Why the US imposed sanctions on some Russian oligarchs but not others

Vladimir Potanin is the richest man in Russia. One of the country’s first oligarchs, he owns a stake in its biggest nickel producer, helped the Kremlin finance the 2014 Winter Olympics in Sochi and was photographed playing ice hockey with President Vladimir Putin.

However, six weeks after Russia’s invasion of Ukraine, Potanin has still not been hit by US or European Union sanctions over the war. Although Canada and Australia have imposed sanctions on him, Potanin is in a fortunate category – at least for now – of top Russian executives who can still do business with the West. Potanin’s holding company closed a deal this week to buy the Russian branch of French bank Société Générale.

The fact that Potanin and others avoided freezing assets or banning transactions has raised questions, including in Congress, about the rationale behind the US sanctions regime in response to Russian aggression.

“If the main qualification were ties to Putin, the list would be much longer,” said a Western banker who has worked extensively with Russian oligarchs.

Potanin, whose representatives did not respond to a request for comment, is far from the only inconsistency.

The UK and EU have sanctioned Alexei Mordashov, the owner of one of Russia’s biggest steel mills and a minority shareholder in Banco Rossiya, whose shareholders include some of Putin’s best-known associates. The US did not sanction it.

The same is true of Mikhail Fridman and Petr Aven, two other original Russian oligarchs who have maintained close ties to the West over the years.

Neither the US nor the EU have imposed sanctions on Leonid Mikhelson, who has extensive trade ties to billionaire Gennady Timchenko, an old friend of Putin’s. The UK imposed sanctions on Mikhelson last week.

Alisher Usmanov, a Russian metals and mining tycoon, was hit by US sanctions immediately after the war in Ukraine, but his companies were not. Roman Abramovich has been placed under EU and UK sanctions, but not Washington, after Ukrainian President Volodymyr Zelensky asked that he be spared for his role as a mediator in the peace talks.

The UK and EU also imposed sanctions on Andrei A. Guryev, chief executive of PhosAgro, a Russian producer of phosphate fertilizers, but not on his father, Andrei G. Guryev, the company’s largest shareholder, nor on the company’s second largest shareholder. PhosAgro, billionaire Vladimir Litvinenko, who was Putin’s doctoral thesis advisor in St. None of the three were targeted by the US.

The latest rounds of sanctions represent a departure from previous packages. They seem aimed at people with a big role in the Russian economy, while ignoring others with closer connections to the Kremlin.

Former US officials and people familiar with deliberations within the Biden administration said one explanation of the selective nature of the sanctions regime is that Washington wanted to avoid the mistakes it made in 2018 by attacking oligarch Oleg Deripaska’s aluminum company Rusal. , and the En+ group, which includes hydropower and metals, listed in London and which controls Rusal.

That measure had not been properly scrutinized beforehand, according to officials working on sanctions at the time. This caused market turmoil as aluminum prices soared and industrial customers rushed to secure supplies. To alleviate the disruption, the US was forced to issue exemptions to Western companies and individuals working with Russian groups, and ultimately dropped Rusal and En+ from its sanctions list altogether.

“Rusal was the first big concern that was blocked, and what the Trump administration did, as soon as it saw the consequences of that, was give Rusal and Deripaska a free pass,” said Edward Fishman, former head of sanctions for Russia and the United States. Europe at the US Department of State.

The Biden administration intended to maintain stability in commodity markets and prevent any unintended economic disturbances, current and former administration officials said.
Sanctions against Potanin and his companies could shake up markets for nickel and palladium, crucial components for car batteries and catalytic converters, causing problems for automakers. Mikhelson is the founder and president of liquefied natural gas producer Novatek.
A former US Treasury official said the energy sector was “very expressly excluded, at least initially, from the sanctions that were imposed at the start of the invasion”.

“It’s not about fair and unfair anymore,” this source added. “We are avoiding attacking where there would be implications for the US and our allies.”

US lawmakers have begun to question why some Russian businessmen with close ties to the Kremlin managed to evade sanctions.

“Was there any internal disagreement within the Treasury Department’s Office of Foreign Assets Control about how certain oligarchs would be protected from the profound economic impact of these sanctions?” Democratic Congressman David Scott asked Treasury Secretary Janet Yellen at a committee meeting. of the Chamber of Deputies last week.

“Have you refused to sanction other important oligarchs? Is there a hierarchy?” he added.
Yellen responded, “I will not comment on a specific individual that we have not sanctioned.”
The EU regime is also full of inconsistencies. Restrictions on Russian oligarchs have been bargained for by EU member states, people familiar with the process said, as the capital seeks to protect industrial assets or large employers that could be affected.

In several cases, the chief executives of Russian companies, rather than the owners, were targeted in the first instance, in a largely symbolic move that avoids broader economic consequences.

Former US officials familiar with the administration’s internal discussions said Washington may also be sparing some individuals to maintain ambiguity around its reaction and leave some flexibility to do more at a later stage.

But much of the logic appears to be economic. During her time on the committee, Yellen emphasized that the US is highly attuned to any reaction to the sanctions and is calibrating its actions accordingly.

“Our goal from the beginning was to impose as much trouble on Russia as possible while, as best we can, protect the United States and our partners from undue economic harm,” she said.

Translated by Luiz Roberto M. Gonçalves