By John Helmer, Moscow
The Italian bank Intesa Sanpaolo, which was reported last week as the principal lender to Rosneft’s €11 billion share sale, has announced it has played an advisory role, not a lending role, and it is still in the “assessment phase” of the transaction — without a commitment to lend money.
On December 7, Rosneft chief executive Igor Sechin told President Vladimir Putin “we will receive the first money transfers from our foreign investors in the next few days”. Rosneft announced  at the same time “the acquisition of the Rosneft stake will be financed with investors’ own funds and will also involve debt financing. Investors’ equity in the acquiring vehicle will amount to EUR2.8 bn. The bulk of debt financing will be provided by Banca Intesa Sanpaolo.” Glencore, the Swiss trading company which is one of the two reported foreign share-buyers, alongside the Qatar Investment Authority (QIA), announced  in parallel that “Glencore will commit €300 million in equity and QIA will commit €2.5 billion in equity to the Consortium with the balance of the consideration for the acquisition of the Shares to be provided by non-recourse bank financing, principally by Intesa Sanpaolo S.pA..”
On Monday afternoon, at the bank’s head office in Milan, Intesa Sanpaolo issued  an 11-line statement claiming there is no loan, financing or investment agreement by the bank for the Rosneft transaction, at least not yet; and that the bank’s “possible participation in the operation is conditional, first of all, on total support for the sanctions system adopted by the EU and US towards entities of the Russian Federation.” The bank also said it has so far done no more than act as advisor to Rosneftegaz, Rosneft’s parent shareholder, “which has not been subject of any sanction.”
In Moscow Sechin was asked through his spokesman, Mikhail Leontyev, to respond to the bank’s announcement. “How do you square this position with the Rosneft and Glencore statements of last week, confirming the bank as the principal lender to the deal?” Sechin and Leontyev refuse to answer.
Between what the Russians and Italians are saying there is more than €8.7 billion in debt financing. For full details of the Rosneft privatization of a 19.5% shareholding, and the sources of money to finance the sale and to pay the proceeds into the Russian state budget this month, read this . Because of website attacks originating from Russia since this report appeared, an alternative site for the story can also be clicked open here .
International bankers have put Intesa Sanpaolo executives under pressure to respond to the Russian claims that they had signed commitments to lend the “principal” part of this amount to the Rosneft group for the share privatization. According to the bank sources, Intesa Sanpaolo has made no effort to assemble a loan syndicate for the transaction, and it cannot afford to make the loan by itself.
The Italian monthly magazine Valori (www.valori.it ) has asked the bank in Milan to clarify its role in the Rosneft transaction, and to explain how the announced financing meets the EU and US sanctions against long-term lending for Rosneft’s activities. The bank answered on Monday with the statement that the loan “is possible but not certain” and that the “possible participation of Intesa in the deal is still being assessed”. For Mauro Meggiolaro’s report of December 20, click  to open.
Carlo Messina (right), the bank’s chief executive , told reporters last week the bank was acting as no more than “an adviser to the privatisation on behalf of the controlling entity of Rosneft, which is not subject to any sanction or embargo”. The latest announcement from the bank does not appear on its website .
There’s speculation in Italian financial circles that Antonio Fallico is behind Intesa’s part in the Rosneft deal. Fallico is the chief executive and chairman of the board of the bank’s Russian subsidiary, Banca Intesa Zao in Moscow. He has lived in Moscow for many years and has reportedly been the arranger of several major business transactions agreed between former Italian Prime Minister Silvio Berlusconi (with Fallico, below left) and President Putin (right).
Intesa Sanpaolo is also under pressure from the US Government, which has already conducted two sanctions-busting cases against the Italian bank. In 2013, the US Treasury prosecuted the bank for violating US sanctions against Cuba, Sudan, and Iran; a penalty of $2.9 million was imposed . Last week, continuing the investigation of the bank’s business with Iran, the New York State Department of Financial Services (DFS) announced  it was fining the bank $235 million for money-laundering and bank secrecy violations related to sanctions-busting schemes. According to DFS, “by processing transactions involving entities possibly subject to U.S. sanctions using these non-transparent methods, Intesa subverted controls designed to detect illegal transactions in the New York branch and thwarted the effective supervision of the New York branch by regulators.”
For details of the New York indictment, the bank’s admissions, and the programme of US supervision which Intesa Sanpaolo has now accepted, read this . Iran, not Russia, was the target of the DFS prosecution. But one of the money-laundering investigations turned up “three different payments [to an Intesa customer] from a company registered in Cyprus that did its banking in Russia.”
