Putin’s Inner Circle Targeted as U.S., EU Prepare New Sanctions

Apr 27, 2014 6:00 pm ET

(For more on the Ukraine conflict, see EXT2.)

April 28 (Bloomberg) -- The U.S. and European Union will impose new sanctions as early as today on Russian companies and individuals close to President Vladimir Putin over the escalating crisis in Ukraine, officials said.

“We will be looking to designate people who are in his inner circle, who have a significant impact on the Russian economy,” Deputy White House National Security Adviser Tony Blinken said on CBS’s “Face the Nation” program yesterday. “We’ll be looking to designate companies that they and other inner-circle people control. We’ll be looking at taking steps as well with regard to high-technology exports to their defense industry. All of this together is going to have an impact.”

The seizure of international inspectors by pro-Russian separatists last week added pressure to a confrontation made urgent by Russian military exercises on Ukraine’s frontiers. The North Atlantic Treaty Organization says 40,000 Russian troops are near the border. Ukraine’s southern air-defense forces are in “operational readiness,” the country’s defense ministry said yesterday on its website.

Among those who may be hit by sanctions is Igor Sechin, the chief executive officer of OAO Rosneft, according to people familiar with developments. Sechin is a confidant of the Russian president.

EU Discussions

Representatives of the 28 European Union nations will meet today to widen a list of people subject to asset freezes and travel bans, an official from the bloc said over the weekend. The sanctions will target 15 Russians in positions of power, another diplomat said. Both asked not to be identified because of the sensitivity of the matter.

“I have the impression” that the European Union will extend visa bans and asset freezes to “maybe another 15 people,” German Deputy Foreign Minister Gernot Erler said in an interview on ZDF television.

Russia has stoked tensions in Ukraine with “threatening” military maneuvers and by “taking no concrete steps” to implement an April 17 accord meant to calm the crisis, the Group of Seven nations -- the U.S., the U.K., France, Germany, Italy, Canada and Japan -- said in an April 25 statement.

Capital Outflows

“What we will hear about in the coming days is an expansion of existing sanctions, measures against individuals or entities in Russia,” U.K. Foreign Secretary William Hague told Sky News television yesterday. “Already we have seen more than $60 billion of capital flight out of Russia so far this year, and serious falls in the Russian stock market. So no one should underestimate the impact on Russia and Russia’s own interests of continued escalation of this crisis.”

In the wake of those capital outflows and a credit-rating downgrade by Standard & Poor’s, Russia’s central bank unexpectedly raised its key interest rate to 7.5 percent on April 25. The ruble has lost almost 9 percent this year against the dollar, the second-worst performance among 24 emerging currencies tracked by Bloomberg after Argentina’s peso.

Sanctions previously imposed by the U.S., the EU, Canada and other allies targeted a number of Putin’s associates and top officials, as well as St. Petersburg-based OAO Bank Rossiya.

Banks Prepare

Executives at OAO Gazprombank, Russia’s third-largest lender, are preparing for possible sanctions, two people with knowledge of the deliberations said last week, while development lender Vnesheconombank is taking precautions, according to a person familiar with talks at the lender.

U.S. Senator Bob Corker of Tennessee, the top Republican on the Foreign Relations Committee, called on President Barack Obama’s administration to impose sanctions on four of Russia’s largest banks and OAO Gazprom, the country’s gas-export monopoly.

“Hitting four of the largest banks there would send shock waves through the economy,” Corker said on CBS yesterday. “I just think we need to hit him much more toughly,” he said of Putin.

Some U.S. officials warn that broader sanctions, those that affect ordinary Russians and not just the business oligarchs in Putin’s inner circle, may backfire to the Russian leader’s benefit. Ordinary Russians probably would rally behind Putin and allow him to blame the U.S. and its allies for the country’s economic woes.

Putin’s Goals

Three officials, all of whom requested anonymity to discuss internal policy deliberations, said financial and other sanctions are unlikely to deter Putin. His goals are to destabilize Ukraine; ensure Russian domination of portions of it, as well as the Transnistria region of Moldova; and make the government in Kiev subservient to the one in Moscow.

“It’s going to be more effective if everybody signs on and everybody’s committed,” Obama told a news conference yesterday in Putrajaya, Malaysia. “We’re going to be in a stronger position to deter Mr. Putin when he sees that the world is unified and the United States and Europe is unified, rather than this is just a U.S.-Russia conflict.”

The planned EU moves are not set to include broader trade, financial and economic measures against Russia, known as “stage three” sanctions. Hague said work on those is continuing.

The allied measures will be coordinated, though penalties from each country won’t necessarily be identical, the U.S. official said.

Weapons Debate

“I think these targeted sanctions against individuals just are not affecting Putin’s behavior enough,” Corker said, in advocating broader measures that target whole sectors of the Russian economy.

In addition to sanctions, some Republican lawmakers, led by Arizona Senator John McCain, are pushing the Obama administration to send weapons to Ukraine’s military.

“We should supply them anti-tank, anti-missile weapons,” said Senator John Barrasso of Wyoming, a Republican on the Foreign Relations Committee, in a CNN interview yesterday.

Blinken, the White House adviser, dismissed that suggestion, saying the administration focus is on economic assistance.

Weapons “wouldn’t make a difference in terms of their ability to stand up to the Russians,” Blinken said on CNN. The U.S. will focus on “professionalizing” Ukraine’s military, while stopping short of providing lethal aid, he said.

Slovyansk Talks

Meanwhile, pro-Russian separatists freed one international observer from a group of 11 taken captive three days ago in the eastern Ukrainian city of Slovyansk. Negotiators for the Organization for Security and Cooperation in Europe left the city following the release of the observer, a Swedish officer who is diabetic, the Russian news agency RIA Novosti reported.

U.S. Secretary of State John Kerry telephoned Russian Foreign Minister Sergei Lavrov over the weekend to urge “support without preconditions” for moves to free the observers, the State Department said.

Russia is “undertaking measures” to resolve the situation, the Foreign Ministry in Moscow said in a statement that also said the Ukrainian government was responsible.

--With assistance from Jim Brunsden in Brussels, Nicole Gaouette in Washington, Daryna Krasnolutska in Kiev, Elena Mazneva in Moscow, Mike Harrison in London and Tony Czuczka in Berlin.