EU May Target Putin’s Spy Chiefs as Yatsenyuk Steps Down

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Photographer: Konstantin Zavrazhin/Getty Images

Mikhail Fradkov, the head of the Foreign Intelligence Service.

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Photographer: Konstantin Zavrazhin/Getty Images

Mikhail Fradkov, the head of the Foreign Intelligence Service. Close

Mikhail Fradkov, the head of the Foreign Intelligence Service.

Photographer: Konstantin Zavrazhin/Getty Images

Kremlin-backed Chechen leader Ramzan Kadyrov. Close

Kremlin-backed Chechen leader Ramzan Kadyrov.

Photographer: Sasha Mordovets/Getty Images

Alexander Bortnikov, director of the Federal Security Service. Close

Alexander Bortnikov, director of the Federal Security Service.

Photographer: Behrouz Mehri/AFP via Getty Images

Nikolai Patrushev, Russia's head of the Security Council. Close

Nikolai Patrushev, Russia's head of the Security Council.

The European Union is preparing to sanction Russia’s most senior spies and security officials as it seeks to step up its response to the conflict in Ukraine, where the premier quit after the ruling coalition broke apart.

Alexander Bortnikov, director of the Federal Security Service which replaced the Soviet-era KGB, and Mikhail Fradkov, the head of the Foreign Intelligence Service, are on the provisional list of sanctioned Russian officials, according to a draft document obtained by Bloomberg News. In Kiev, Prime Minister Arseniy Yatsenyuk resigned after two parties quit the governing coalition and President Petro Poroshenko signaled his support for early elections.

“We expect that the coalition will probably be quickly back in place after elections,” Vladimir Osakovskiy, an economist in Moscow at Bank of America Corp., said by e-mail. “The main implication is that the new Rada will be even more anti-Russian and pro-EU than it is right now.”

More on the Crisis in Ukraine:

Yatsenyuk’s government, which took charge of Ukraine in February, has battled a pro-Russian insurgency in the east of the country, which it says is supported by the authorities in Moscow. With the U.S. pushing Europe to toughen its stance toward Russia a week after a Malaysian passenger jet was shot down over rebel-held territory in Ukraine, the EU moved to expand sanctions and to penalize some officials who served alongside President Vladimir Putin in the Cold War.

‘More Robust’

“We welcome reports that the EU is likely adding additional names to their sanctions list,” White House spokesman Eric Schultz told reporters in Los Angeles today. “Preparations continue for more robust measures.”

The planned sanctions weren’t as far-reaching as some investors had expected. Russian stocks gained for a third day in New York trading, with the Bloomberg Russia-US Equity index rising 0.4 percent to 87.03 as of 1:06 p.m. in New York.

Subject to Sanction

The EU measures now touch close KGB associates of Putin, a former colonel in the intelligence service who served in East Germany. Like 61-year-old Putin, Bortnikov, 62, joined the KGB in 1975. The list also includes the head of the Security Council, Nikolai Patrushev, and Kremlin-backed Chechen leader Ramzan Kadyrov.

The new sanctions list, which was due to be expanded even before the downing of the Malaysian Air jet killed 298 passengers and crew, targets companies and entities linked to the pro-Russian insurrection and the annexed Crimea peninsula. The list of 15 individuals and 18 entities is separate from proposals circulated today by the European Commission to put further pressure on Putin’s government.

Crash Probe

Data from the downed Malaysian jet’s black boxes has been successfully downloaded, with the examination of bodies also under way as crash experts seek evidence of a missile strike.

The U.K. Air Accidents Investigation Branch gained access to the Boeing Co. 777’s flight-data readings today after yesterday retrieving cockpit-voice recordings, according to Dutch authorities who are leading the probe in recognition of the fact that almost 200 victims were from the Netherlands.

Specialists from the Dutch National Forensic Investigation Team are working in Kharkiv in government-controlled Ukraine after some of the 298 dead were moved there by train, with bodies being flown on to the Netherlands.

Coalition Collapse

As Ukraine’s allies sought to ramp up pressure on Russia, Yatsenyuk told the parliament in Kiev today that he’s stepping down after losing his partners’ backing and failing to pass legislation. Former world boxing champion Vitali Klitschko’s UDAR and Svoboda, a nationalist group, said they’d leave the coalition and seek a snap parliamentary ballot, according to statements today on their websites.

Volodymyr Hroisman was appointed acting premier, according to Interior Minister Arsen Avakov, although no official announcement has yet been made. The government is scheduled to hold an extraordinary meeting at noon tomorrow.

“The coalition has fallen apart, laws haven’t been voted on, soldiers can’t be paid, there’s no money to buy rifles, there’s no possibility to store up gas,” Yatsenyuk told lawmakers. “What options do we have now?”

Ukraine’s parliament must approve Yatsenyuk’s resignation, according to the constitution. The breakup of the coalition “was probably agreed on by political parties seeking elections and the president,” Yuriy Yakymenko, the head of political research at Kiev’s Razumkov Center, a non-governmental policy group, said by phone.

Eastern Insurrection

With the Ukrainian government trying to choke the insurrection in the country’s easternmost regions, the U.S. said it had evidence of artillery being fired from within Russia to attack Ukrainian military positions. Speaking at a daily briefing in Washington, U.S. State Department spokeswoman Marie Harf said the U.S. has also learned that Russia plans to “deliver heavier and more powerful multiple rocket launchers to the separatist forces.”

American officials have also said that the Malaysian plane was hit by a missile that was probably fired from a Russian-supplied launcher.

Putin has said his opponents are using the crash for “selfish political gains,” and officials in Moscow have suggested that the plane was hit by Ukrainian government forces.

EU Blacklist

The new EU blacklist covers nine separatist organizations and militias in eastern Ukraine and nine state-owned Crimean companies that were seized by Russia after it annexed the Black Sea peninsula in March.

Under the plan discussed today in Brussels, the 28-member bloc is also considering a ban on European purchases of bonds or shares sold by Russia’s state-owned banks among the options for stepped-up sanctions on the Kremlin, according to a proposal presented to member states.

Previously, the EU had blacklisted 72 people and two state-owned Crimean companies. People on the list face asset freezes and travel bans; companies and organizations face asset freezes, barring them from doing business in the EU.

The EU plans to add further names to the list, widening its net to catch people and companies with ties to “Russian decision-makers” responsible for the March takeover of Crimea and infiltration of eastern Ukraine.

Those additional names -- dubbed the “cronies list” by EU officials because it would take aim at confidants of Putin -- will be announced in the coming days.

U.S. Secretary of State John Kerry said July 20 that European leaders should see the attack on the passenger airplane as “a wake-up call.”

To contact the reporters on this story: Henry Meyer in Moscow at hmeyer4@bloomberg.net; Volodymyr Verbyany in Kiev at vverbyany1@bloomberg.net

To contact the editors responsible for this story: Balazs Penz at bpenz@bloomberg.net Paul Abelsky, Larry Liebert

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