Responding to the Americans, the bank announcement of Monday afternoon says: “Possible participation by Intesa Sanpaolo in financing the purchase of 19.5% of Rosneft by a consortium which includes the Qatar sovereign wealth fund QIA and Glencore as participants, is still under assessment, and to our knowledge, this is not the subject of any investigation by the competent Italian or European authorities.” The bank added that its “possible participation in the operation” is conditional on “total respect for the system of sanctions adopted by the European Union and the United States against the Russian Federation entities”.
“In any case,” the bank claims, its role in the Rosneft privatization is “advisor to the parent Rosneftgaz, a company that is not subject to any sanction.”
The US Treasury Russia sanctions Directive 2 , issued in September 2014, bans “all transactions in, provision of financing for, and other dealings in new debt of longer than 90 days” to Rosneft or associated companies which are 50% owned within the Rosneft group. Note that the wording appears to allow direct investment in Rosneft equity, but disallows lending for that purpose. Directive 1  bans for Americans “all transactions in, provision of financing for, and other dealings in new debt of longer than 30 days maturity or new equity of persons determined to be subject to this Directive.”
Directive 4, issued  at the same time, bans the sale of goods, services, and technology to Rosneft for “deepwater, Arctic offshore, or shale projects that have the potential to produce oil in the Russian Federation.”
Rosneft, other sanctioned Russian oil companies and the Russian state banks, which have been hit by the European Union (EU) counterparts of these sanctions, have gone to the UK and EU courts to challenge their legality. For the story of how Rosneft has been fighting the sanctions in court, read this  and for the prejudicial record of the European Court of Justice, click . For Rosneft’s case in the London courts, read more .
Sources close to Rosneft say that a legal opinion on the effect of US and EU sanctions on the share privatization was commissioned by Rosneft from the US law firm, Cleary Gottleib. The law firm  advertises itself as “defending[ing] the world’s leading financial institutions and multinational corporations on regulatory and enforcement matters pertaining to economic sanctions and anti-money laundering (AML), export controls and related matters.” After the US Treasury issued its September 2014 sanctions against Rosneft, Cleary Gottleib issued  this “alert memorandum” explaining the restrictions on “US persons” from making equity or debt transactions involving sanctioned Russian companies, including Rosneft; and the additional restrictions on “foreign financial institutions” on “significant transactions relating to any sanctionable investment in a Russian Arctic offshore, deepwater, or shale projects for the production of oil.”
The new report by Cleary Gottleib finds no sanctions violations in the share sale deal, according to the structure that’s been announced. It is not known what role for Intesa Sanpaolo was presented for Cleary Gottleib to assess.
In Switzerland, where Glencore is based, the federal government claims to be acting independently of the EU, but has framed its own sanctions regulations toward Ukrainian and Russian individuals, and also Russian corporations and banks. The Swiss rationale  is that although the Swiss Constitution requires the government to be neutral in the conflict with Russia, “Swiss territory may not be misused to circumvent EU sanctions. The Federal Council is continuing current policy and taking measures necessary to prevent circumvention of the latest EU sanctions.”
For an investigation of the Emmental doctrine of Swiss neutrality towards Russia, read this .
Swiss sources say that although the Swiss sanctions list of November 2014 included Rosneft, there is no Swiss ban on Glencore buying a 9.75% shareholding in Rosneft for cash down of €300 million plus loans. The text  of the Swiss regulation orders government approval for “émission d’instruments financiers” for longer than 30 days to a sanctioned company. However, the list of Russian companies to which the rule applies is in Annexe 2 of Article 5 – and this isn’t published. Sources in Bern, the federal capital, say Rosneft isn’t on the list.
Swiss officials also make clear that if a Swiss company like Glencore is meeting Swiss law on Swiss territory, there is no question of the Swiss government acting to enforce US sanctions against Russian equity or debt transactions which the Swiss regulations allow. Swiss officials also claim there has been no official US Treasury request regarding Glencore’s part in the Rosneft deal. So far as officials in Bern are concerned, Glencore isn’t obliged by Swiss regulations to seek Swiss government approval for the deal. If Glencore has a problem with the Americans, the Swiss government won’t intervene on the US side.
Swiss bankers say the Swiss government’s position “is a case of the three wise monkeys. Nobody will invite Glencore to submit anything; noone will discuss the transaction with Glencore, and noone wants to read reports from Cleary Gottleib or anyone else. What isn’t seen, heard or said allows the officials in Bern to avoid responsibility, and to say Switzerland preserves its neutrality.”