Leading US law firm Cleary Gottlieb Steen & Hamilton has advised a key ally of Russian President Vladimir Putin on the acquisition of a stake in Moscow's largest airport in spite of sanctions existing against the individual, bne IntelliNews can exclusively report.
Cleary Gottlieb Steen & Hamilton advised a holding headed by billionaire Arkady Rotenberg on the acquisition of a controlling stake in Moscow's largest airport Sheremetyevo, senior legal sources in Moscow told bne IntelliNews. The sale by the Federal Property Management Agency, which was advised by Goltsblat BLP, to Rotenberg's TPS Avia is understood to have closed in mid-February.
Elizabeth Faulkner, a London-based spokesperson for Cleary Gottlieb, said in an email the firm declined to comment. Spokespeople for US Treasury Office of Foreign Assets Control (OFAC) didn't reply to emails, nor did the press service of Rotenberg's SMP Bank.
Rotenberg, Putin's judo partner and long-time associate, is included in the US Treasury Office of Foreign Assets Control's list of Specially Designated Nationals (SDNs), which means no US person or entity can have any dealings with him. Together with his brother Boris, Rotenberg was sanctioned by the US over the Kremlin's involvement in the Ukraine conflict as a member of Putin's inner circle. SMP Bank was also separately sanctioned.
According to official US Treasury guidance, it is acceptable for a US person or entity to have dealings with an entity such as Rotenberg's holding TPS Avia that is less than majority owned by a sanctioned individual. Rotenberg's stake in TPS Avia is believed to be under 50%.
However, US persons are warned "to act with caution when considering a transaction with a non-blocked entity in which one or more blocked persons has a significant ownership interest that is less than 50% or which one or more blocked persons may control by means other than a majority ownership interest."
Following the consolidation, the government's share in the authorised capital of Sheremetyevo Airport will be 31.56%, while Rotenberg and the other private owners will own 68.44%.
"Clearly, Cleary Gottlieb have balls the size of watermelons for doing this deal," a senior partner at a Western law firm in Moscow told bne Intellinews. "There may be a narrow channel of clear blue water in terms of not breaching the sanctions, but we wouldn't have touched it with a barge pole."
US banks active in Russia have been scared off from working with the government and Russian institutions for fear of breaking the sanctions and incurring fines from the regulator.
Wall Street banks, including Goldman Sachs, JP Morgan and Citigroup, are believed to have passed on the chance to help arrange the Kremlin's $3bn Eurobond even though the sovereign is not subject to the sanctions.
Not so for law firms, who possibly have less scruples or are more adept at traversing the sanctions' tripwires. bne IntelliNews reported in November on how US firm White & Case is advising the Kremlin on how to fight off claims by former shareholders of oil producer Yukos on several foreign fronts, while also advising Russian state companies on how best to navigate the sanctions minefield.
Rotenberg has known Putin since childhood, when they trained in the same judo club in St Petersburg. In the last five years, companies connected with Rotenberg have amassed more than RUB1 trillion worth of state contracts, according to the Russian version of Forbes, while the US Treasury also attests to their vast amd growing wealth.
"Both brothers have amassed enormous amounts of wealth during the years of Putin's rule in Russia," the Treasury said in its statement when it imposed sanctions in 2014. "The Rotenberg brothers received approximately $7bn in contracts for the Sochi Olympic Games and their personal wealth has increased by $2.5bn in the last two years alone."
The Financial Times reported on March 9 that the Rotenbergs are also seeking to buy a 25% stake in Russian state-controlled airline Aeroflot.
In a rare interview last year, Rotenberg denied that Putin was helping him build his business empire. His partners at TPS Avia are fellow tycoons Alexander Ponomarenko and Alexander Skorobogatko, according to Russian media reports.
Cleary Gottlieb has handled a wide range of assignments for the Russian government since opening an office in Moscow in 1991. The firm is currently repesenting the Kremlin in seeking full repayment of $3bn in debt from Ukraine plus $75mn in interest and legal fees.
In the Russian private sector, its lawyers focus on capital markets, syndicated loans, mergers and acquisitions, as well as general corporate and litigation matters.
The firm, whose only partner in Moscow is Marat Akuyev, also represents US and European companies that have business interests in Russia, as well as Russian companies in cross-border transactions and financings.
"It is not illegal for Cleary to represent a company minority-owned by a sanctioned person, but it is surprising and reputationally risky given that TPS Avia is so publicly associated with such a high-profile figure on the sanctions list," a senior Moscow lawyer told bne IntelliNews. "But they have lot to lose given that Cleary advises UK and EU treasuries and has former US Treasury officials working in the firm and represents borrowers before the US Treasury."