Update on Russia Trade Sanctions

The Trump Administration Treasury Department’s Office of Foreign Asset Control activity has been interesting to watch.  On the one hand, OFAC has been implementing aggressive sanctions against Russia in reaction to Russia’s global misconduct.  On the other hand, OFAC has brought  — no, none, zip — enforcement actions this year.  That is unprecedented and inexplicable.

I doubt that all staff has been dedicated to drafting new sanctions for Russia, Cuba, and other countries.  Most of OFAC’s enforcement actions are initiated through voluntary disclosure, and there is nothing to suggest that OFAC lacks sufficient resources to complete ongoing investigations.

The Russia Sanctions Program has had a significant impact on  a number of business sectors, particularly in the finance and oil and gas industries.  Congress pushed the program restrictions in passing the Countering America’s Adversaries Through Sanctions Act, which OFAC has implemented.

Just as everyone was catching up in this area, OFAC announced, on April 6, 2018, a significant expansion of the sanctions program.  In short, OFAC added seven major Russian oligarchs and 12 companies they own or control to the Specially Designated Nationals List.  The Oligarch Sanctions already has had a significant impact on various global markets, especially the aluminum market.

The Oligarchs have significant financial interests in a variety of companies, and compliance with the new list requires careful application of the 50 Percent Rule, which extends sanctions to every entity owned 50 percent by one or more prohibited SDN individuals or entities.

The Russian oligarchs list includes three significant individuals, including:

  • Oleg Deripaska is perhaps one of the most notorious oligarchs. Deripaska is alleged to have a close relationship with President Putin.  He is closely allied with the Russian government.  He allegedly has strong ties with Russian organized crime.  In addition, he has been accused of using violent crime and intimidation in his business dealings.
  • Igor Rotenberg operates in the energy sector in Russia. Rotenberg’s father was designated by OFAC in 2014.  Igor Rotenberg controls Gazprom Burenie.
  • Viktor Vekselberg was recently identified as part of the Michael Cohen controversy.  Vekselberg operates in Russia’s energy sector.

Oleg Deripaska’s tentacle stretch into a number of companies, which were listed in the Oligarch sanctions program:

  • B-Finance Ltd.
  • Basic Element Limited – Deripaska’s private investment and management company.
  • EN+ Group – Deripaska;s aluminum and power producer.
  • EuroSibEnergo – one of Russia’s largest independent power companies in Russia, producing approximately 9 percent of Russia’s power..
  • United Company RUSAL PLC – one of the world’s larges aluminum producers, responsible for seven percent of global aluminum production.
  • Russian Machines – manages Basic Element’s machinery assets.
  • GAZ Group – leading Russian manufacturer of commercial vehicles.
  • Agroholding Kuban

Igor Rotenberg’s ownership interests include two significant companies:

  • Gazprom Burenie, OOO provides oil and gas exploration services in Russia.
  • NPV Engineering Open Joint Stock Company provides management and consulting services in Russia.
  • Renova Group consists 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.

Viktor Vekselberg is linked to the Renova Group, which was designated.  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.

OFAC also designated seventeen (17) senior Russian government officials, a state-owned Russian weapons trading company and its subsidiary, a Russian bank.

The most significant designees include:

  • Andrey Akimov – Chairman of Gazprom, the state-owned gas company.
  • Mikhail Fradkov – President of the Russian Institute for Strategic Studies.
  • Sergey Fursenko – Member of Board of Directors of Gazprom Neft, a subsidiary of state-owned Gazprom. 

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