Sanctions Leave U.S. Companies Jittery Over Murky Russian Business Ties
May 10, 2014
by Carl Schreck
WASHINGTON -- When thousands of fans packed Helsinki's Hartwall Arena this week to rock out to the music of U.S. industrial metal band Nine Inch Nails, they likely gave little thought to the Russian industrialists who own the venue.
Not so the organizers of the concert, who had to reckon with the fact that the arena's three owners -- billionaire associates of Russian President Vladimir Putin -- have been hit with U.S. sanctions in response to the Ukraine crisis.
Ensuring the show can go on is something many U.S. companies and entrepreneurs are wrestling with as they try to determine whether they are unwittingly violating U.S. sanctions. In doing so, they often find themselves entering a legal minefield as they try to make sense of the Russian business world's often Byzantine ownership structures.
'It is a huge concern,' said Serena Moe, a sanctions expert with the law firm Wiley Rein in Washington.
The complex chains of ownership and control that permeate the Russian economy are causing jitters among U.S. businesses in a range of sectors, including energy, banking, and entertainment, according to Washington-based sanctions lawyers who spoke to RFE/RL.
The attorneys say current and prospective clients -- ranging from small firms to multinational corporations -- have been peppering them with Russia-related inquiries ever since the Kremlin's annexation of Ukraine's Crimean peninsula in March.
'We're getting probably five or six a week,' said Rebecca Hartley, a sanctions lawyer with the law firm Bingham in Washington.
Cortney O'Toole Morgan, a lawyer at Husch Blackwell, said her firm has received three or four calls from companies concerned about murky Russian ownership structures, including from a talent company staging performances throughout the world.
'They're trying to figure out whether those can still go on and where the funding's coming from,' she told RFE/RL.
So far the United States has sanctioned senior Russian officials and wealthy businessmen seen as close to Putin, as well as several companies, while holding off on broader sanctions targeting sectors of the Russian economy.
But the wealth and influence of the sanctioned individuals alone has prompted U.S. businesses to examine their connections in the country.
'Typically...my clients don't transact with a Vladimir Yakunin. They transact with entities in which he may have an interest,' said Richard Matheny, a partner at the law firm Goodwin Procter who has been contacted by about a dozen clients about the Russia sanctions.
Yakunin, the influential head of Russian Railways, is among the 45 individuals and 19 firms that the Obama administration has slapped with asset freezes and U.S. visa bans in response to the Crimea annexation and what the Obama administration calls Russia's destabilization of the situation in Ukraine.
Others include billionaire brothers Boris and Arkady Rotenberg and oil trader Gennady Timchenko, who together purchased the Hartwall Arena in Helsinki last year. The U.S. Treasury Department has said the three men, whose wealth has soared during Putin's 14 years in power, are part of the Russian president's 'inner circle.'
'Where you've got the individuals who are themselves extraordinarily wealthy and invest widely, any potential investment has to be looked at hard,' said Moe, a former deputy chief counsel with the Treasury Department's Office of Foreign Assets Control (OFAC), which administers and enforces economic sanctions.
The 50-Percent Rule
Once an individual is placed on an OFAC sanctions list, it becomes illegal for U.S. citizens and businesses to engage in transactions with entities in which that individual has an ownership stake of 50 percent or more.
If the sanctioned individual's stake is less than 50 percent, U.S. citizens and companies are allowed to do business with the firm, even if even it is owned by several sanctioned persons whose cumulative stakes exceed 50 percent but whose individual stakes are less.
The Treasury Department nonetheless has the authority to sanction entities it deems to be controlled by sanctioned individuals, even if they do not formally own a 50 percent stake.
For U.S. companies, the key question is often whether the efforts and resources -- from surfing the Internet to employing on-the-ground investigators -- required to nail down details of ownership are worth the effort, sanctions lawyer Erich Ferrari told RFE/RL.
'The difficulty is determining: 'How far do we go with this, and at what point does it become too cost-prohibitive for us?'' said Ferrari, adding that his firm is receiving 'a few' inquiries a week from companies concerned about the Russia sanctions.
In the case of the Hartwall Arena in Helsinki, the Internet appears to be sufficient to provide basic information about how the venue's ownership is structured.
The website of the Finnish company Arena Events states that the company owns 100 percent 'of the C-shares of Helsinki Halli Oy, which owns and operates the Hartwall Arena,' thus giving Arena Events 'control and voting rights in shareholder meetings.'
Arena Events, meanwhile, is 50 percent owned by Langvik Capital, a Finland-based investment company owned by 'the Rotenberg family,' and 50 percent owned by a Luxembourg-based company owned by Timchenko, according to the site.
A presentation given in early March by Boris Rotenberg's son, Roman Rotenberg, provided a visual of the arena's ownership structure.
The presentation, dated March 4, features a flow chart indicating that Langvik Capital and Timchenko's Luxembourg-based company each own a 50 percent stake in Hartwall Arena.
However, Roman Rotenberg, chairman of the board of Arena Events, told RFE/RL in a May 10 e-mail that Hartwell Arena has 'several hundreds of other shareholders.'
Rotenberg provided a breakdown showing that Arena Events -- the joint venture owned by Timchenko and the Rotenberg family -- owns 45 percent of the shares in the Helsinki venue.
The promoter of the May 8 Nine Inch Nails concert at the Hartwall Arena, Live Nation Finland, did not respond to an inquiry routed through its California-based parent company, global concert giant Live Nation Entertainment, in time for publication.
Live Nation Finland chief executive Nina Castren told Reuters last month that the promoter was 'examining the possibility whether this could have an impact on American artists' shows.'
Days later she said the U.S. sanctions 'will not have an impact on Hartwall Arena nor our business there,' Reuters reported.
The Treasury Department declined to comment on the matter.
U.S. pop star Justin Timberlake is scheduled to play the 13,000 seat Hartwall Arena on May 11, while American acts Aerosmith and Miley Cyrus are slated to perform there later this month.
Representatives for Nine Inch Nails and Timberlake did not respond to requests for comment.
Copyright (c) 2014. RFE/RL, Inc. Reprinted with the permission of Radio Free Europe/Radio Liberty, 1201 Connecticut Ave., N.W. Washington DC 20036.
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