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How to Select Russian Oligarchs for New Sanctions?

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How to Select Russian Oligarchs for New Sanctions? HOW TO SELECT RUSSIAN OLIGARCHS FOR NEW SANCTIONS? Report by Ilya Zaslavskiy and Scott Stedman How to select Russian oligarchs for new sanctions? 1 CONTENTS Introduction 3 Background 3 CAATSA as a watershed in sanctions criteria 4 Recommendations for U.S. government on further interpretation of the CAATSA criteria 6 Additional measures 14 HOW TO SELECT RUSSIAN OLIGARCHS FOR NEW SANCTIONS? Introduction This study seeks to explore and open the encouragement and additional new framework debate on how existing criteria for sanctioning to target much wider circle of Russian officials Russian oligarchs can be used and interpreted and oligarchs. and what new criteria can be added to current and possible future sanctions by the U.S. These The watershed point was last year with deliberations will be illustrated with examples the adoption of the Countering America’s of individual oligarchs and their relevant links Adversaries Through Sanctions Act (CAATSA) to the criteria. which, as we show, widely expanded views of the Congress of who should be sanctioned. It must be noted that even before any specific This was a political, publicity and psychological sanctions against Russia, U.S. government could move for audiences both inside and outside the in theory easily and without any additional laws country, including allies and adversaries, not target basically anyone in Russia using existing just Russia. authorities (the same goes for many other authoritarian and kleptocratic countries). The In this study we will show how exactly this U.S. can block the assets, restrict debt or equity gradual encouragement proceeded and why dealings of basically anyone if it chooses to do and how the expanded criteria passed by the so. And if there is someone they cannot get (an Congress can be used to counter Kremlin’s individual, entity, or transaction type) under adversarial behavior against the West. existing laws, then this someone or something could be captured through a new Executive Order. Background It is notable to trace back the expansion of criteria under different sanctions against powerful individuals in Russia over the last six years, ever since the first sanctions under Sergei Magnitsky Rule of Law Accountability Act of 2012 were implemented under the Obama administration. In a nutshell, the Magnitsky Act merely touched on a very narrow list of individuals: those involved in the case of incarcerating, torturing, murdering and covering up the murder of However, while the authority in principle was Sergei Magnitsky, the Russian lawyer who there, it was never used on any considerable uncovered tax evasion schemes facilitated scale before 2012. The executive power did by the Russian government, and severe gross not want to upset relations with Kremlin for human rights violators, such as criminal political reasons. But since 2012 U.S. Congress officials in Chechnya who were involved in has demonstrated growing demand for more horrific physical abuses. sanctions, it incrementally gave broader How to select Russian oligarchs for new sanctions? 3 Then came Russia’s war on Ukraine and in the Russian Federation, as determined by their a series of consecutive sanctions, the U.S. closeness to the Russian regime and their net government imposed sanctions on those worth. officials and other individuals who directly participated in the annexation of Crimea (B) An assessment of the relationship between and in the aggression in Eastern Ukraine or individuals identified under subparagraph (A) subsequently facilitated projects in those and President Vladimir Putin or other members territories. Only half a dozen oligarchs – i.e. of the Russian ruling elite. extremely wealthy individuals connected to (C) An identification of any indices of corruption Kremlin - were impacted by those sanctions with respect to those individuals. and included exclusively Putin’s old time St. Petersburg cronies. So essentially the proximity to Putin and the Kremlin defined by some insider relations plus any significant documentation of actual corruption are enough in theory to put oligarchs on the list. It is clear that CAATSA metrics are the broadest possible criteria of all sanctions that have been implemented since 2012 and they are open to a quite wide and different interpretation by U.S. officials responsible for compiling sanctions’ lists. Finally, after Russia’s meddling in the U.S. elections was confirmed and acknowledged by It is inevitable, in our view, that U.S. policy- the majority of members of the U.S. Congress, makers will be selective and criteria alone will the criteria for sanctioning Russian officials and not strictly guide the selection of who gets on oligarchs broadly expanded in mid-2017 after the list. There seem to be just one important the enactment of the CAATSA. indicator among several other serious factors influencing decision-making. At the same time, it does not mean that the selection of oligarchs