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A list of Russian oligarchs published by the U.S. Treasury Department this year continues to present European financial institutions with unique compliance-related challenges and potentially costly consequences for missteps, say sources.

In January, the U.S. Treasury Department submitted a 9-page report to Congress naming 96 Russian individuals with a net worth of at least $1 billion on a “List of Oligarchs,” and a separate list of 114 senior political figures and leaders of some of Russia’s largest firms, including Gazprom, Transneft and Sberbank.

Inclusion on either list does not automatically trigger sanctions, but U.S. officials have warned that both publications and a confidential version of the report could serve as the basis for asset freezes, travel bans and other restrictions going forward against parties named therein.

Banks in the past few months have reacted by launching wide-ranging investigations into Russian oligarchs and their business interests, reviewing and amending existing contracts and loan agreements with them, and, in a few cases, closing accounts to mitigate their exposure to potential U.S. punitive action.

The “unpredictability” of the White House, uncertainty over whether the lists are precursors to actual designations, and the sweeping powers that the law underpinning the publications carries have made European banks “very careful” in dealing with Russian oligarchs, a compliance officer at a Dutch lender with ties to listed parties told ACAMS moneylaundering.com.

“It’s a question of drawing up a very good picture of where you have exposure and adjusting your controls,” the compliance officer said on condition of anonymity, adding that their institution now involves senior executives in any decision to offer or deny additional products or services to Russian oligarchs named on the lists additional products and services.

The bank has also hired U.S. attorneys to determine if and how existing contracts could be amended so that potentially problematic relationships with high-risk Russian clients could be severed or wound down over time.

“Clients want to be well-prepared, too, but when they come up with ideas it’s important that we’re not circumventing the law,” the compliance officer said. “Those discussions are ongoing.”

CAATSA

U.S. officials drew up the lists following adoption of the Countering America’s Adversaries Through Sanctions Act, or CAATSA, last year.

The law insulated certain U.S. sanctions programs from reversal by the White House and introduced new designations against parties allegedly involved in Russia’s interference in the 2016 U.S. presidential election, Iran’s development of ballistic missiles and North Korea’s nuclear weapons program.

Companies deemed to have knowingly facilitated “significant transactions” for any individual and any relative of any individual subject to existing U.S. sanctions against Russia risk having their U.S. assets blocked under section 228 of the law.

CAATSA also obligates U.S. banks to withhold correspondent services from foreign banks that do business with blacklisted individuals or entities, even if the transactions do not touch U.S. jurisdiction.

“OFAC’s interpretation is broader than anything the United States ever had in the Iran sanctions authorities, and then you tag on the 226 secondary sanctions for foreign financial institutions,” Jeremy Paner, a former sanctions investigator for OFAC, or the Treasury Department’s Office of Foreign Assets Control, said. “European banks are in a tough spot.”

The Treasury Department warned in March that CAATSA’s prohibitions also apply to firms at least 50-percent owned by parties listed as a result of the law or other U.S. sanctions.

George Voloshin, head of Aperio Intelligence’s branch in Paris, said several banks have moved to amend contracts with CAATSA-listed oligarchs to allow for easier separation, and to clarify that loans may be called back by earlier deadlines if U.S. actions against those clients escalate.

Voloshin said that “to be on the safe side,” some U.K. banks have also asked his firm to identify and map out any company at least 25-percent controlled by Russian oligarchs listed under CAATSA but not yet included on the U.S. list of specially designated nationals, or SDNs, as well as firms controlled by their relatives.

“Unless there are sanctions, the safest scenario is to keep track of their activities and take some defensive measures, but not give them up entirely,” Voloshin told moneylaundering.com.

U.S. officials emphasized in January that the CAATSA lists do not necessarily portend inclusion on the SDN list, but also noted that future SDN designations will “rely on all available sources of information”—including a classified version of the CAATSA report.

A New York-based compliance officer for a global bank said the lender offloaded two Russian oligarchs on the CAATSA lists because of their ties to SDNs or proximity to Russian President Vladimir Putin, or because their names appeared during negative-news searches.

“The bank itself is wrestling with this question about what the impact [of the lists] is going to be,” said the compliance officer, who asked not to be named. “Those customers have a largely geographically elevated risk-rating and are subject to enhanced monitoring just because of these associations and the likelihood that another shoe might drop [further sanctions].”

Future designations?

A group of seven Russian oligarchs blacklisted by the U.S. Treasury Department in April includes four whose names appeared three months earlier on the CAATSA lists: metal tycoons Oleg Deripaska and Viktor Vekselberg, investor and politician Suleyman Kerimov, and Vladimir Bogdanov, an oil magnate.

Those seven individuals were designated alongside 31 other parties U.S. officials have linked to Russia’s occupation and annexation of Crimea, support for the Syrian government, and involvement in corruption, among other potentially illicit activities.

According to Voloshin, oligarchs with close ties to Putin or holding assets in the West, such as Roman Abramovich, the owner of London soccer club Chelsea, and Alisher Usmanov, a shareholder in rival club Arsenal, may pose the most tempting targets for U.S. officials.

“While it’s not an exact science, it is still possible to narrow the [CAATSA] lists down” to the highest-risk individuals, Voloshin said. “Political exposure, the source and nature of wealth and specific reputational issues should drive this analysis.”

That Russian oligarchs often obscure the entirety of their business interests may complicate due diligence, however, as will their suspected efforts to avoid the SDN list by spreading ownership across different firms to fall under the 50-percent mark set out by the Treasury Department.

“They dilute their ownership of companies, transfer their shares, or the company does a buyback while they may or may not remain in control, [all to] minimize below that 50-percent threshold,” the New York-based compliance officer said. “Then you see people appear on the board [of a corporate client], and you’re like, ‘Who the hell is this?’”