Oligarchs Blacklisted by EU as U.S. Weighs More Measures

Photographer: Sasha Mordovets/Getty Images

Russian President Vladimir Putin, left, with billionaire Arkady Rotenberg. Close

Russian President Vladimir Putin, left, with billionaire Arkady Rotenberg.

Close
Open
Photographer: Sasha Mordovets/Getty Images

Russian President Vladimir Putin, left, with billionaire Arkady Rotenberg.

The U.S. is considering further punitive measures on Russian business after Europe blacklisted tycoons close to the Kremlin to pressure President Vladimir Putin to halt backing for separatists in east Ukraine.

Rising pressure comes as Ukraine laid the blame on rebels for blocking investigators seeking to reach the crash site of Malaysian Air Flight MH17 in past days. The Organization for Security and Cooperation in Europe said an international team reached the area today.

“The screws are tightening on Russia from both the U.S. and the European Union,” Fredrik Erixon, director of the European Centre for International Political Economy in Brussels, said by phone. “They’re looking at escalating financial sanctions and this will eat into Russian state banks and state-related companies.”

Subject to Sanction

The move by the EU is the bloc’s first strike against business figures described by European leaders as Putin’s “cronies” and it aligns policy of the 28-nation bloc closer to that of the U.S. The EU hardened its stance against Russia after a Malaysia Air jetliner was shot down in an area of eastern Ukraine controlled by pro-Russian rebels on July 17, killing all 298 people aboard.

Making Progress

OSCE monitors and four Dutch and Australian experts reached the MH17 crash site today for the first time in almost a week, the OSCE said in a statement on Twitter. Russian experts will also try to reach the site today, Interfax reported.

Related:

Ukraine’s armed forces announced a one-day pause in military operations today, according to a statement on Facebook. The pause, which doesn’t include defensive operations, is aimed at giving international experts a chance to reach the site, the military said. Rebels aren’t honoring the move with shelling continuing in at least one area, the military said.

Ukraine’s government will hold talks tomorrow in Belarus with rebel officials and focus on a “narrow range” of questions such as prisoner swaps and ensuring security of experts trying to reach the MH17 site, Interfax reported.

Bills Passed

Parliament in Kiev today voted against a motion to dismiss the government and in favor of budget and tax code amendments and a bill on the gas transit system. Passage of the bills was needed for an International Monetary Fund loan to Ukraine.

The EU yesterday froze the assets of Russian billionaires Arkady Rotenberg and Yury Kovalchuk. Rotenberg, who helps control SMP Bank and InvestCapitalBank, and Kovalchuk, the biggest shareholder in OAO Bank Rossiya, were among eight people that the EU added yesterday to its blacklist of individuals and organizations. Three entities -- Russian National Commercial Bank, weapons maker Almaz-Antey and airline Dobrolet -- also were added, according to the EU’s Official Journal.

Expansion of the blacklist reflects “the gravity of the situation in Ukraine,” the EU said.

Previously, the European list had 87 people and 20 entities deemed responsible for Russia’s annexation of Crimea in March and subsequent infiltration of eastern Ukraine.

More sanctions targeting Russia may be in the pipeline.

More Sanctions

The U.S. might move to limit derivatives trading and short-term loans with Russian companies if restrictions already imposed fail to sway Putin to end support for separatists.

U.S. citizens and businesses are still permitted to trade in outstanding debt of any maturity and new short-term debt and derivatives with sanctioned Russian companies. Restrictions on money-market financing and derivatives could be imposed, said a Treasury Department official who asked not to be named because further options are still being discussed.

Restrictions announced two days ago by the U.S. apply to new debt that matures in longer than 90 days as well as newly issued equity from the companies on the list.

Sanctions have intensified a sell-off in the ruble and capital flight from Russia amid its worst standoff with the U.S. and its allies since the Cold War, pushing the economy to the brink of recession.

Investors are signaling concern over the impact of the measures on Russia’s $2 trillion economy with government bonds headed for their worst monthly losses since May 2009.

Hong Kong

Russian telecommunication services company OAO MegaFon is now keeping about 40 percent of its working capital in Hong Kong dollars to protect its “liquidity position from any risks,” Chief Financial Officer Gevork Vermishyan said in a Bloomberg interview.

The ruble was little changed at 40.9904 against the central bank’s target basket of euros and dollars at 1:49 p.m. in Moscow. It’s down 7.6 percent against the dollar this year, the third-worst performer among 24 emerging-market currencies tracked by Bloomberg. Russia’s Micex Index (INVCMCX) has slumped 7.6 percent this year, compared with a 6.8 percent gain for the MSCI Emerging Market Index. (EEM) The Micex climbed 0.6 percent to 1,390.20 today.

In addition to broadening the scope of blacklisted people and organizations, the EU is seeking to undermine strategic parts of Russia’s economy.

Military Ban

On July 29, the bloc agreed to bar state-owned banks from selling shares or bonds in Europe and restricted the export of equipment to modernize the oil industry, a key prop for Russia’s economy. New contracts to sell arms to Russia and the export of machinery, electronics and other civilian products with military uses will also be banned.

The move was followed hours later by U.S. penalties against three Russian banks and a state-owned shipbuilder, adding to restrictions announced two weeks ago. The U.S. sanctions target VTB Bank (VTBR), Bank of Moscow and the Russian Agricultural Bank, as well as United Shipbuilding Corp.

People on the EU blacklist face asset freezes and travel bans. The asset freezes on companies will prevent them from doing business in the EU.

Rotenberg, 62, is a boyhood friend and former judo partner of Putin and made his fortune by selling pipes and building pipelines for state-run OAO Gazprom (GAZP), the world’s largest natural-gas producer. He and his brother Boris are business partners and each is worth about $3 billion, according to data compiled by Bloomberg.

Kovalchuk, 63, owns the National Media Group, which encompasses TV channels, newspapers and websites friendly to Putin. The EU said the media mogul’s TV stations “actively support the Russian government’s policies of destabilization of Ukraine.”

To contact the reporters on this story: Jonathan Stearns in Brussels at jstearns2@bloomberg.net; James G. Neuger in Brussels at jneuger@bloomberg.net; Kateryna Choursina in Kiev at kchoursina@bloomberg.net

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

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.