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Senate Democrats are expected to force a vote to block the Trump administration from lifting sanctions on three companies connected to Russian oligarch Oleg Deripaska.
The sanctions relief requires the Russian billionaire, who has ties to President Vladimir Putin, to divest himself of large corporate ownership stakes, including a controlling interest in the world’s second largest aluminium production company, Rusal.
Sen. Mark Warner of Virginia, the Senate Intelligence Committee’s top Democrat, expressed skepticism about the administration's proposal during an appearance on CNN’s State of the Union. Senate Minority Leader Chuck Schumer is expected to force a vote against the sanctions relief shortly.
Warner said the Treasury Department has "a scheme to try to take (Deripaska’s) ownership level down from 70 percent to roughly 40, 45" so that the Russian company is no longer subject to sanctions. But he doubted the arrangement would curb Deripaska’s influence.
"As more and more of this information comes out about ties between Trump and Trump officials and the Russians," Warner said, "it is the worst time to signal that we're going to take the pressure off of oligarchs like Deripaska."
Warner’s partial description of the Treasury Department’s deal with Deripaska is right, but it leaves out important details. Furthermore, several experts we spoke to had a different read of the Trump’s administration’s reasons for wanting the sanctions lifted. We asked Warner's office for comment, but didn't hear back.
Warner was right about some of the mechanics of the Treasury Department’s deal with Deripaska.
Here’s the quick backstory on the sanctions. Last April, the Treasury Department placed sanctions on seven Russian oligarchs, including Oleg Deripaska, as well as a dozen companies the oligarchs either owned or controlled.
The Office of Foreign Assets Control, or OFAC — the Treasury Department’s sanctions arm — said in a report that "the action aggressively targeted Russian oligarchs and elites that further the Kremlin's global malign activities." The misbehavior included "attempts to subvert Western democracy, support for the (Syrian President Bashar al-) Assad regime, malicious cyber activities, occupation of Crimea, and instigation of violence in Ukraine."
Among the dozen sanctioned companies were three that were connected to Deripaska, who the Treasury Department referred to as "a Kremlin insider." Deripaska held a 70 percent ownership stake in EN+, the holding company for the aluminum powerhouse Rusal, and energy company ESE.
The department agreed to lift sanctions on the three companies in exchange for Deripaska’s ownership stake in EN+ dropping from 70 to 44.95 percent. Doing so clears a key threshold. With Deripaska no longer the majority owner, the company becomes eligible to have sanctions lifted under the Treasury Department’s "50-percent rule," a process known as delisting.
But the deal tacks on additional conditions that Warner didn’t mention. It includes a corporate restructuring, designed to limit Deripaska’s (and Kremlin) influence over the companies, plus additional reporting and transparency requirements.
Unless lawmakers block it, the sanctions are due to be lifted very soon, by Jan. 18. While this would relieve some of the economic pain inflicted on Deripaska’s companies, it’s worth noting that the sanctions on Deripaska personally would remain in effect.
"Deripaska won't see a penny of the income from the shares until he himself is delisted — and that is not in the cards with this divestiture deal," said Samantha Sultoon, a visiting senior fellow at the Atlantic Council.
Most of the foreign policy experts we talked to — though not all — shared Warner’s skepticism that the corporate reshuffling plan would keep Deripaska in check.
"Given how business is done by influential, Kremlin-connected oligarchs in Russia, I have no question that if Deripaska wants to be in control, he will be," said Joseph DeThomas, a former high-ranking State Department official who teaches international affairs at Penn State University.
Warner is among a group of Democrats who have raised questions about the Trump administration’s motives for granting sanctions relief to the Deripaska-linked companies, which they see as helping out a Putin crony.
However, most experts we spoke to said this is a case of the Trump administration’s clumsiness, not coziness.
Back in April, when the sanctions hit the aluminum giant Rusal, it sent shockwaves through the global aluminum markets. The price of aluminum soared over the following weeks. Europe, which relies heavily on Russia’s metals market, faced the prospect of plant closures and lost jobs. Even now, the European Union strongly supports the lifting of sanctions.
The move also disrupted Rusal’s global supply chain. According to the Treasury Department, Rusal subsidiaries in the United States, Ireland, Sweden, Jamaica, Guinea, and elsewhere "faced imminent closure," before the Treasury stepped in to mitigate some of the damage.
According to experts, the Treasury discovered it had bitten off more than it could chew.
"They were done clumsily," Alina Polyakova, of the Brookings Institution, said of the sanctions. "It seems clear that the administration did not plan for the dramatic effects on aluminum markets and the knock-on effects on European businesses."
Warner himself acknowledged this aspect, saying, "I know there's concerns from our European allies about these sanctions." That seems to undercut Senate Democrats’ suggestion that sanctions-relief is a sign of undue coziness between team Trump and Russian oligarchs.
Still, in the midst of Special Counsel Robert Mueller’s investigation into the Trump campaign’s ties to Moscow, the optics of the sanctions relief plan are not good. "The Treasury was in a hopeless situation and does not want to state clearly that they made a mistake," said Anders Åslund, senior fellow at the Atlantic Council. "Therefore they now look as if they are helping Deripaska."
Warner said the Trump administration has "a scheme to try to take (Deripaska’s) ownership level down from 70 percent to roughly 40, 45" so that the Russian company is no longer subject to sanctions.
Warner’s description of the Treasury Department’s deal with Deripaska is partially right, but it leaves out important details. The plan also entails corporate restructuring, plus additional reporting and transparency measures. And the sanctions against Deripaska himself would remain in place.
Most experts we spoke to said sanctions relief wasn’t a "scheme" so much as it was the Trump administration’s way of ending the disruption it inflicted on the global metals market when it sanctioned Deripaska’s aluminum company Rusal. In other words, it’s more likely a case of clumsiness, rather coziness with Russian oligarchs — as Senate Democrats suggest.
We rate this Half True.
CNN’s State of the Union, Jan. 13, 2018
Department of Treasury, "OFAC Notifies Congress of Intent to Delist En+, Rusal, and EuroSibEnergo," Dec. 19, 2018
Department of Treasury letter to Senate Majority Leader Mitch McConnell, Dec. 19, 2018
Reuters, "Schumer to force vote on U.S. decision to lift sanctions on Russia firms," Jan. 12, 2019
Bloomberg, "Europe Backs Mnuchin's Bid to Lift Sanctions on Deripaska Firms," Jan. 11, 2019
Atlantic Council, "Memo to Congress: Treasury’s Plan to Lift Sanctions on Russian Oligarch’s Companies is a Good One," Jan. 11, 2019
Email interview with Anders Åslund, senior fellow at the Atlantic Council, Jan. 14, 2019
Email interview with Alina Polyakova, a fellow at the Brookings Institution, Jan. 14, 2019
Email interview with Steve Sestanovich, a senior fellow at the Council on Foreign Relations, Jan. 14, 2019
Email interview with Samantha Sultoon, visiting senior fellow at the Atlantic Council, Jan. 14, 2019
Email interview with Justin Goodman, aide to Senate Minority Leader Chuck Schumer, Jan. 14, 2019
Email interview with Joseph DeThomas, an international affairs professor at Penn State University, Jan. 14, 2019
Email interview with Boris Zilberman, a Russia expert at the Foundation for Defense of Democracy, Jan. 14, 2019
Interview with Jeffrey Mankoff, a senior fellow at the Center for Strategic and International Studies, Jan. 15, 2019
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