist energy giants Gazprom and Rosneft. German newspaper Bild reported last week that the chief executives of both firms, are on the long list of possible European sanctions targets. Because of the huge costs to Europe, most observers don’t expect the West to take that road unless Russia starts muscling into eastern Ukraine.

By targeting Gunvor, the White House has struck the Russian energy sector while leaving the truly big fish — Gazprom, Rosneft, and their executives — as potential targets for a later round. Following Putin’s reassertion of state control over the country’s energy industry, Gunvor emerged as a key beneficiary of the president’s dismantling of Yukos, the energy company belonging to the tycoon Mikhail Khodorkovsky. According to traders at the energy company, which was essentially dismantled by the state under the guise of tax evasion charges, large parts of the company’s contracts were transferred to Gunvor, fueling its rise and vastly enriching Timchenko, whose net worth is now estimated at $15.3 billion.

"They took over all our barrels," one former Yukos trader told the Financial Times in 2008. Timchenko has denied his company has benefited from connections to Putin.

The U.S. could also decide to ramp up sanctions if Russia exerts further economic pressure on Ukraine.

"We’re deeply concerned today that the Russians have appeared to close the border to Ukrainian goods entering Russia, effectively having imposed a trade embargo," said a senior administration official on a background call for reporters.

As the new government in Kiev moves to deepen political and economic ties with the rest of Europe, there is concern that Moscow could again try to pressure Ukraine to back away from those negotiations. Russia threatened Ukraine with a trade embargo last fall, when former President Viktor Yanukovych was considering signing an association agreement with the European Union.

Russia’s blacklist includes many top U.S. lawmakers and officials in the Obama administration. A spokesman for the Russian Embassy in Washington confirmed to Foreign Policy that the list includes a mix of influential political players, including White House aides Ben Rhodes, Dan Pfeiffer and Caroline Atkinson and top Congressional leaders including Senate Majority Leader Harry Reid, House Speaker John Boehner, Senate Foreign Relations Committee Chairman Bob Menendez and Arizona Senator John McCain.

Contrary to an earlier report, Senate Majority Whip Dick Durbin does not appear on the list. Other names banned from travel in Russia include Louisiana Senator Mary Landrieu and Indiana Senator Dan Coats.

After hearing about his placement on Moscow’s list, Menendez welcomed the punitive action.

"If standing up for the Ukrainian people, their freedom, their hard earned democracy, and sovereignty means I’m sanctioned by Putin, so be it," he said in a statement.

Shane Harris contributed to this report.