Putin's Circle in the New Ring of US Sanctions

As the United States prepares to unveil a new list of sanctions against Russia, Radio Free Europe/Radio Liberty has reported on the aspects and nature of these sanctions. According to the report, US officials have completed their latest assessment of the new sanctions list against Russia, and efforts by Congress and the US Treasury to keep the list of individuals and companies confidential have sparked much speculation. The report adds that evidence suggests the new US sanctions against Russia will be broader in scope. Unlike previous sanctions, which primarily targeted Russian state companies for the annexation of Crimea in 2014 or issues related to Syria, the new sanctions are expected to encompass a wider range of entities, including companies cooperating with sanctioned Russian institutions. Furthermore, it is said that some individuals within the Kremlin circle and close associates of Russian President Vladimir Putin will also be included in the sanctions list. This list is expected to be published by the end of this month. The report adds that Russian officials have accused the US of attempting to influence the upcoming presidential elections in Russia, scheduled for late winter. According to the report, one of the most influential Russian newspapers has reported that approximately 300 of Putin's closest associates are likely to be on the blacklist, and these sanctions will jeopardize global financial institutions' cooperation with them. "The Russians are taken aback," says Daniel Fried, former senior sanctions coordinator at the US State Department, to Radio Free Europe/Radio Liberty, adding that "in fact, the Russians have been caught off guard by the news of the new sanctions for over a month." Andrei Piontkovsky, a Russian expert residing in Washington, also confirms Fried's view, stating that "there is confusion in Moscow, as for the first time, Putin's associates are set to be sanctioned." The sanctions are based on a law passed by Congress last summer and signed by President Donald Trump in August. This law is aimed at imposing sanctions on secondary companies and individuals accused of cooperating with previously sanctioned Russian companies. In October of last year, the US State Department blacklisted dozens of military and security companies, announcing that any company or individual that has "significant" economic cooperation with these companies will be punished. This theoretically means punishing foreign banks that lend to companies interacting with sanctioned state companies, and could also include the state arms exporter "Rosoboronexport" or the arms manufacturer "Kalashnikov." The report adds that the law passed by Congress this summer requires the State Department to compile a list of prominent oligarchs and their families, raising the possibility of sanctioning these individuals close to the Kremlin circle and their relatives. In theory, this option could include the daughter of an oligarch doing business in the US or, for example, the head of a Russian industrial company active in the West. Many observers in Washington interpret this Congressional request to the State Department as the preparation of an "oligarch list." Fried states that "this list will target individuals and show that no one is safe, and the scope of sanctions could extend to places where Putin cannot protect them. This could have consequences for those involved in Putin's financial corruption circle or supporters of corrupt financial activities." The report adds that sanctioned individuals will not immediately face financial or travel restrictions, but experts believe that these sanctions indicate that, aside from their psychological impact, cooperation with sanctioned companies could have consequences for individuals and other companies. These sanctions also put their assets and incomes in the US at risk. Olga Oliker, an expert at the Center for Strategic and International Studies in Washington, also believes that "for some, this is very personal, and for others, it is very political. The question is what exact signal is being sent from the US and how it is received in Moscow." The report continues that the potential list of "oligarchs" is currently kept confidential by Congress and the State Department, but sanctions experts, the Russian opposition, and some Western traders and lawyers are trying to gather information. Some wealthy Russians have also lobbied at the Congressional and US government level to dissuade them from potential sanctions. Two weeks ago, the Russian newspaper Kommersant reported, citing sources in Washington, that the list could include 300 individuals. Last December, a group of Russian opposition members, supported by political activist and world chess champion Garry Kasparov, met in Lithuania and presented their list. This list included 200 individuals, including major Russian tycoons like Alexey Mordashov, owner of the steel giant Severstal, and Herman Gref, CEO of Russia's largest state bank, Sberbank. Some individuals on the Russian opposition list have previously been sanctioned by the US, such as Sergei Ivanov, former Minister of Defense, or General Igor Sergun, head of military intelligence, as well as Gennady Timchenko, a Russian oil trader and close associate of Putin. The report adds that Russia is also considering strategies to counter the new sanctions. For example, the Russian newspaper Vedomosti reports that Dmitry Medvedev, the Prime Minister of Russia, recently ordered that Russian state companies be exempt from disclosing details of their contracts. The report adds that evidence suggests that financial markets, both domestic and foreign, are already factoring in the sanctions in their activities this year. However, among traders, shareholders, and financial actors, there is more fear of purchasing government bonds. This could close off the avenue for sanctioned state companies to access the global financial system since 2014. The report adds that, for example, Russian companies managed to sell three billion dollars in foreign currency bonds in 2016. These sanctions could also prohibit the purchase of bonds in Russian rubles. According to the report, there are still no precise statistics on the debt of Russian state companies to American citizens, but the Central Bank of Russia reported in October last year that the debt of state companies from selling bonds to foreigners was 38 billion dollars. In this context, Bank of America Merrill Lynch reported in December last year that this could negatively impact the exchange rate of the ruble against the dollar and exacerbate inflation in Russia. The value of the Russian ruble has significantly decreased since Western sanctions and the drop in oil prices in 2014. The report adds that some national institutions in Russia have already shown that they are taking a cautious approach. For example, Alfa Bank, the largest private lending bank in Russia, recently announced that it would cut ties with military industries. Oleg Sysoev, the deputy head of the bank, stated in an interview with Echo of Moscow that "this decision does not mean a complete severance of the bank's relationships with these industries, but we are trying to minimize risk." The report adds that in the short term, this could pose a direct challenge for Putin as he prepares for the upcoming presidential elections in late winter. Sergey Ryabkov, the Deputy Foreign Minister of Russia, recently assessed the US actions as an attempt to influence the upcoming presidential elections. However, Piontkovsky, a Kremlin critic, states that US actions could backfire and undermine public support for Putin: "New sanctions mean Putin's inability to ensure the safety of oligarchs' assets both inside and outside Russia." Meanwhile, Oliker from the Center for Strategic and International Studies in Washington raises the question of what impact the new sanctions will have on Russian policy. For example, the ongoing conflict in Eastern Ukraine, which has entered its fourth year and has affected the Russian economy, could motivate Russia to withdraw from this conflict. However, she states that it seems impossible for Putin to openly capitulate due to US sanctions pressure: "On the one hand, US actions could instill the mindset in Russia that the US only intends to tarnish Russia's image."