US Asset Freeze Risks Legal Limbo for Russian Officials

WASHINGTON, April 5 (By Carl Schreck for RIA Novosti) – As if the US Magnitsky Act had not irritated Moscow enough, the controversial law could put Russian officials at loggerheads with the Kremlin as well.

The White House is expected next week to issue the names of Russian officials to be slapped with visa and financial sanctions mandated by the Magnitsky Act, under which their US bank accounts and other assets could be frozen by the US Treasury Department.

But Russian officials have also been ordered by the Kremlin to liquidate their foreign bank accounts by July 1 in what Moscow is calling an anticorruption drive.

Any officials who end up on the Magnitsky List but do not close out their US bank accounts before the Kremlin deadline may have to ask the US Treasury Department for formal permission to liquidate the accounts and come into compliance with the Kremlin decree.

The chances the Treasury would grant such a request are not good, said Mark Galeotti, a prominent expert on transnational crime and Russian law enforcement authorities at New York University.

“It would have to be pretty extraordinary circumstances,” Galeotti told RIA Novosti. “I suppose if someone who got their money frozen said, ‘Actually, I’d like you to give it all to charity,’ then maybe [Treasury would] say yes.”

The Magnitsky Act was signed into law by US President Barack Obama in December and is ostensibly designed to punish Russian officials believed to be connected to the death in a Moscow jail of whistleblowing lawyer Sergei Magnitsky in 2009.

The White House has until April 13 to publish the names of the Russian officials to be sanctioned in the Federal Register, and the asset freezes overseen by the Treasury Department must be in place by the same deadline, according to the text of the law.

The White House can opt to classify the names of some officials in the interest of national security and exempt them from the asset freeze. The Treasury Secretary can also exempt officials on the Magnitsky List from financial sanctions.

US Rep. Jim McGovern, a co-author of the Magnitsky Act, has submitted 280 names to the White House to consider for inclusion on the list of targeted Russian officials, including senior officials such as Prosecutor General Yury Chaika and Investigative Committee head Alexander Bastrykin, Foreign Policy reported on its website this week.

When foreign officials have their bank accounts frozen, typically these funds are set aside in an interest-accruing account to be reclaimed at a later date once the official is cleared of the sanctions, which are administered by the Treasury Department’s Office of Foreign Assets Control (OFAC), said Cortney O’Toole Morgan, an international trade attorney with the Washington-based law firm Barnes, Richardson Colburn.

“They can petition to OFAC and ask the US government to have themselves delisted—groups have done that before using pressure from their governments,” Morgan said. “But it’s going to be a political decision.”

Even those sanctioned officials who don’t physically have a US bank account could see their commercial movements blocked if they try to conduct a transaction in dollars outside of the United States, Morgan said.

Those transactions would run through US banks and most likely would be flagged and halted by the financial institution, she said.

The “money could be going from a Russian to a Russian, but if it’s going through a US bank, and one person is a denied party, they have to report that transaction,” Morgan said.

Officials sanctioned under the Magnitsky Act who have real estate in the United States will also be unable to conduct any transactions associated with the property, said Judith Lee, a Washington-based international trade regulation expert with the law firm Gibson Dunn.

“That property could not be transferred,” Lee said.

For such property, an owner hit with sanctions would have to obtain a license from the Treasury Department to allow basic maintenance—such as water and power—to continue while the sanctions are in place, Lee added.

In these cases, Treasury does typically grant licenses, but they are “purely limited to basic maintenance to make sure their property doesn’t become a nuisance or a fire trap,” she said.

Russian officials’ foreign real estate has become the subject of intense scrutiny and debate recently.

Last month, senior Russian parliamentarian Vladimir Pekhtin resigned his position after anti-corruption blogger and opposition figurehead Alexei Navalny accused him of failing to declare real estate properties he allegedly owned in the United States, worth more than $2 million. Pekhtin claimed the luxury properties belonged to his son.

Under a decree signed by Putin this week, officials will have to submit information concerning their acquisition of real estate, land, cars, valuables and shares, as well as information about their property abroad.


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