U.S. Tightens Sanctions, Putting More Russian Companies at Risk

Bloomberg: 14. August 2014
By Kasia Klimasinska and Alan Katz

U.S. Department of Treasury headquarters - Washington D.C

The U.S. Treasury broadened the scope of sanctions programs by revising a rule on the ownership of entities by targeted individuals that may extend the measures to at least one Russian company.

Yesterday’s change means that a firm can be sanctioned if any combination of sanctioned individuals collectively owns at least 50 percent of it, according to a notice on the department’s website. Previously, the Office of Foreign Assets Control’s so-called 50 percent rule required a single sanctioned person to own 50 percent or more of an entity for it also to be subject to sanctions.

“The change in OFAC’s interpretation will be quite significant for those companies with joint ownership by multiple sanctioned persons,” Michael Burton, a sanctions lawyer at Jacobson Burton PLLC in Washington, said in an e-mail.

Waging Financial War

The move is likely to extend the reach of sanctions against Russia, as the Obama administration presses President Vladimir Putin to stop supporting pro-Russian separatists in Ukraine. The revised rule would appear to ensnare Russian insurer OAO Sogaz Insurance Group, which is more than 50 percent owned by the combination of OAO Bank Rossiya and Volga Group.

The U.S. added Bank Rossiya and its billionaire shareholder Yury Kovalchuk to a sanctions list on March 20 following Russia’s annexation of Crimea. It also put billionaire Gennady Timchenko on the list of blocked individuals at that time, and in April added Timchenko’s Volga Group.

Bank Rossiya

The sanctions forbid U.S. firms or individuals to do business with Bank Rossiya

A Bank Rossiya unit reduced its stake in Sogaz to 48.5 percent from 51 percent on March 11, according to a regulatory disclosure on the insurer’s website. That allowed the insurer to avoid being sanctioned. Still, Sogaz is also 12.5 percent owned by Timchenko’s Volga Group, according to Volga’s website, pushing total ownership by sanctioned entities above the U.S. Treasury’s threshold.

Finland’s Arena Events Oy, which owns and operates a Helsinki stadium, could also be hit by the change in guidance. According to its website, Arena Events is half owned by Timchenko’s Luxembourg-based Volga Group and half by Oy Langvik Capital, an investment company owned by the Rotenberg family. Brothers Arkady and Boris Rotenberg were also sanctioned by the U.S. in March.

A Treasury spokeswoman declined to comment on how Sogaz and Arena Events are affected by the department’s change in guidance.