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Posted: Friday, August 29th 2014 at 8:27am

Russian fund with US advisers eludes sanctions

By The Associated Press
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WASHINGTON (AP) -- As President Barack Obama warns of stepped-up economic punishments against Russia for its military incursions inside Ukraine, U.S. sanctions have so far avoided one prominent financial institution: the $10 billion Russian Direct Investment Fund, which has partnered with brand-name American companies and whose advisers include top U.S. and European private equity executives.

Despite its ties to Russian state businesses and officials, the Russian Direct Investment Fund has managed to operate unaffected by the sanctions imposed by the U.S. and EU in response to Russian President Vladimir Putin's military actions in Ukraine. The Ukrainian government said Russian troops invaded southeastern Ukraine on Thursday with two columns of tanks and military vehicles.

The fund has been working to help replace Western investors in Russia with money from Asia and the Middle East. In one recent deal, the fund and its partners paid $700 million to a Russian petrochemical company that is partially owned by a sanctioned Russian businessman. The fund's head, Kirill Dmitriev, told the Associated Press that the company with which it did the deal, Sibur, has not been targeted by sanctions but otherwise declined to discuss fund investments.

Along with its team of Russian managers, the fund's international advisory board includes private equity executives Stephen Schwarzman of The Blackstone Group LP, Leon Black of Apollo Global Management LLC and David Bonderman of TPG Capital LP.

The fund has so far escaped the effects from sanctions because it has not been explicitly targeted. The situation illustrates the Obama administration's struggle to achieve conflicting goals - punishing Putin's circle without damaging American 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 that 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.
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