The Cable

U.S. Freezes Assets of Russian Businessmen and Bank Close to Putin

The United States increased the economic pressure on Moscow in response to its invasion and annexation of Crimea, freezing the assets of a Russian bank with billions of dollars in holdings and several prominent businessmen with close ties to Russian President Vladimir Putin.

In retaliation, Moscow banned nine American officials from traveling to Russia. It was mostly a symbolic move -- one that was embraced as a badge of honor by several of the Americans on the list -- but it could also signal the beginning of reciprocal reprisals between the two countries that could quickly escalate into a damaging economic battle.

The U.S. added 20 new names to its blacklist Thursday as well as Bank Rossiya, which senior administration officials said has $10 billion in assets. Americans and American businesses will now have to sever all ties with the bank and stop doing business with all of the newly named officials and businessmen. Any assets in the U.S. owned by individuals on the list will be frozen and inaccessible. The administration, on Monday, targeted seven Russian officials, many of whom scoffed at the move as ineffectual because they don't have assets in the U.S. or Europe.

Going after Russian executives close to Putin is a significant escalation of the earlier sanctions because they are far more likely to have assets abroad. Gennady Timchenko, founder of commodity trading company Gunvor, was added to the list Thursday because of Putin's alleged investment in the company, according to the Treasury Department.

Gunvor rejected the claim that the Russian president has a stake in the company and called the accusations "misinformed and outrageous."

"President Putin has not and never has had any ownership, beneficial or otherwise in Gunvor. He is not a beneficiary of Gunvor or its activities," the company said in the statement, issued through a Washington-based public relations firm.

Also newly blacklisted are the brothers Arkady Rotenberg and Boris Rotenberg, who the Treasury Department says have amassed vast wealth - including $2.5 billion over the last two years -- through their relationship with Putin. The Rotenbergs received about $7 billion in government contracts related to the Sochi Olympics, according to Treasury.

The most prominent name on the list is Yuri Kovalchuk, a man who has been frequently described in press reports as Putin's banker. While reports that Kovalchuk handles Putin's personal wealth are little more than rumors, the veteran banker occupies a central role in the world of Russia's lucrative energy sector.

As a key player and chairman at Bank Rossiya, Kovalchuk has steered what used to be an obscure St. Petersburg bank onto the center-stage of Russia's energy sector. Through a series of controversial deals, Bank Rossiya - and Kovalchuk - have gained control of several Gazprom subsidiaries, including its pension fund and insurance arm. Investors allege that through these acquisitions -- funded by capital the source of which remains unclear -- Bank Rossiya was able to leech value from Gazprom and enrich the oligarchs behind the bank to the tune of billions of dollars. 

In a White House press conference, President Obama said the U.S. sanctions were in response to what Russia has already done in Crimea, but threatened harsher measures if Russia moved further into Ukraine.

"The world is watching with grave concern as Russia has positioned its military in a way that could lead to further incursions into southern and eastern Ukraine," Obama said.

Obama outlined further steps the U.S. could take in an executive order that would allow the U.S. to target sectors of the Russian economy, including banking, energy and defense. But he emphasized that he hoped those measures wouldn't have to be taken.

"These sanctions would not only have a significant impact on the Russian economy, but could also be disruptive to the global economy," Obama said.

Going after Russia's energy sector could deal a powerful blow to the Russian government, which relies on oil and gas exports for about half its funding.  But it would also be a very costly move for Europe, which gets about 30% of its natural gas from Russia with no ready alternative supply.

If the Obama administration decided to go ahead with isolating the Russian energy sector, it could then decide to blacklist energy giants Gazprom and Rosneft. German newspaper Bild reported last week that the chief executives of both firms, are on the long list of possible European sanctions targets. Because of the huge costs to Europe, most observers don't expect the West to take that road unless Russia starts muscling into eastern Ukraine.

