As required under the Countering America’s Adversaries Through Sanctions Act (“CAATSA”), the Trump Administration on Monday released an unclassified version of a report (the “Report”) identifying senior political figures and oligarchs in Russia. While new sanctions have not been imposed on any of these individuals as a result of this announcement, and the report specifically emphasizes this point, financial institutions and other companies that deal with these individuals and affiliated entities may nonetheless seek to limit or terminate relationships with persons in the Report in anticipation of such measures being taken.
List of Senior Political Figures and Oligarchs
CAATSA, signed into law by President Trump in August 2017, authorized the imposition of sanctions for a range of activities related to Russia, Iran, and North Korea. The law provides the Trump Administration with significant discretion regarding whether to impose any restrictions against entities engaged in sanctionable behavior, and if so, what measures to impose. Certain portions of the law, however, required the Administration to issue reports about the potential impact of additional sanctions measures beyond those authorized under the bill.
In particular, Section 241 of CAATSA called for the Secretary of Treasury, in consultation with the Director of National Intelligence and the Secretary of State, to submit a report to Congress within 180 days of the passage of CAATSA regarding: (i) senior foreign political figures and oligarchs in Russia; (ii) Russian parastatal entities; (iii) the exposure of the U.S. economy to these individuals and entities; and (iv) the potential impact of imposing sanctions on such persons. The unclassified version of the Report released on Monday (the 180-day deadline under CAATSA) identifies:
- 114 “senior political figures”, including (i) senior members of the Russian Presidential Administration; (ii) members of the Russian Cabinet, Cabinet-rank ministers, and heads of other major executive agencies; (iii) other senior political leaders, including the leadership of the State Duma and Federation Council and other members of the Russian Security Council; and (iv) senior executives at state-owned enterprises; and
- 96 “oligarchs” who, according to public sources, have an estimated net worth of US$1 billion or more.
Of the 210 Russian senior political figures and oligarchs identified in the Report, 22 currently are named on the U.S. List of Specially Designated Nationals and Blocked Persons. As a result, U.S. persons already are prohibited from dealing with such individuals and any entities in which such persons (or other SDNs) hold an aggregate ownership interest of 50% or more. The Report specifically notes, however, that being named on the list of Russian senior political figures and oligarchs does not mean that:
- Sanctions are being imposed against such persons;
- The individuals meet the criteria for designation under any sanctions program;
- Any restrictions, prohibitions, or limitations on dealings with such persons are being imposed; or
- The U.S. Government has information about the individual’s involvement in malign activities.
When pressed during testimony before Congress, however, Treasury Secretary Mnuchin acknowledged that the Report may provide the basis for further sanctions on listed individuals. Notably, the unclassified version of the Report provides only the names (and for political figures, titles) of the political figures and oligarchs. Additional information required under CAATSA was provided only in the classified version submitted to Congress, including an assessment of the relationship between the individuals and Russian President Vladimir Putin, an identification of any indices of corruption regarding the individuals, the estimated net worth and sources of income for the individuals and their family members, and an identification of the non-Russian business affiliations of those entities.
The unclassified Report largely avoids discussion of Russian parastatal entities other than to note that for purposes of the report, Russian parastatals are defined as companies in which state ownership is at least 25 percent and that had 2016 revenues of approximately US$2 billion or more. The actual list developed by the Treasury Secretary is included only in the classified version of the Report, and no identifying or other information was provided in the unclassified version.
Likely Effects of Report
Global financial institutions generally are subject to anti-money laundering laws that require monitoring of accounts held for the benefit of senior political figures and other politically exposed persons (PEPs) to ensure that the banks are not dealing in proceeds of corruption or other crimes involving such individuals. Financial institutions generally are not restricted from dealing with PEPs under AML laws, but instead are required to more closely monitor their accounts to detect activities that potentially involve illegally-derived funds. We note that the list of oligarchs largely mirrors the Forbes List of richest businessmen in Russia and therefore appears largely to be based on net worth.
The Report specifically notes that sanctions are not being imposed at this time against the named Russian political figures and oligarchs. It is possible, however, that financial institutions and other global business partners may choose to limit or prohibit business with the individuals and entities that they own or control. Multinational institutions should assess whether and to what extent to limit business with the individuals. Conversely, listed persons – or entities owned or controlled by such persons – should assess whether it is prudent to proactively reach out to significant business partners to assuage any potential fears and minimize any potential impact on their business activities.
Other CAATSA Provisions Implemented on January 29
January 29 also represented a significant date with respect to certain other provisions of CAATSA. From that day forward:
- Under Section 231 of CAATSA, President Trump is required to impose certain sanctions on persons and entities engaging in significant transactions with persons in the Russian defense and intelligence agencies. The State Department issued guidance in October 2017 regarding the factors it would consider in assessing whether to impose sanctions under this provision (for additional information, see our prior OnPoint).
- On Monday, State Department officials said that no sanctions were being imposed immediately under this provision since the threat of sanctions already were acting as a significant deterrent for sales to the Russian defense industry.
- Under Section 223 of CAATSA, the scope of prohibited activities under Directive 4 of the Sectoral Sanctions Identification List has been expanded. Previously, Directive 4 prohibited U.S. persons from engaging in activities relating to the direct or indirect provision, exportation, or reexportation of goods, services (except for financial services), or technology in support of exploration or production for deepwater, Arctic offshore, or shale oil projects that have the potential to produce oil in Russia that involve entities designated under Directive 4 of entities in which such designated persons hold an ownership interest of 50% or more.
- Directive 4 now also will apply to deepwater, Arctic offshore, or shale projects that are initiated on or after January 29, 2018 and have the potential to produce oil anywhere in the world (not just in Russia) and involve any person designated under Directive 4 when they, directly or indirectly, either have a 33 percent or greater ownership interest, or own a majority of the voting interests, in the project.