Ukraine Crisis: U.S. Extends Sanctions On Russia

FINANCIAL TIMES

Last updated: April 28, 2014 6:28 pm

Ukraine Crisis: U.S. Extends Sanctions On Russia

By Geoff Dyer in Washington, Jack Farchy in Moscow and Guy Chazan in London

©Bloomberg Igor Sechin

The US has imposed further sanctions on Russia by targeting seven government officials and 17 companies linked to President Vladimir Putin’s inner circle, including Igor Sechin, chief executive of the Kremlin-controlled oil company Rosneft.

Accusing Russia of breaching a diplomatic agreement to defuse the crisis in Ukraine, the White House said it would place sanctions on three banks as well as a string of other companies connected to the Russian oligarchs who were named in two previous sanctions lists: Gennady Timchenko, and Arkady and Boris Rotenberg.

Washington will also deny export licence applications for any high technology items that can be used by the military and will pay particular attention to the area of microelectronics.

A senior administration official said the new sanctions were unlikely to create “an immediate change in Russian policy” but were designed to “steadily show the Russians that there is going to be much more severe economic pain and political isolation” if Moscow did not try to defuse the crisis.

Individuals on the list are subject to US visa bans and asset freezes while the companies will have their assets frozen.

The new sanctions could pile pressure on the multinational oil companies that have inked big ticket exploration deals with Rosneft, Russia’s state-controlled oil company.

BP, the British oil major, holds a stake of just under 20 per cent in Rosneft after the buyout of TNK-BP last year, while ExxonMobil, Statoil of Norway and Eni of Italy have all signed up to partner Rosneft in drilling projects in Russia’s Arctic seas. Trading houses Glencore, Vital and Trafigura have all lent large sums to Rosneft, though these loans have subsequently been syndicated out to other institutions, significantly reducing their exposure.

People close to the companies said that as Rosneft itself is not subject to the sanctions, overall exposure for these companies was limited.

In a statement, Mr Sechin said: “We assure our shareholders and partners, including American ones, that . . . our co-operation won’t be hurt and will dynamically evolve”.

While Mr Sechin, who has a small personal stake in Rosneft, is one of the best paid executives in Russia, he is not known to have extensive assets outside of Russia.

Others added to the sanctions list include Dmitry Kozak, deputy prime minister, and Aleksei Pushkov, the chairman of the Duma committee on international affairs. No Gazprom executives appeared on the list.

The sanctions were introduced as tensions in eastern Ukraine showed further signs of escalating. Gennady Kernes, mayor of Ukraine’s second-largest city Kharkiv, was seriously wounded in an apparent assassination attempt. The Kharkiv website said Mr Kernes, who is seen as a supporter of a unified Ukraine, had been shot in the back and was in hospital “fighting for his life”

In Brussels, ambassadors responsible for security affairs met on Monday and agreed to add 15 Russian individuals to the lists of people facing travel bans and asset freezes. EU diplomats stress, however, that it is difficult to forge a consensus among all the member states to move to broader economic sanctions against Moscow.

The UK Serious Fraud Office has frozen $23m in assets and opened a criminal investigation into possible money laundering linked to suspicions of corruption in Ukraine.

The action, on the eve of a Anglo-American-sponsored forum in London on tracking and recovering Ukrainian assets, comes after a broader EU-wide asset freeze against 22 individuals suspected of misappropriating state assets from the country.

A senior US official said political opinion in some European governments was beginning to become more favourable to broader economic sanctions on Russia after a German-led team of observers was held hostage in eastern Ukraine.

Responding to criticism that the sanctions imposed so far have been weak, another senior US official said the Russian economy was already suffering significant consequences, including sharply higher borrowing costs, reduced bond issuance and significant capital flight. “Putin himself acknowledged last week that sanctions are causing damage,” the official said. Russia’s President Vladimir Putin moved swiftly to annex Crimea, in the first land grab in Europe since the second world war, and the EU and US are worried over Moscow’s intentions elsewhere in Ukraine

In a bid to reduce its dependence on Russia for its gas supplies, Ukraine signed a deal with Slovakia’s pipeline operator on Monday to import as much as 8bn cubic metres of gas, or nearly a third of the country’s annual imports. Kiev said Ukraine’s state-owned oil company Naftogaz has initiated arbitration proceedings with Gazprom over the Russian company’s decision to nearly double gas prices. Naftogaz and Gazprom, which declined to comment, has 30 days to settle out of arbitration.

