Two recent stories surrounding Russia sanctions—the delisting of the Russian aluminum giant Rusal by Treasury, as well as the re-invitation of three sanctioned Russians to the World Economic Forum in Davos—have led to a minor freak-out among amateur Russia watchers convinced that the Trump Administration has once again folded to Vladimir Putin. Though Trump’s own baffling solicitude towards Putin has justifiably made people suspicious, these two stories are examples of a very different fact of Trump’s time in office: the tenacity of the American bureaucracy to hold a hard line against Russia despite whatever the President might secretly want.
First, to Rusal. On April 6, Treasury’s Office of Foreign Assets Control (OFAC) added the company to the sanctions list on account of Oleg Deripaska, the real target of the sanctions, being a majority stakeholder. By April 23, Treasury Secretary Steve Mnuchin was announcing that Rusal would be temporarily delisted. The reason for the apparent backtrack was that hitting Rusal, the world’s second largest aluminum producer, had sent aluminum prices soaring. Europeans in particular were pleading with the Trump Administration to ease the pain, but the threat to the larger world economy was real.
Rusal was not off the hook, however. As the Atlantic Council’s Brian O’Toole, a former OFAC staffer, explained at the time, this was a standard part of the sanctioning toolkit. To minimize collateral damage, OFAC would often grant these reprieves in order both to give counterparties the opportunity to unwind their deals with the sanctioned company, but also to offer the company a chance to get out from under the sanctions by ridding itself of associations with the actual target.
And that’s precisely what happened: Deripaska’s ownership stake was wound town to under 50 percent, thereby depriving him of control of the company. As O’Toole noted in a recent update, the divestment was done in such a way that Deripaska saw no profits from selling his shares. And the agreement is such that should facts emerge that Deripaska is still somehow controlling or profiting from the enterprise, fresh charges could be brought against Rusal, with no danger of falling afoul of double jeopardy provisions.
As if to underline the point, Treasury reminded investors that Deripaska remains under sanctions, and that “foreign persons will continue to be subject to secondary sanctions should they knowingly facilitate a significant transaction for or on behalf of Deripaska or entities in which he owns a fifty percent or greater interest”. And while it was delisting Rusal, it sanctioned Deripaska’s advisor Viktor Boyarkin, a former GRU officer, for providing Russian financial support to a Montenegrin political party ahead of Montenegro’s 2016 elections.
As David Murray, another former OFAC staffer, wrote, the case was not just important for keeping the heat on Deripaska, but as a proof of concept. “[I]t showed that OFAC could sanction a person whose holdings affect global supply chains for vital industries without capitulating or breaking the global economy.” There is no one who will think themselves “too big to sanction” after this.
True, this is somewhat convoluted stuff, and the major papers didn’t take the bait. But prominent journalists on social media were running with the idea that this was some kind of huge victory for Putin. It emphatically wasn’t. Quite the opposite.
Second, Davos. News broke last week that the organizers of the annual elite confab had decided to give Putin a break and relent in allowing three sanctioned Russians—the aforementioned Deripaska, Viktor Vekselberg, and Andrei Kostin—to attend this year’s Forum. My dear colleague, one of the most respected Russians of all, Vladimir Kara-Murza called it “a big victory” for the Kremlin in his op-ed in the Washington Post. Kara-Murza argued that initially driven by the fear of secondary sanctions, the organizers changed its mind after a personal chat between Russian Prime Minister Dmitry Medvedev and Swiss President Alain Berset.
It turns out, a very important detail is missing in all of this. The excellent independent Russian news site The Bell, citing Kremlin officials, reported that the Forum organizers stipulated severe preconditions for the invitation to be extended. To wit: no payments by the sanctioned oligarchs with regards to the forum may be made through Americans banks; the Forum would make sure that no U.S. citizen would interact with the sanctioned guests; no American infrastructure could be used by Deripaska, Vekselberg or Kostin during their visit to the Forum, including American cloud services; the Forum managers must not help the three set up any meetings or negotiations; finally, the sanctioned Russians may not attend any panel or event organized by U.S. citizens or authorities.
The story reminded me of an account earlier this year in the New York Times about Mexico’s national soccer team captain, Rafael Márquez, who was blacklisted by Treasury for helping launder drug cartel money ahead of the World Cup tournament in Russia. Being sanctioned prohibited American individuals, businesses, and banks from having anything to do with him. FIFA had to send training money to the team in euros, and in such a way as to avoid the American financial system completely. Rafa did come to Russia but had to live apart from the rest of the team, as he was not allowed to stay in hotels in any way affiliated with American companies. The team’s star couldn’t drink water from branded bottles or give interviews in front of banners with sponsor logos of Visa, Coca-Cola, Budweiser and McDonald’s. And, of course, he could only be interviewed by non-American TV outlets, as American channels were not allowed to interact with the Mexican at all.
To arrange Rafa’s participation in the World Cup, FIFA and the Mexican Football Association had to work closely to obey the letter of Treasury’s rules “We take seriously the actions of the U.S. Treasury Department, and we have structured our World Cup operations so as not to violate U.S. sanctions laws,” FIFA told the Times.
The trip to Davos for the three sanctioned Russians is likely to be ignominious. They will be radioactive there. One can almost imagine American business leaders running into the Russians in a hallway and turning the other way to beat a hasty retreat rather than inadvertently interacting with sanctioned individuals. As the Bell wryly notes, if you strictly abide by the rules, there’s little point in going.
And yet, more than likely, the three will go to Davos, for no other reason than PR. Vladimir Putin is very good at these dark arts. More than likely, the thing is being pushed through because Putin knows that Western heads will explode at the “concession” being offered, and he will be named the winner by a press that’s sure that Putin is much more dexterous and capable than he is.
We shouldn’t play into his hands. I would be the last person to give President Trump himself the benefit of the doubt on Russia policy after everything we have seen so far. But that doesn’t excuse rushing to conclusions. Not everything is a sell-out by Trump; sometimes, the real story is that the U.S. government is in fact doing its job very well. Both the Rusal story and the Davos story are cases of the sanctions policy working as intended. Putin is not winning.
A meme appeared in Russia right after Putin started his military campaign in Syria. The motivation behind it was the set of ridiculous, suicidal responses the Russian government had undertaken in response to Western sanctions, such as banning food imports from Europe, the U.S. and Argentina. The meme features a photo of an imperious-looking Putin; the text reads: “If NATO invades Syria, we will start bombing Voronezh!” (Voronezh is a perpetually poor, provincial Russian city.)
The U.S. press had best try to avoid “bombing its own Voronezh”. It’s no way to win a war.
