Economic sanctions spare
Western-tied Russian fund
WASHINGTON (AP) — Western business
connections are complicating efforts to bring economic sanctions against
executives and companies closely aligned with Russian President Vladimir
Putin's inner circle. A prime example: the Russian Direct Investment Fund, a
$10 billion sovereign wealth fund that's escaped sanctions in spite of
international efforts to punish Russia for its incursions in Ukraine.
A sanctioned Russian bank funds the RDIF, and a
top Putin aide serves on one of its board. The fund's international advisory
board, meanwhile, is stocked with blue-chip American and European private
equity executives, among them Stephen Schwarzman of The Blackstone Group LP,
Leon Black of Apollo Global Management LLC and David Bonderman of TPG Capital
LP.
The chief executive of a French state-controlled
investment company, Caisses de Depots, is listed as one of its supervisors — as
is former International Monetary Fund head Dominique Strauss-Kahn.
The fund has done deals with BlackRock Inc. and
General Electric Co., which partnered with the fund to build small power plants
for industrial users across Russia. JPMorgan Chase & Co.'s One Equity
Partners joined an Illinois tire company to buy a manufacturer of agricultural
and industrial tires. European investors took stakes in telecommunications
firms, information technology consultants and health care companies. In total,
more than $6 billion from blue-chip foreign companies have flowed in.
President Barack Obama and German Chancellor
Angela Merkel are considering new economic sanctions against Russia over its
apparent invasion of Ukraine. There is no evidence that the Russian Direct
Investment Fund would be a target, but the situation with the sanctions-free
RDIF illustrates the Obama administration's struggle to achieve conflicting
goals — punishing Putin's circle without damaging U.S. companies doing business
in Russia.
"We can't have a situation where a business
entity is immune from (sanctions) designation because it does some good things
and some bad things," said Jimmy Gurule, a senior Treasury Department
enforcement official in the Bush administration and law professor at Notre Dame
University.
Obama said Thursday he expects U.S. and European
allies to take additional steps to respond to the Russian military's apparent
invasion of Ukraine. "Capital is fleeing. Investors are increasingly
staying out," Obama said.
A Republican-backed bill in the Senate would
extend sanctions to executives, companies and investment funds, including the
$10 billion Russian fund, and penalize Americans who work with them, according
to congressional staffers.
Within the Obama administration, Treasury lawyers
and investigators have been consulting intelligence and law enforcement
officials in recent weeks to identify targets for new sanctions, according to
three federal officials who spoke on condition of anonymity because they were
not authorized to comment on the confidential discussions. The White House and
Treasury Department declined to say whether the Russian fund might be a target.
Under presidential action, the Treasury
Department's Office of Foreign Assets Control has the authority to freeze a
foreign target's financial assets in the U.S. and block its transactions with
Americans. The targets can be businesses or individuals and have included
terrorists, criminals and state entities. The Treasury Department can also
limit the effect of its sanctions, and some targeted Russian banks are
restricted only from accessing U.S. capital markets, not blocked entirely.
Some Westerners have already cut ties with the
Russian fund. Former Chicago Mayor Richard M. Daley, a longtime Obama political
intimate who was listed on corporate documents as a fund adviser as recently as
April, has now severed ties with the fund. Harvard Professor Josh Lerner
stepped down from the fund's supervisory board. And last week, references to
Kurt Bjorklund, a leader of European investment firm Permira, quietly disappeared
from the fund's website.
Others, including all three American private
equity executives, have stayed put. Bonderman appeared in photographs and on
the attendee list in April at the St. Petersburg Economic Forum, an annual
event favored by Putin that the Obama administration urged many top American
business leaders to skip.
Current and former board members either declined
to comment or did not respond to phone calls and emails from the AP.
"Businesses are caught in the middle,
because while they want to be loyal to the government, they have major
investments here," said Laura Brank, the head of the Russia practice at
Dechert LLP, a major international law firm.
The Russian fund in May partnered with two
unidentified international investors and Gazprombank, the sanctioned finance
arm of Gazprom, the Russian-controlled energy conglomerate, to buy a liquefied
gas terminal. The seller was OAO Sibur Holding, which is partially owned by
Gennady Timchenko, a Russian billionaire on the U.S. sanctions list. Under the
deal, as described by the Russian fund, Sibur sold the facility to the
investors for $700 million — and simultaneously struck a deal to lease it back
from them. The Russian Direct Investment Fund's head, Kirill Dmitriev, told the
Associated Press that Sibur has not been targeted by sanctions but otherwise
declined to discuss fund investments.
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