By targeting Gunvor, the White House has struck the Russian energy sector while leaving the truly big fish -- Gazprom, Rosneft, and their executives -- as potential targets for a later round. Following Putin's reassertion of state control over the country's energy industry, Gunvor emerged as a key beneficiary of the president's dismantling of Yukos, the energy company belonging to the tycoon Mikhail Khodorkovsky. According to traders at the energy company, which was essentially dismantled by the state under the guise of tax evasion charges, large parts of the company's contracts were transferred to Gunvor, fueling its rise and vastly enriching Timchenko, whose net worth is now estimated at $15.3 billion.

"They took over all our barrels," one former Yukos trader told the Financial Times in 2008. Timchenko has denied his company has benefited from connections to Putin.

The U.S. could also decide to ramp up sanctions if Russia exerts further economic pressure on Ukraine.

"We're deeply concerned today that the Russians have appeared to close the border to Ukrainian goods entering Russia, effectively having imposed a trade embargo," said a senior administration official on a background call for reporters.

As the new government in Kiev moves to deepen political and economic ties with the rest of Europe, there is concern that Moscow could again try to pressure Ukraine to back away from those negotiations. Russia threatened Ukraine with a trade embargo last fall, when former President Viktor Yanukovych was considering signing an association agreement with the European Union.

Russia's blacklist includes many top U.S. lawmakers and officials in the Obama administration. A spokesman for the Russian Embassy in Washington confirmed to Foreign Policy that the list includes a mix of influential political players, including White House aides Ben Rhodes, Dan Pfeiffer and Caroline Atkinson and top Congressional leaders including Senate Majority Leader Harry Reid, House Speaker John Boehner, Senate Foreign Relations Committee Chairman Bob Menendez and Arizona Senator John McCain.

Contrary to an earlier report, Senate Majority Whip Dick Durbin does not appear on the list. Other names banned from travel in Russia include Louisiana Senator Mary Landrieu and Indiana Senator Dan Coats.

After hearing about his placement on Moscow's list, Menendez welcomed the punitive action.

"If standing up for the Ukrainian people, their freedom, their hard earned democracy, and sovereignty means I'm sanctioned by Putin, so be it," he said in a statement.

Shane Harris contributed to this report.

Win McNamee/ Getty

The Cable

Exclusive: U.S. Boycotts U.N. Drone Talks

(This article has been updated)

Pakistan is trying to push a resolution through the United Nations Human Rights Council that would trigger greater scrutiny of whether U.S. drone strikes violate international human rights law. Washington, though, doesn't want to talk about it.

The Pakistani draft, which was obtained by Foreign Policy, urges states to "ensure transparency" in record-keeping on drone strikes and to "conduct prompt, independent and impartial investigations whenever there are indications of any violations to human rights caused by their use." It also calls for the convening of "an interactive panel discussion" on the use of drones.

The Geneva-based human rights council held its third round of discussions about the draft on Wednesday, but the Obama administration boycotted the talks.

The White House decision to sit out the negotiations is a departure from the collaborative approach the administration promised to take when it first announced plans to join the Human Rights Council in March 2009.

The Bush administration had refused to join the body out of concern that repressive states might exercise undue influence over the council and that it would focus disproportionate attention on Israel. The Obama administration, by contrast, argued it was better to reshape an imperfect organization from within than to complain about its failings from afar.

"Human rights are an essential element of American global foreign policy," then-Secretary of State Hillary Clinton said in a statement at the time. "With others, we will engage in the work of improving the U.N. human rights system.... We believe every nation must live by and help shape global rules that ensure people enjoy the right to live freely and participate fully in their societies."

Rhetoric aside, though, the Obama administration has largely refused to supply U.N. experts with details about the classified U.S. drone program, which has killed hundreds of suspected militants in Pakistan, Somalia, Yemen, and other countries over the past decade. Independent investigators say the strikes have also killed thousands of civilians, including large numbers of women and children, a charge the White House -- without providing evidence to the contrary -- denies.

