The case of Roman Abramovich: The impact of financial sanctions

The direct bans apply specifically to the sanctioned entity.

The indirect bans are a tool used to indirectly sanction businesses and organizations owned or controlled by the sanctioned entity.

A brief look at the background of Roman Abramovich and the Soviet Union of the early 1990s makes it easier to understand how Russian oligarchs were able to accumulate wealth and influence and why they are now wrapped up in the sanctions against Russia. 

• Abramovich was born in 1966 to a Russian Jewish family in the Soviet city of Saratov. He studied engineering at the Russian State University of Oil and Gas
• In the early 1990s,  he entered the lucrative Russian oil business. At that time, the Soviet Union under President Mikhail Gorbachev was implementing the economic reforms of “perestroika,” which liberalized and modernized Russian markets. Many new companies were founded and old companies privatized, especially in the oil sector. Auctions of state-owned enterprises were not always undertaken legally, and this gave rise to a class of Russian businessmen known as the oligarchs – a large circle of very wealthy and influential men who continue to shape Russian society and politics to this day.
• Abramovich served as a representative of Putin’s party in the State Duma in the early 2000s and later as governor of Chukotka until 2008. He is known as “Putin’s businessman” for his advice to the Russian president on managing his personal fortune. 

Abramovich’s direct ongoing political association with the Putin machine is cited as the reason for the sanctions against him.

But back to Chelsea FC. Why does the German coach of the English Premier League club have to worry about his income and the future of his employer when the UK and EU impose financial sanctions on the Russian oligarch Roman Abramovich?

Chelsea FC falls within the scope of bans on the indirect provision of economic or financial resources.

The defining characteristic of indirect bans is that the affected entity itself – Chelsea FC, in this case – is not on any sanctions list. The sanctions in effect against the club stem from the sanctions against its owner, Roman Abramovich, who acquired all the shares in the Premier League club for 140 million pounds in 2003. The direct bans on the provision of resources imposed on Abramovich by the UK and EU in mid-March 2022 result in indirect bans against Chelsea FC.

This has restricted the club’s operations since mid-March. One effect of the sanctions is, for example, that EU or UK-based football clubs, hotels, and airlines are prohibited from having any business relations with Chelsea FC. Any failure to comply with the indirect bans is a violation of the embargo. This quickly made it clear that Chelsea FC would have to stop playing unless it gained an exemption from the British government. The government granted an exemption through May 31, 2022. What happens next is anyone’s guess. Chelsea FC faces an uncertain future.

Companies have various methods for checking for bans on the indirect provision of economic or financial resources. Besides doing an online search, which is not very effective, many companies submit a standardized form to run a one-off query of the ownership structure behind their business partner. This is followed by a manual check of the individual addresses of the business partner’s owners. The procedure is documented to provide proof of the company’s internal organization in the event of an audit.

It’s possible to automate the check of the business partner’s ownership structure. Content providers such as Dow Jones offer databases containing ownership and control info on international economic operators. Companies that use AEB’s Compliance Screening software can license this data content from Dow Jones and run checks automatically. Connecting the Dow Jones database to AEB’s Compliance Screening enables automated checks for indirect bans.