Yesterday, the U.S. House of Representatives overwhelmingly passed the “Support for the Sovereignty, Integrity, Democracy, and Economic Stability of Ukraine Act of 2014.” The U.S. Senate approved the bill last week, and all that remains for it to take effect is the signature of the President of the United States.
There is little doubt that Obama will sign this bill, since back in early March he issued several executive orders imposing sanctions on certain individuals in connection with the situation in Ukraine. Everyone writes about these sanctions, but very few people actually understand them. Media outlets that explain things like this are becoming rarer by the day. Few people read English, and even those who do are too lazy to wade through huge texts full of dreadful legal jargon. To make life easier for everyone, I asked ACF investigations department staffer Nikita Kulachenkov (who, by the way, is the main author of the report on corruption at the Olympics — not the website, but the actual report, do read it) to write a letter to all ACF staff explaining what these sanctions are and clearing up the ignorance on the subject. Then we thought there was no point being stingy, so everyone should read it. So then: what are the sanctions imposed against Russia? An ACF primer: The essence of the law passed by the Senate and the House of Representatives is to set out the U.S. position on the situation in Ukraine and to authorize and encourage the President of the United States and executive agencies to take certain actions. These actions include: Providing Ukraine with loans and loan guarantees, including IMF assistance Assisting in the recovery of assets belonging to Ukrainian public officials involved in corruption (Yanukovych is named directly in the text, though there is not a word about the “golden loaf” (a reference to the lavishly gilded bread-shaped ornament found in former Ukrainian president Yanukovych’s residence)) Assistance in building public institutions in Ukraine Enhanced cooperation on security issues Directing the U.S. Department of Defense to prepare an annual report for the U.S. Senate on Russia’s military strength Imposing sanctions on certain groups of individuals And it is this last point that ACF believes deserves a closer look. The law contains two sections dealing with sanctions. The first, titled “Sanctions on Persons Responsible for Violence, Undermining Peace, and the Territorial Integrity of Ukraine,” REQUIRES the President of the United States to impose sanctions on those persons. The second, titled “Sanctions on Russian Persons Complicit in or Responsible for Significant Corruption,” AUTHORIZES and ENCOURAGES the President of the United States to impose sanctions on the following persons: a) Any official of the Government of the Russian Federation, or an associate or family member of such an official, who, in the determination of the President of the United States, is responsible for or complicit in ordering, controlling, or otherwise directing significant acts of corruption in Russia, including the expropriation of private or public assets for personal gain, corruption related to government contracts, natural resource extraction, bribery, or the transfer or facilitation of the transfer of the proceeds of corruption to foreign jurisdictions. b) Any person who, in the determination of the President of the United States, has materially assisted the persons described above, including by providing material, logistical, or technological support, or goods and services. Note that the second section says nothing about Ukraine. In other words, sanctions are possible against any corrupt officials from Russia, even if they have never heard a thing about Ukraine or Crimea.
Who exactly is meant by the persons referred to in these sections can be seen from the U.S. President’s executive orders. Those orders have already effectively imposed sanctions on Ukrainian and Crimean officials, as well as Russian officials and businessmen who belong to the so-called “inner circle” of the Russian leadership. Sanctions. Now let’s look at what the law defines as sanctions: a) Asset blocking. The President may use all powers provided under the International Emergency Economic Powers Act that are necessary to block and prohibit transactions involving the property and interests in property of persons subject to sanctions, if such property or interests are in the United States, fall under U.S. jurisdiction, or are or come under the control of a U.S. person or entity. b) Ban on entry into the United States and visa revocation. A person subject to sanctions must be denied entry into the United States or deported, their visa must be revoked, and new visas must be denied. The second point is fairly straightforward, but the consequences of the asset-blocking provision are worth examining in more detail. Within the U.S. Department of the Treasury there is an office called the “Office of Foreign Assets Control” (OFAC), which is responsible for administering U.S. economic sanctions. This office maintains a list of legal entities and individuals known as the “Specially Designated Nationals and Blocked Persons List” (SDN).
This is what it looks like. The full list contains more than six thousand individuals and entities sanctioned by the United States. On it you can find drug lords, terrorists, arms dealers, leaders of small African states, as well as the head of Russian Railways and the owner of the oil trader Gunvor (supposedly a former owner). U.S. citizens and American companies are prohibited from having business dealings with all these wonderful people. Newcomers to this distinguished list can expect the following. Asset blocking Any property, real estate, bank accounts, stakes in American companies, or securities traded on U.S. exchanges that belong to individuals or entities on the list are blocked. In other words, the person can no longer dispose of that property. This does not necessarily mean the property will be confiscated, but it cannot be used until the sanctions are lifted. Incidentally, interest will still accrue even on funds blocked in banks. Ban on transactions with American companies U.S. citizens and American companies, including banks, are prohibited from having business dealings with persons on the list. That means a listed person cannot make a transfer not only TO or FROM an American bank, but even THROUGH an American bank. If someone makes a transfer in favor of a listed person and the correspondent bank is an American bank, that transfer will not go through. More than that, the American correspondent bank will block the funds passing through it, and they will not only fail to reach the recipient, but will not be returned to the sender either. But that is not all: an American bank is required to block a transaction even if no listed person is directly involved, as long as that person is connected to the transaction or will benefit from it. This means that transactions by close relatives could theoretically also be blocked.
Andrei Yakunin. He lives with his family in a house in north London worth £4.5 million. The ban applies not only to transactions with banks, but also to dealings with any other American companies. In other words, a listed person or a company they own will not be able to buy anything from an American company. According to unverified information from ACF, one major American corporation has already begun terminating contracts with Gazprom Burenie, a company owned by Arkady Rotenberg. Consequences in non-American banks: Of course, people on the list can still carry out transactions through non-American banks, but they face an unpleasant surprise there as well. The reason is that the SDN list is widely used by compliance departments in banks around the world. One of the main tasks of bank compliance functions is to prevent and detect suspicious transactions in order to reduce financial, legal, and reputational risks. One of the primary tools for identifying suspicious transactions is screening prospective clients, payers, or recipients against various lists. One of those lists is the SDN list. As a rule, a bank’s information system automatically searches for matches between the name of a counterparty and names on sanction lists, and if such a match is found, it stops the transaction. For non-American banks, if a person appears on the SDN list, blocking the transaction is not mandatory, but carrying it out will most likely require separate approval from the compliance officer responsible. And that compliance officer may request additional documents from the person carrying out the transaction and otherwise obstruct or delay it, disrupting the person’s normal operations. If a person on the SDN list comes to a bank and asks to open an account, that screening is carried out as part of “Know Your Customer” procedures, and the person will most likely simply be refused for the same reputational reasons. Conclusion The imposition of sanctions means not only exclusion from the American business environment, but also serious difficulties in doing business around the world. In effect, the person ends up isolated and can do business freely only within their own country. One could say that it will now be much harder for Gennady Timchenko to “serve Russia,” and for Vladimir Yakunin to demonstrate his “honesty” around the world. Many thanks to Nikita for the explanation. Let me add this on my own behalf: so far, there appears to be nothing in the sanctions document that could harm the people of Russia, as opposed to the small gang of bandits who rob those people 24/7. Read it and pass it on: http://navalny.us Mirror of this post: http://navalny.us/920813.html You would really help us if you clicked “retweet” right here:
During Alexei Navalny’s house arrest, his blog is being run by Yulia Navalnaya and ACF staff.