American Lawyers Seek Elusive Clarity on Russian Sanctions

Photograph by Andrey Rudakov/Bloomberg

A OAO Gazprom sign in Moscow on March 16, 2014.

The sanctions slapped on Kremlin power-holders by the Obama administration leave a lot of unanswered questions that make U.S. companies cautious about their deals with Russian counterparts.

Americans are prohibited from doing business with designated individuals. But what if a designated person is a chief executive officer of a company — is that company blocked?

What if it’s hard to figure out whether a designated person controls a company or not? How about entities in which more than one designated individual is a shareholder?

While the Treasury Department yesterday held a call with about 70 lawyers handling economic sanctions, it declined to talk about who else might be added to the Russian sanctions list, and didn’t answer most of the questions about specific companies, said David R. Johnson, partner at Vinson & Elkins LLP in Washington.

When Treasury has a specific view of an entity, “they will put that out publicly,” Johnson said in an interview. “They said in the interim, everybody has to be careful and do their due diligence about every entity that they are engaged with, to make sure they don’t have the issue of ownership and control.”

Such uncertainty serves the U.S. purpose of isolating Russia economically and punishing President Vladimir Putin for intervention in Ukraine’s Crimean region. Cautious Americans are staying away from companies with ties to designated individuals, driving down the value of Russian assets and hurting the economy.

Bond yields of commodity trader Gunvor Group Ltd. reached a record earlier this month, even as its co-founder Gennady Timchenko sold his stake in the company one day before the Treasury Department announced sanctions on him. The U.S. alleged Timchenko’s activities in the energy sector have been directly linked to Putin, that “Putin has investments in Gunvor” and that he may have access to Gunvor funds. The company, operated out of Geneva, denies any Putin ownership.

Lawyers on the call with Treasury yesterday asked and didn’t get a definite answer about OAO Sogaz Insurance Group, one of the Russia’s largest insurance companies, which is controlled by OAO Bank Rossiya, a St. Petersburg-based lender owned by associates of Russian President Vladimir Putin designated by the U.S. Treasury.

Bank Rossiya also holds a stake in National Media Group, which owns broadcasters and the newspaper Izvestia, and manages the pension fund of state gas company Gazprom. Together with partners including billionaire Alexey Mordashov, it bought 50 percent of the wireless operator Tele2 last year.

A lot of questions for the Treasury were about financial institutions, said Judith A. Lee, a U.S. sanctions lawyer and chair of Gibson Dunn’s International Trade Regulation and Compliance Practice Group.

Lee thinks that if the U.S. were to move on more designations, companies in financial services “could be a good target.” Treasury Secretary Jack Lew has said that further sanctions might include entities and individuals in finance, energy, metals and mining.

Treasury told lawyers it’s drafting regulations following three executive orders announcing the sanctions and might publish them soon, without specifying what they might include.

Johnson said they could have provisions that would allow  U.S. companies to finish up contracts with their Russian counterparts or an annex with a list of entities determined as being under control of the designated persons and entities.

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