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Prospect of New Sanctions Unsettles Russia's Elite -- WSJ

23 Jan 2018 7:32 am
By Nathan Hodge 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (January 23, 2018).

A new round of U.S. sanctions is taking aim at Russia, and the country's business elite has reason to be nervous.

At issue is the Countering America's Adversaries Through Sanctions Act, or Caatsa, signed into law by President Donald Trump in August. The tough new legislation is meant to punish the Kremlin for its alleged interference in the 2016 U.S. presidential election.

Under the law, the U.S. Treasury Department is required to issue a detailed report listing "senior foreign political figures and oligarchs in the Russian Federation," including individuals close to Russian President Vladimir Putin, their estimated net worth and known sources of income.

Speculation in Moscow is intense about the new list, due in early February. Existing sanctions already target Mr. Putin's inner circle and key enterprises, but new sanctions threaten to further cut access to foreign credit, their ability to travel freely in the West or do business in the U.S.

For now, it's not clear who will appear on the list, nor what penalties they will face. In this uncertain climate, Mr. Putin has made moves to shore up support with the business elite, such as proposing nationalist economic measures. In Washington, meanwhile, the law has sparked a flurry of activity among Russian players trying to figure out the law's potential impact.

"We have seen more Russian lobbyists and lawyers the last couple of months than we have seen for a very long time," says Anders Åslund, a senior fellow at the Atlantic Council in Washington. "There is a mass of activity."

The new sanctions come as Russia is emerging from economic troubles brought on by the Ukraine crisis and a global drop in oil prices. The U.S. and the European Union hit Russia with economic sanctions in response to the annexation of the Black Sea peninsula of Crimea in 2014 and Moscow's backing of separatists in eastern Ukraine. The Ukraine crisis also triggered what the World Bank described as "massive capital outflows."

The financial institution predicts GDP growth in 2017 of 1.3% after two years of recession. Despite Russia's slow economic recovery, Mr. Putin's ratings remain high. He routinely polls above 80% -- including a patriotism-fueled surge following the annexation of Crimea -- and is widely expected to win re-election in March.

Beyond popular support, the Kremlin must cater to another constituency: Russia's business elite. Mr. Putin has held two round-table discussions with Russia's top business leaders since the passage of Caatsa. The goal, says Mr. Åslund, was to shore up the support of Russia's business elite.

He has also taken official steps to reassure them. In a late-December meeting with lawmakers, the Kremlin leader said Russia needed a new "stimulus" to encourage the return of Russian capital from abroad.

"Foreign restrictions, instead of lessening, are worsening," Mr. Putin told lawmakers.

Mr. Putin has long talked about his interest in promoting "deoffshorization," repatriating the billions held abroad by Russian business owners. Dmitri Trenin, the director of the Carnegie Moscow Center think tank, said the sanctions could have an unexpected effect of accelerating this process.

"Outside pressure on Russia, understood as politically motivated and orchestrated from the U.S., leads to more national cohesion," he said in a recent comment on Twitter.

Some Russian oligarchs, Mr. Trenin added, "are already thinking of repatriating capital."

In a Dec. 21 meeting with oligarchs, Mr. Putin said business leaders had asked that new mechanisms be created for returning capital to Russia, suggesting external government bonds denominated in foreign currency as one possibility.

"The government and the Central Bank have thought out this matter," Mr. Putin said. "I instructed them to determine the necessary conditions and parameters for issuing these bonds to Russian investors and to get them into circulation already next year."

For now, however, much of the speculation centers on who will land on the list, and whether the Trump administration will follow through aggressively.

In a pair of statements released after the signing of Caatsa, Mr. Trump said the bill was "seriously flawed," as parts of the law limited his powers to lift sanctions.

The big question, then, is how the administration will comply with the law's requirement to compile the list. That has created new uncertainty in Moscow, where the U.S. government is seen as being in a decidedly anti-Russian mood.

"From the outside, Washington looks rather chaotic, and it's not clear how much real thought is going into policy decisions on Russia," says Tom Blackwell, the CEO of EM, a consultancy that advises a number of large Russian companies. "One particular concern is that this void of thinking has opened the way for individuals with an ax to grind to step up, seeing future sanctions as a chance to settle scores, or a chance to legitimize themselves in the West simply by adopting fervent anti-Kremlin positions."

Added Mr. Blackwell: "All of this makes for a rather unpredictable and unsettling environment."

Mr. Hodge is a former Wall Street Journal reporter in Moscow. Email reports@wsj.com.

(END) Dow Jones Newswires

January 23, 2018 02:32 ET (07:32 GMT)

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