Frank-Walter Steinmeier, foreign minister, telephoned his Russian counterpart Sergei Lavrov on Monday and urged Moscow to use its influence to try to secure the release of the military observers taken hostage. According to a foreign ministry spokesman, Mr Steinmeier asked Russia to “give a clear sign that what had happened in Slavyansk to the foreign OSCE observers was unacceptable”.

The mission was agreed on by all members of the Organization for Security and Co-operation in Europe, including Russia.

Condoleezza Rice, former US secretary of state, urged Mr Obama to deploy more troops in the Baltic states and Poland than the additional 600 paratroopers he has already announced, arguing it would help act as a deterrence to Russia’s moves in Ukraine.

In Donetsk a pro-Kiev former defence minister politician running for president in next month’s election said the world needed to form an “anti-Putin” coalition to fight what he described as the Russian president’s growing ambitions in Ukraine and other eastern European countries

“We need to isolate him,” Anatoliy Gritsenko said at a press conference in the eastern regional capital. “We need to create an anti-Putin coalition in the world. Not everyone understands this.”

He also criticised Ukraine’s interim government for announcing the launch of last week’s apparently stalled anti-terror operation, telegraphing its intentions to pro-Russia separatists, before its launch last Thursday, and said the west had “broken” a pledge to protect Ukraine.

Additional reporting by Neil Hume in London, John Reed in Donetsk, Roman Olearchyk in Kiev, Christian Oliver in Brussels, Roel Landingin in Manila and Jamil Anderlini in Beijing

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FINANCIAL TIMES

April 28, 2014 6:21 pm

Igor Sechin: Russia’s second most powerful man

By Jack Farchy in Moscow

Igor Sechin

In adding Igor Sechin, chief executive of state-owned oil company Rosneft, to the list of sanctioned Russian officials, the US has targeted a man widely viewed as the most powerful in Russia after President Vladimir Putin himself.

A former KGB agent, Mr Sechin is a member of the siloviki faction of the Russian elite, the hardline ex-secret servicemen who are associated with the expansion of the state’s role in the economy over the past decade.

In particular, he is considered to be closely associated with the demise of Yukos, the oil company run by Mikhail Khodorkovsky, much of which was later incorporated into Rosneft.

Pavel Durov, the founder of Russian social network VKontakte, who last week lost his job as its head after rebuffing demands to hand over data to the Russian security services, on Monday praised the sanctions. In a Facebook post Mr Durov described Mr Sechin as “a former KGB agent whose current hobby is to destroy great Russian companies like Yukos and VKontakte”.

Mr Sechin is one of Mr Putin’s longest-standing allies. He worked as a chief of staff to Mr Putin when he was deputy mayor of St Petersburg in the 1990s. And when Mr Putin became president, Mr Sechin followed as deputy head of the presidential administration.

“Sechin has shown utter loyalty to Vladimir Putin – a key component to his current standing,” the US Treasury said on Monday in its explanation of the new round of sanctions.

In the early part of Mr Putin’s presidency, Mr Sechin’s role was largely behind the scenes. A US diplomatic cable published by WikiLeaks says Mr Sechin was “so shadowy that it was joked he may not actually exist but rather was a sort of urban myth, a bogeyman, invented by the Kremlin to instil fear”.

Since then he has stepped out of the shadows. When Mr Putin moved to become prime minister in 2008, Mr Sechin took on the relatively more public role of deputy prime minister. Then in 2012, when Mr Putin returned to the presidency, he moved to head Rosneft.

In just two years, he has driven a spectacularly rapid expansion of the company, including the $55bn acquisition of TNK-BP, which made the company the world’s largest listed oil producer.

He has also become one of the Russian state’s most prominent figures in the international business community, leading the negotiations to deepen economic ties with major western companies such as ExxonMobil and Statoil, as well as countries like China and Japan.

According to a Forbes survey published last year, he was Russia’s best-paid chief executive, earning a total of $50m for his work at Rosneft. However, he is not known to have extensive assets outside Russia. He owns a 0.13 per cent stake in Rosneft worth about $80m. People who have worked with Mr Sechin say he is relentlessly hard working, following a hectic travel schedule and holding meetings at all times of day and night. He manages Rosneft with a close eye for detail, occasionally involving himself personally in the negotiation of individual oil cargoes or meeting schedules, traders say.

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