OFAC Issues New Sanctions Against Russia’s Central Bank and Sovereign Wealth Funds
In a significant step designed to increase financial pressure on Russia in response to its invasion of Ukraine, the Department of Treasury’s Office of Foreign Asset Control (“OFAC”) issued new sanctions to prohibited United States persons from engaging the Central Bank of the Russia, the National Wealth Fund of Russia, and the Ministry of Finance. In effect, the new sanctions freeze all Central Bank assets held in the United States.
Additionally, OFAC sanctioned Russia’s sovereign wealth fund, the Russian Direct Investment Fund, and its CEO, Kirill Dmitriev, a known close friend of President Putin. At the end of last week, OFAC sanctioned President Putin himself and Foreign Minister Sergei Lavrov.
The United States action was mirrored by its European allies and partners. The coordinated action is designed to prevent Russia from accessing its foreign reserves to circumvent the comprehensive sanctions regime implemented by the United States, its allies and partners.
OFAC issued new Directive 4 under E.O. 14024, Prohibitions Related to Transactions Involving the Central Bank of the Russian Federation, the National Wealth Fund of the Russian Federation, and the Ministry of Finance of the Russian Federation” (Russia-related Sovereign Transactions Directive). Pursuant to the Russia-related Sovereign Transactions Directive, United States persons are prohibited from engaging in any transaction involving the Central Bank of the Russian Federation, the National Wealth Fund of the Russian Federation, or the Ministry of Finance of the Russian Federation.
By restricting access to Russia’s foreign reserves, the coordinated strategy will directly impact the value of the Russian Ruble. Directive 4 includes an exemption for energy-related transactions.
OFAC also designated three entities responsible for managing Russia’s key sovereign wealth fund: Russian Direct Investment Fund (RDIF), its management company, and one of the managing company’s subsidiaries.
The Russian Direct investment Fund (RDIF) was created in 2011, and operates in a number of industries, such as insurance and financial services. RDIF has aggressively sought foreign investment in these industries. RDIF is widely considered a slush fund for President Putin as part of his broad kleptocracy. RDIF was also sanctioned by Canada on February 24, 2022.
The Joint Stock Company Management Company of the Russian Direct Investment Fund (“JSC RDIF”) is RDIF’s management company. OFAC’s designation of JSC RDIF blocks all transactions with that entity.
Limited Liability Company RVC Management Company (“LLC RVC”) is a subsidiary of JSC RDIF. LLC RVC operates in deposit banking, management of investment funds, unit investment trusts, insurance, and private pension funds.
Kirill Aleksandrovich Dmitriev (Dmitriev) is a close ally of Putin and the CEO of RDIF and JSC RDIF. Dmitriev is an alumnus of American universities and has links to American consulting and financial services firms. He has leveraged his ties to universities and organizations in the United States to serve as a representative for the Russian president to American institutions, thereby providing access to key economic opportunities in the United States.
Among the Russian elite, Dmitriev is a close associate of Putin and he and his wife are also believed to be close to one of Putin’s daughters, Katerina Tikhonova, and her former husband, billionaire Kirill Shamalov. Shamalov was designated in April 2018 pursuant to E.O. 13662 for operating in the energy sector of the Russian Federation economy.