Putin's Inner Circle Targeted as US, EU Prepare New Sanctions

Bloomberg News

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

Deputy White House National Security Adviser Tony Blinken pledged 'news for Monday' on sanctions as the focus on the ground in Ukraine turned to the fate of international observers seized by pro-Russian separatists. One of the 11 captured inspectors was released today, the Russian state-run news service RIA Novosti reported.

The seizure of the inspectors added urgency to the U.S.-EU push for speedy sanctions, already driven 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 today on its website.

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

'We will be looking to designate people who are in his inner circle, who have a significant impact on the Russian economy,' Blinken said on CBS's 'Face the Nation' program today. '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.'

EU Discussions

Representatives of the 28 European Union nations will also meet tomorrow to widen a list of people subject to asset freezes and travel bans, an official from the bloc said yesterday. 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' over Russia's actions in Ukraine, German Deputy Foreign Minister Gernot Erler said in an interview on ZDF television. The EU ministers this week may also discuss economic sanctions on Russia, he said.

'Threatening' Maneuvers

Russia has escalated tensions in Ukraine with 'threatening' military maneuvers and by 'taking no concrete steps' to implement an April 17 accord aimed at calming the crisis, the Group of Seven nations -- the U.S., the U.K., France, Germany, Italy, Canada and Japan -- said in a statement two days ago.

'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 today. '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.

Bank Rossiya

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

Sechin may be among those facing travel bans and asset freezes tomorrow, according to a U.S. official familiar with the situation. 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 precautionary measures, 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 (OGZD), the country's gas-export monopoly.

'Shock Waves'

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

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

'It's going to be more effective if everybody signs on and everybody's committed,' Obama told a news conference today 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.

Slovyansk Talks

Meanwhile, pro-Russian separatists freed one international observer from a group of 11 taken captive two 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, RIA Novosti reported.

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

The captured observers included four Germans and citizens of the Czech Republic, Denmark, Poland and Sweden, according to the Vienna-based OSCE, which didn't comment on today's reported release. The OSCE is a 57-nation group including Russia and the U.S. that focuses on conflict prevention and human rights.

A separatist military commander, Igor Strelkov, was cited by the Russian newspaper Komsomolskaya Pravda as saying the group might have been engaged in espionage on behalf of Ukraine's military under the cover of diplomatic immunity,

'Treated Well'

Television pictures broadcast from Slovyansk today showed a man identified as Axel Schneider, one of the Germans in the OSCE team, telling reporters he was being 'treated well under the circumstances' and the monitors were 'guests of the mayor' rather than prisoners.

'We do look to Russia to assist with their release and to lobby and persuade and insist to those groups that have held the OSCE monitors that they should be released immediately,' Hague said.

RIA cited Strelkov as saying three officers from Ukraine's security service, the SBU, had also been seized near Slovyansk and might be swapped for rebels held by Ukraine.

Russia is 'undertaking measures' to resolve the situation, the Foreign Ministry in Moscow said in a statement. The Ukrainian government, which hosted the observers, bears full responsibility for their safety, it said.

To contact the reporters on this story: David Lerman in Washington at dlerman1@bloomberg.net; Andrew Atkinson in London at a.atkinson@bloomberg.net; Daria Marchak in Kiev at dmarchak@bloomberg.net

To contact the editors responsible for this story: Balazs Penz at bpenz@bloomberg.net; John Walcott at jwalcott9@bloomberg.net Steven Komarow, Carlos Torres