Putin Up With Russia

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In response to months of civil strife and violence in Ukraine, in March Vladimir Putin sent heavily armed Russian troops into Crimea, an autonomous republic within Ukraine. Within days, Russian forces seized control over Ukrainian assets, including a natural gas plant, and in a referendum on March 16, the Crimean people overwhelmingly voted to secede from Ukraine. The next day, the Kremlin recognized Crimea as a sovereign state and, on March 21, Crimea officially became part of the Russian Federation. Since then, Russia amassed 40,000 troops on the Ukrainian border, who stormed military facilities, took over a Ukrainian naval base, and even seized highly trained Ukrainian dolphins. Perhaps Trans-Dniester, a breakaway province in Moldova, or even Kiev, the capital of Ukraine, is next.

Sanctions Imposed By United States, EU, UK, Australia, And Canada

The United States and the EU did not accept the results of the March 16 referendum and Russia's actions that followed as legitimate. In a swift response to the imminent annexation of Crimea by Moscow, on March 17, both the United States and the EU issued the first round of targeted sanctions against Russian, Ukrainian, and Crimean officials. To date, President Obama issued three Executive Orders imposing assets freezes and visa bans on 31 individuals, including Viktor Yanukovych (former President of Ukraine) and his former Chief of Staff, high ranking Russian officials and oligarchs, separatist Crimean officials, and one Russian bank—Bank Rossiya. Similar sanctions were imposed on Russian, Ukrainian, and Crimean officials by the EU, Australia, and Canada. Notably, neither the United States nor its allies imposed sanctions on President Putin. The Obama Administration explained that "[i]t is an unusual and extraordinary circumstance to sanction a head of state, and we would not begin our designations by doing so."

The U.S. Departments of State and Commerce placed on hold all license applications involving exports and reexports to Russia. Similarly, the UK suspended all licenses and license applications for exports of dual-use and military items to Russia's state agencies and the military, if such items could be used against Ukraine. The UK also suspended licenses for exports of items to third countries, if such items could be incorporated into equipment for export to Russia for use against Ukraine.

Additional Sanctions

The Obama Administration has threatened to impose additional sanctions if Russia does not change its course. Specifically, one of the Executive Orders provided regulatory groundwork for the imposition of sanctions against Russia's energy sector. Similarly, the U.S. Congress is expected to pass its own version of sanctions, possibly targeting Russia's energy sector in an effort to break what has been called "Putin's energy grip" on Ukraine and eastern Europe.

Also, the United States and its European allies voted to exclude Russia from the Group of 8 (G8) forum of leading industrialized countries, and President Obama has been advocating for Europe to become less dependent on Russia's energy sector. With respect to the latter point of focus, the United States and the EU are currently negotiating the Transatlantic Trade and Investment Partnership (TTIP), pursuant to which the United States may increase exports of natural gas to Europe.

Moscow's Response

Moscow was quick to respond with outright mockery and with some retaliatory measures. Specifically, Dmitry Rogozin, Russian Deputy Prime Minister, openly mocked President Obama on Twitter: "Comrade Obama, and what will you do with those who have neither accounts nor property abroad? Or didn't you think of that?" A number of sanctioned Russian Government officials also remarked that they were proud to be sanctioned, and President Putin joked that he will open a bank account with Bank Rossiya and draw his salary from that account.

Alexei Kudrin, the former Russian Finance Minister, cautioned, however, not to dismiss the potential negative impact of economic sanctions, noting in particular, the negative impact on the Russian economy if Russia's financial institutions were to become subject to sanctions by the West. Mr. Kudrin was right, as the sting of sanctions began to be felt when, according to news reports, Visa and Mastercard stopped processing transactions with certain Russian banks, including with Bank Rossiya as well as with SMP Bank and Sobinbank.

On March 20, the Russian Government imposed a retaliatory asset freeze and a visa ban on nine high-ranking Obama Administration officials and U.S. senators, including Daniel Pfeiffer, Assistant to President Obama, Harry Reid (D-NV), John McCain (R-AZ) and others spearheading the imposition of sanctions against Russia.

More importantly, however, Moscow threatened to "raise stakes" with respect to Iran's nuclear program. While this is the most serious retaliatory measure threatened to date, Moscow is yet to provide specifics.

-Jane Y. Cohen

Published In: General Business Updates, Elections & Politics Updates, International Trade Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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