As we reported last Friday, Russian oligarchs are growing increasingly nervous over the U.S. Treasury's upcoming "Official Oligarch" list, which is being created pursuant to an Aug. 2, 2017 law requiring that the Treasury and State Departments identify officials and oligarchs as determined by "their closeness to the Russian regime and their net worth" in order to penalize the Kremlin for its alleged meddling in the 2016 election.
(Artist's impression of a Russian oligarch)
The report, due in two weeks on January 29, must include “indices of corruption with respect to those individuals” and any foreign assets they may have. And according to Bloomberg, Russian businessmen are scrambling right now to protect assets and avoid the list.
Some people who think they’re likely to land on the list have stress-tested the potential impact on their investments, two people with knowledge of the matter said. Others are liquidating holdings, according to their U.S. advisers.
Russian businessmen have approached former Treasury and State Department officials with experience in sanctions for help staying off the list, said Dan Fried, who previously worked at the State Department and said he turned down such offers. Some Russians sent proxies to Washington in an attempt to avoid lobbying disclosures, according to one person that was contacted.
And with Russia-friendly lobbyists such as the Podesta Group and Paul Manafort's operations shuttered, many desperate Russian oligarchs have been cut off from their D.C. influence peddlers.
Meanwhile, Treasury officials are reportedly growing concerned over the list, as they worry some people will conflate it with Obama-era sanctions. Moreover, portions of the report may be classified and issued in the form of a letter - as opposed to releasing it through the Office of Foreign Assets Control (OFAC) which is responsible for issuing sanctions.
“You’re going to have people getting shamed. It’s a step below a sanction because it doesn’t actually block any assets, but has the same optics as sanctions -- you’re on a list of people who are engaged in doing bad things.” -Erich Ferrari, Ferrari & Associates
The Treasury's report must include "indices of corruption," which will list any foreign assets next to an oligarch considered corrupt. “Because of the nervousness that the Russian business community is facing, a number of oligarchs are already beginning to wind back businesses, treating them as if they are already designated, to stay ahead of it,” said Daniel Tannebaum, head of PricewaterhouseCoopers LLP’s global financial sanctions unit.
Vladimir Putin has warned wealthy nationals over worsening U.S. sanctions, and provided them with a capital amnesty program designed to allow oligarchs to repatriate some of their overseas assets. Meanwhile, Putin has issued special bonds which will allow the wealthy to hold assets outside of the reach of the U.S. Treasury.
Kremlin spokesman Dmitry Peskov told reporters on Friday that Russia will react to any punitive measures against its businessmen, stating "The principle of reciprocity remains," suggesting that Putin would employ a commensurate response to a U.S. crackdown on oligarchs.
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Trump's new Executive Order may explain asset shuffle
Perhaps one of the main drivers behind Russian oligarchs shedding assets before the U.S. Treasury's "indices of corruption" are released is an Executive Order signed quietly in Late December which freezes the U.S. housed assets of foreign government officials or executives of foreign corporations deemed to be corrupt.
In fact, anyone in the world who has "materially assisted, sponsored, or provided financial, material or technological support for, or goods or services" to foreigners targeted by the Executive Order is subject to frozen assets. This would apply to D.C. lobbyists working for corrupt Russian oligarchs, or U.S. government officials who have, say, effectuated a uranium deal deemed corrupt.
While it has yet to be seen whether the asset liquidations will affect any specific sectors, one should keep an eye out for any red-dawn related volatility over the next two weeks.