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Written By: Alan M. Dunn and Jennifer M. Smith
Stewart and Stewart
Washington D.C.

How Russian Judo Could Flip the Hockey World: KHL Board Chairman Timchenko and Dynamo Moscow President Rotenberg, Former Putin Judo Partners, Subject to U.S. Sanctions, Update - Sanctions May Also Affect Upcoming Miley Cyrus and Justin Timberlake Concerts

Watch out, hockey world -- Judo may flip the KHL off its skates.

On March 20, the United States imposed sanctions on three Russian billionaires, all of whom are reportedly former judo partners of Vladimir Putin. But it is their leadership positions in major hockey organizations that threaten to flip the hockey world upside down. Recently announced Ukraine-related economic sanctions imposed by the U.S. against these oligarchs (and others) prohibit U.S. persons from engaging in any transactions with them. The economic sanctions also block any transactions with their property, including the entities they own.

The three judo sparring partners include: Gennady Timchenko, the Chairman of the board of the Kontinental Hockey League (KHL) and president of SKA St. Petersburg hockey club; Arkady Rotenberg, president of Dynamo Moscow hockey club; and his brother Boris Rotenberg, president of Dynamo Moscow football (soccer) club. Timchenko and the Rotenbergs also own a joint stake in Finnish hockey team Jokerit, which is slated to join the KHL in the 2014-2015 season. Although their titles do not prove they own or control a majority of these hockey leagues or hockey and soccer clubs, their leadership roles certainly suggest that these organizations may potentially be affected by the sanctions.

Canada has also blocked Timchenko and his property, but not the Rotenbergs. The EU’s current sanctions list does not (as yet) include any of them. A current list of the U.S., EU, and Canadian
sanctions appears here. Note, however, that additional sanctions may be imposed by the U.S. or other countries.

Americans and Canadians in the KHL and Jokerit

It is not uncommon for hockey players of many nationalities to play for teams in different countries. This season, 20 Americans and 67 Canadians have played in the Kontinental Hockey League. No Americans play for the hockey clubs SKA St. Petersburg or Dynamo Moscow but one Canadian plays for SKA St. Petersburg. In addition, two Americans and two Canadians currently play for team Jokerit. It is worth noting that regardless of a person’s nationality, any permanent resident of the U.S. (i.e. anyone with a “green card”) is treated as a “U.S. person” who must comply with U.S. economic sanctions.

NHL Players Who Have Played for Potentially Affected Teams

Several current (non-American) NHL players also played for these teams during the recent 2012-2013 NHL lockout. Specifically:

  • Washington Capitals stars Alex Ovechkin and Nicklas Backstrom and Leo Komarov of the
  • Toronto Maple Leafs played for Dynamo Moscow;
  • Kris Letang of the Pittsburgh Penguins (a Canadian), Sergei Bobrovsky of the Columbus Blue Jackets, and Vladimir Tarasenko of the St. Louis Blues played for SKA St. Petersburg; and
  • The Ottawa Senators’ Erik Karlsson and the Detroit Red Wings’ Valtteri Filppula played for Jokerit.

Russian former NHLer Ilya Kovalchuk is currently the SKA Saint Petersburg captain.

What the Sanctions Do

The U.S. sanctions freeze assets of Timchenko and the Rotenbergs, block their property and property interests, and ban them from travelling to the United States. Under U.S. law, the sanctions also automatically block the property and property interests of any entity in which a blocked person such as Timchenko and the Rotenbergs owns, directly or indirectly, a 50% or more interest.

This means that any person in the United States and all U.S. citizens, permanent residents, and entities (including foreign branches) are prohibited from engaging in any transactions with Timchenko, the Rotenbergs, and any organization in which they have a 50% or more ownership interest.

Caution Needed in Considering Transactions with the KHL and Potentially Affected Teams

Right now, the sanctions are based on ownership. Whether the teams (or the KHL, for that matter) could be considered directly or indirectly owned by the blocked persons and thus automatically blocked requires a further, fact-specific analysis.

But even if they are not actually 50% or more owned by sanctioned persons, the KHL, SKA St. Petersburg, Dynamo Moscow, and Jokerit could be considered to be controlled by the blocked
persons. This means that they could be subject to future sanctions. It also means U.S. regulators could consider certain transactions with these organizations to be indirect transactions with the blocked persons, which are also prohibited. (This might happen, for example, if the organization is seen as a middleman for the transaction).

U.S. banks might stop payments from these organizations and review them carefully for compliance with the sanctions laws.

The U.S. Treasury Department generally advises that U.S. persons act with caution when considering transactions with any entity in which a blocked person has a minority ownership interest or which a blocked person effectively controls.

However, someone wishing to engage in a transaction with a blocked person or entity can apply for a license to permit the transaction under certain circumstances.

Penalties for Sanctions Violations

The U.S. Government takes violations of the sanctions laws very seriously — a single violation can result in up to 20 years in prison, criminal fines of up to $1 million, and civil penalties of up to $250,000 or twice the amount of the relevant transaction.

Why Timchenko and the Rotenbergs Were Named for Sanctions

According to a U.S. Treasury Department press release, the United States named Timchenko and the Rotenberg brothers for sanctions because they are members of Putin’s “inner circle.” They have reportedly remained close with Putin since their judo sparring days, and their business activities have reportedly been linked to Putin.

According to the Treasury Department, Timchenko is the founder of Gunvor, one of the world’s largest oil and energy commodity trading companies, and the Rotenberg brothers have “provided support to Putin’s pet projects” and have made billions from contracts for Gazprom and the Sochi Olympics (including about $7 billion in contracts for the Sochi Olympics), and the Rotenbergs’ personal wealth has increased by $2.5 billion in just the last two years. The Rotenberg brothers also reportedly coown SMP Bank and Stroygazmontazh Corporation (SGM Group), a major energy construction contractor.

Other U.S. Sanctions Laws and Sports

This is not the first time that the U.S. sanctions laws and the sports world have collided. Perhaps the most notable example is the U.S.’s Cuban sanctions law, which blocks all Cuban nationals. All U.S. individuals and companies are prohibited from engaging in any transactions with any Cubans, including Cuban athletes such as baseball players and soccer players, unless certain narrow exemptions apply or they get a license.

UPDATE (April 3, 2014) –

Miley Cyrus breaks the ice of Russian Sanctions:

Sanctions May Also Affect Upcoming Miley Cyrus and Justin Timberlake Concerts:

The sanctions on these Russian hockey executives may also affect the music world, including Miley Cyrus and Justin Timberlake.

According to The Guardian, Live Nation, the promoter of Miley Cyrus’ and Justin Timberlake’s upcoming, sellout concerts in Helsinki, Finland, may be barred from completing any financial
transactions with Hartwall Arena in Helsinki unless it receives a license from the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) because the arena is owned by Arena Events OY, which is 50% owned by Gennady Timchenko, and Arkady and Boris Rotenberg each own 25%.

According to BBC News, Aerosmith and UK performers Robbie Williams, Peter Gabriel, and Elton John, who likely have U.S. management, are also scheduled to appear at Hartwall Arena this summer.

Team Jokerit plays at Hartwall Arena.

If you have any questions about the sanctions, please contact Alan M. Dunn or Jennifer M. Smith by visiting the International Society of Primerus Law Firms.

Disclaimer: This material is for the reader's information only. It is not to be construed as legal advice.