Ben Emmerson, the U.N.'s current special rapporteur for the promotion of human rights and fundamental freedoms while countering terrorism, has urged the United States to provide more basic information on the U.S. program, including its own list of civilian casualties. "The single greatest obstacle to an evaluation of the civilian impact of drone strikes is lack of transparency, which makes it extremely difficult to assess claims of precision targeting objectively," he said.

Those demands are nothing new. Micah Zenko, an FP columnist and expert on drones at the Council on Foreign Relations, recalled in a recent piece that U.N. human rights investigators have been raising concerns about the U.S. targeted killing program since Nov. 15, 2002, just 12 days after the first confirmed American strike.

Asma Jahangir, then the U.N. special rapporteur on extrajudicial, summary or arbitrary executions, asked the United States and Yemen for information the Nov. 3, 2002, missile strike, which killed Qaed Salim Sinan al-Harethi and five suspected al Qaeda militants in Yemen. She also expressed concern that "an alarming precedent might have been set for extrajudicial execution by consent of government." The United States declined to comment on the specific allegations, but it challenged any suggestion that "military operations against enemy combatants could be regarded as 'extrajudicial executions by consent of governments.'"

It remains unclear what Washington will do when the Pakistani resolution is put forward for consideration next week.

Most resolutions in the Human Rights Council are adopted by consensus, but the United States has the option of forcing a vote on the resolution.But a State Department official made it clear that the United States would not support the resolution. Speaking on condition of anonymity, the official said that the United States has in the past "regularly participated in negotiations on resolutions dealing with the need to protect human rights while countering terrorism. But this particular resolution deals solely with the use of remotely piloted aircraft."

"We just don’t see the Human Rights Council as the right forum for discussion narrowly focused on a single weapons delivery system," the official said in prepared remarks. "That has not been a traditional focus area for the HRC [Human Rights Council], in part for reasons of expertise. We do not see how refinements to the text can address this core concern. We know that others may have a different perspective, and of course we respect their right to do so."

"It is incorrect that we are unwilling to deal with important counterterrorism issues at the HRC and with its mandate holders," the official added. "We have met with UN Human Rights Council’s special rapporteur on counter-terrorism at senior levels when he traveled to Washington."

Speaking last week at a U.N. review of the U.S. human rights record, a top State Department lawyer, Mary McLeod, said that Washington's use of armed drones complies with international law and stressed that Washington goes to extraordinary lengths to avoid civilian casualties.

Russia, which is facing international condemnation for its annexation of Crimea, used the body's most recent meeting to argue that a provision raising concern about the prospects for civilian casualties from drone attacks wasn't strong enough. The current provision, Russia's delegate noted, "doesn't reflect the seriousness of situation with remotely piloted aircraft," according to notes from the meeting.

Andrea Prasow, an American lawyer who tracks national security issues for Human Rights Watch, said the United States was passing up a golden opportunity to influence the U.N. debate on drones. 

"This resolution would be the first time the council is going to do anything about drones and the U.S. is not participating in any of the informal discussion about language, " she said. "They are telling us they are reserving judgment on the resolution, which means they won't be happy with it. We have also heard from them and others as well they are concerned that the council doesn't have jurisdiction over this issue. I think it's ludicrous to say the Human Rights Council doesn't have anything to say about drone strikes."

Questions about the legality and morality of drone strikes have bedeviled the administration for years. Last May, President Barack Obama announced in a speech before the National Defense University that he would curtail the use of drones and other controversial practices associated with the U.S.-led war on terrorism. And there have been no reported U.S. drone strikes in Pakistan for months.

Still, the classified guidelines outlining the new policy call for transferring control over drone strikes to the military have never been implemented. Earlier this year, the White House reportedly debated whether to launch a drone strike against a Pakistan-based American citizen suspected of plotting a terror attack against the United States. Had he been killed, the unnamed man would have been the fifth U.S. citizen killed by an American drone during Obama's presidency.

Mahammed Huwais/ AFP/ Getty Images