Russian Oligarchs on U.S. Treasury List Facing Added Scrutiny

  • Roster compiled under Mnuchin may prompt asset shifting
  • Some banks treating oligarchs as ‘politically exposed persons’

Russia’s billionaire oligarchs are beginning to face additional scrutiny on at least some financial transactions following U.S. publication of a list of wealthy Russians identified as allies of President Vladimir Putin.

One wealthy Russian on the list who spoke on condition of anonymity said he’s worried a deal with foreign partners expected to close in the next few months may collapse. Another said his reputation has been seriously damaged since the Treasury Department released a congressionally mandated report last week naming 210 Russian billionaires and top government officials.

The Financial Integrity Network, a Washington-based firm that advises banks and other businesses on illicit finance threats, urged clients to scrutinize transactions involving anyone on the list. The firm suggested treating them as “politically exposed persons,” a regulatory classification for people who pose higher risk of involvement in bribery or corruption due to their position and influence.

Congress demanded the list amid a bipartisan clamor to punish Russia for meddling in the 2016 presidential election. Initial responses indicate that the list alone exerts a penalty on Kremlin elite, but it also affords Russians ample time to redeploy assets to avoid financial sanctions if they follow.

While some Russian businessmen had started taking precautions in August, when Congress passed the law requiring the list, the release of the names prompted some banks to intensify oversight of their transactions, according to four people familiar with the matter.

New Relationships

“It would be very difficult in the immediate future to have new relationships until there’s some resolution of where these sanctions are going to be,” said Bruce Marks, a Philadelphia-based lawyer who’s consulting Russians on sanctions.

Andrey Kostin

Photographer: Simon Dawson/Bloomberg

Still, several Russians named on the list said they didn’t expect it to affect their businesses or personal dealings. Andrey Kostin, head of state bank VTB, told state television Monday that being on the list hadn’t changed anything for him and that he has no offshore accounts. The U.S. unit of a company owned by one of the billionaires included, Dmitry Pumpyansky, kicked off a $500 million initial public offering hours before the roster was released.

Putin called the list and accompanying reports an “unfriendly act” but said he will refrain from retaliation for now.

The report to Congress was one of three issued last month that was mandated by a law that President Donald Trump reluctantly signed in August intended to penalize the Kremlin for its election interference. The law was passed with a bipartisan veto-proof margin.

Related: Treasury Warns of Upheaval If U.S. Sanctions Russian Debt

A statement released alongside the unclassified portion of the report stressed that it wasn’t a sanctions list. The report was released by the Treasury Department, rather than the Office of Foreign Assets Control within the agency which announces sanctions.

Treasury Secretary Steven Mnuchin suggested at least some of the people may be sanctioned: “There will be sanctions that come out of this report,” Mnuchin said during a Senate hearing the day after the list was released.

Read more: U.S. Treasury Defends Russian Billionaires’ List Against Critics

“If you are intending on sanctioning people on the list, you just gave them a heads up that they could be next,” said Erich Ferrari, who founded Ferrari & Associates in Washington.

Even before the list was announced, some businessmen had begun to switch money transfers to euros from dollars to avoid using U.S. accounts, said Andrey Pozhitkov, head of business development in Moscow at UFG Wealth Management.

‘Questionable Assets’

Those expecting to be named or sanctioned “probably started divesting questionable assets in August” when the law went into effect, Ferrari said.

Democrats in Congress are unhappy with Mnuchin’s reports. Treasury met its deadline to submit three separate documents: a report on defense sector sanctions, one on the impact of sanctioning new Russian sovereign debt, and the third listing oligarchs close to Putin. But it admitted that it used a Forbes list of Russian billionaires, along with other public sources, to compile the public report on oligarchs.

Senator Ron Wyden of Oregon has requested that portions of a classified annex to the oligarch list be declassified and disclosed. “Failure to provide the report to the public can be read as an attempt to limit public interest in, and support for the sanctions that were supported overwhelmingly by the Congress,” he wrote in a letter to Mnuchin on Friday. With the CIA expecting Russians to try to interfere with the 2018 midterm elections, “the threat posed by Russia is both undisputed and urgent,” Wyden said.

— With assistance by Henry Meyer, Yuliya Fedorinova, and Alexander Sazonov

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