JEFF HORWITZ
Associated Press

WASHINGTON (AP) — Western business connections are complicating efforts to bring economic sanctions against executives and companies closely aligned with Russian President Vladimir Putin’s inner circle. A prime example: the Russian Direct Investment Fund, a $10 billion sovereign wealth fund that’s escaped sanctions in spite of international efforts to punish Russia for its incursions in Ukraine.

A sanctioned Russian bank funds the RDIF, and a top Putin aide serves on one of its board. The fund’s international advisory board, meanwhile, is stocked with blue-chip American and European private equity executives, among them Stephen Schwarzman of The Blackstone Group LP, Leon Black of Apollo Global Management LLC and David Bonderman of TPG Capital LP.

The chief executive of a French state-controlled investment company, Caisses de Depots, is listed as one of its supervisors — as is former International Monetary Fund head Dominique Strauss-Kahn.

The fund has done deals with BlackRock Inc. and General Electric Co., which partnered with the fund to build small power plants for industrial users across Russia. JPMorgan Chase & Co.’s One Equity Partners joined an Illinois tire company to buy a manufacturer of agricultural and industrial tires. European investors took stakes in telecommunications firms, information technology consultants and health care companies. In total, more than $6 billion from blue-chip foreign companies have flowed in.

President Barack Obama and German Chancellor Angela Merkel are considering new economic sanctions against Russia over its apparent invasion of Ukraine. There is no evidence that the Russian Direct Investment Fund would be a target, but the situation with the sanctions-free RDIF illustrates the Obama administration’s struggle to achieve conflicting goals — punishing Putin’s circle without damaging U.S. companies doing business in Russia.

“We can’t have a situation where a business entity is immune from (sanctions) designation because it does some good things and some bad things,” said Jimmy Gurule, a senior Treasury Department enforcement official in the Bush administration and law professor at Notre Dame University.

Obama said Thursday he expects U.S. and European allies to take additional steps to respond to the Russian military’s apparent invasion of Ukraine. “Capital is fleeing. Investors are increasingly staying out,” Obama said.

A Republican-backed bill in the Senate would extend sanctions to executives, companies and investment funds, including the $10 billion Russian fund, and penalize Americans who work with them, according to congressional staffers.

Within the Obama administration, Treasury lawyers and investigators have been consulting intelligence and law enforcement officials in recent weeks to identify targets for new sanctions, according to three federal officials who spoke on condition of anonymity because they were not authorized to comment on the confidential discussions. The White House and Treasury Department declined to say whether the Russian fund might be a target.

Under presidential action, the Treasury Department’s Office of Foreign Assets Control has the authority to freeze a foreign target’s financial assets in the U.S. and block its transactions with Americans. The targets can be businesses or individuals and have included terrorists, criminals and state entities. The Treasury Department can also limit the effect of its sanctions, and some targeted Russian banks are restricted only from accessing U.S. capital markets, not blocked entirely.

Some Westerners have already cut ties with the Russian fund. Former Chicago Mayor Richard M. Daley, a longtime Obama political intimate who was listed on corporate documents as a fund adviser as recently as April, has now severed ties with the fund. Harvard Professor Josh Lerner stepped down from the fund’s supervisory board. And last week, references to Kurt Bjorklund, a leader of European investment firm Permira, quietly disappeared from the fund’s website.

Others, including all three American private equity executives, have stayed put. Bonderman appeared in photographs and on the attendee list in April at the St. Petersburg Economic Forum, an annual event favored by Putin that the Obama administration urged many top American business leaders to skip.

Current and former board members either declined to comment or did not respond to phone calls and emails from the AP.

“Businesses are caught in the middle, because while they want to be loyal to the government, they have major investments here,” said Laura Brank, the head of the Russia practice at Dechert LLP, a major international law firm.

The Russian fund in May partnered with two unidentified international investors and Gazprombank, the sanctioned finance arm of Gazprom, the Russian-controlled energy conglomerate, to buy a liquefied gas terminal. The seller was OAO Sibur Holding, which is partially owned by Gennady Timchenko, a Russian billionaire on the U.S. sanctions list. Under the deal, as described by the Russian fund, Sibur sold the facility to the investors for $700 million — and simultaneously struck a deal to lease it back from them. The Russian Direct Investment Fund’s head, Kirill Dmitriev, told the Associated Press that Sibur has not been targeted by sanctions but otherwise declined to discuss fund investments.

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