for actual sanctions is CAATSA as a watershed in arbitrary and random. Rather it is a combination sanctions criteria of a) political considerations, b) economic impact on Russia versus economic impact on the U.S. and its allies, and c) applicability of On January 29th, 2018 pursuant to CAATSA, a particular oligarch to the criteria regarding the U.S. Department of the Treasury published closeness to Putin defined by specific relations the so-called Kremlin report, a list of Russian and/or corruption evidence. senior officials and oligarchs in the Russian Federation. This was not a sanctions list For all sanctions against Russian officials and but essentially a warning1 to all individuals rich individuals around Putin before CAATSA, involved that they are seen as part of Vladimir the U.S. Treasury is ready to stand trial in U.S. Putin’s regime and may be sanctioned in future. court if any sanctioned individual decides to challenge his or her applicability to the criteria. Under CAATSA, oligarchs are seen as integral There is one precedent so far that is publicly members of the Russian ruling elite. Section available: the Prevezon case. This case officially 241 stipulates several metrics2 to be used in dates back to 2013, when U.S. authorities the identification of them: sought to seize about $14 million in assets (A) An identification of the most significant from the company, which was registered in senior foreign political figures and oligarchs in Cyprus and largely owned by well-connected Russian businessman Denis Katsyv. Prevezon essentially tested U.S. prosecutors 1 https://home.treasury.gov/news/press-releases/sm0271 for claiming that Prevezon benefited from tax 2 https://www.treasury.gov/resource-center/sanctions/ fraud and money laundering scheme from Programs/Documents/hr3364_pl115-44.pdf (part 3) Russia and for trying to seize assets under by Russian prosecutors against two associates U.S. Magnitsky Act. In the end, in 2017 the two of the oligarch that were arrested for bribing sides announced a settlement, with Prevezon officials connected to a power generation admitting no wrongdoing and agreeing to pay project in Russia (the case is also ongoing). $6 million.3 Although these are not the main reasons for their inclusion, it is unprecedented that the U.S. Notably, it is unclear whether Russian oligarchs government finally started to use references such as Oleg Deripaska and Victor Vekselberg to ongoing corruption cases outside the U.S. or can even try to test being sanctioned under even Russia, something that Russian opposition CAATSA. They can in theory try to sue the activists have been suggesting for years. U.S. government for libel after allegations of corruption were referenced in the explanation by the U.S. Treasury as part of the justification for their inclusion under sanctions. However, another part of the justification for these individuals was closeness and involvement in Putin’s regime, therefore it was a political decision by the U.S. government on the grounds of national security. It is unclear whether oligarchs can challenge political allegations in U.S. courts even in theory. In our view, in reality the main factor for sanctioning Deripaska and Vekselberg in April 2018 was political. The latter may have This indicates that the U.S. government is included not just their involvement in the inner now wary of the level of corruption within activities of the Putin’s regime but also their the Russian government which it essentially possible meddling in U.S. presidential elections. started to see as part of the system. It no The U.S. government must have also concluded longer wants to wait for the final decision that Deripaska and Vekselberg’s inclusion on of corrupt Russian courts on some of these the sanctions list would have relatively little cases or definitive legal conclusions from economic impact on Russia (but would send a European courts, but simply wants to contain strong new signal that oligarchs from 1990’s the U.S. from malign influence even if it is only not from St. Petersburg Putin’s clan may now potentially coming from individuals that are face sanctions) and even smaller impact on the seen as part of Putin’s oligarchic network. At U.S.4 the same time, there has not been a single oligarch who was sanctioned under CAATSA Another important observation about the simply for his alleged corruption. Corruption April sanctions against oligarchs is that for has been used only as as a secondary reason on the first time, the U.S. Treasury used as part top of being an official who is close to Kremlin of its justification references to corruption or running a substantial industry in Russian scandals around oligarchs that are not economy. necessarily complete in the legal sense. For example, Suleiman Kerimov was referenced to All the above considerations about CAATSA be involved in tax evasion and corruption in bring us to the following important France (where the case is ongoing).5 Part of conclusions: the explanation for Vekselberg’s sanctioning included references to ongoing domestic cases • The U.S.
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