US ready to cancel sanctions on Russian Rusal aluminum major

US ready to cancel sanctions on Russian Rusal aluminum major
Russian oligarch Oleg Deripaska was targeted with US sanctions in April
By bne IntelliNews December 20, 2018

Aluminium major Rusal could see sanctions lifted within 30 days after a deal was made with Russian billionaire and Kremlin insider Oleg Deripaska to significantly reduce his stake in the company, the US Treasury Department (USTD) said in a statement on December 19.

Deripaska and his businesses were sanctioned on April 6 along with fellow oligarch Viktor Vekselberg in the most serious Russian sanctions to date. Although Rusal has been thrown lifeline after lifeline to avoid shocks in the global aluminium supply chains, the lifting of the sanctions comes as a surprise as toughening of the US sanctions was expected post mid-term elections.

While Deripaska will remain sanctioned, restrictions on his metals and energy holding En+, and its subsidiaries Rusal and EuroSibEnergo, will be removed in 30 days unless the US Congress blocks the action. The shares of Rusal soared by 27% in Hong Kong on the announcement on December 20 opening.

"These companies have committed to significantly diminish Deripaska’s ownership and sever his control," USDT secretary Steven Mnuchin said in the statement. "The companies will be subject to ongoing compliance and will face severe consequences if they fail to comply."

According to the statement, the conditions include Deripaska cutting his direct and indirect share ownership to below 50% in all three companies and reshuffling the boards of En+ and Rusal. His stake in En+ has to be cut from about 70% to 44.95%. Half of En+ new board will have to be comprised of US or UK nationals, while Rusal’s current board chairman will have to go. Deripaska would not be allowed to get any cash compensation for the shares or future dividends.

Notably, state-controlled VTB Bank or another entity approved by the USTD will be able to take ownership of a block of share in En+. The bank is headed by sanctioned Andrey Kostin, a staunch Vladimir Putin loyalist, and has been involved in many major Kremlin-led deals

This week Kremlin said that both Deripaska and Kostin will be attending the annual World Economic Forum (WEF) in Davos taking place in January 2019, a reversal from a previous decision to bar the sanctioned Russian from the event.

Senate Democratic Leader Chuck Schumer, joined by Sherrod Brown of Ohio and Robert Menendez of New Jersey, the top-ranking Democrats respectively on the Banking and Foreign Relations committees, said the decision "raises key questions that the administration will need to answer about whether the structural and governance changes made by these companies are sufficient to ensure that Deripaska is no longer in the driver’s seat," Schumer said as cited by Bloomberg.

The release of the statement on Deripaska coincided with the surprise announcement by the Trump administration on the withdrawal of US troops from Syria, which is likely to be seen as another major concession to Russia.

In the meantime the USTD add 15 Russian military intelligence operatives to the SDN sanctions list over the US election meddling and attempted poisoning of Sergei Skripal on UK soil, among them Anatoly Chepiga and Alexander Mishkin, the two alleged intelligence officers involved in the operation. 

It is not clear how the potential removal of sanctions will influence Rusal's recent decision to re-register the company in Russia

The new registration is in Russia's Special Administrative District (SADs or SARs), a domestic offshore zone the Russian government introduced in August on Russky and Oktyabrskiy islands. Previously the anticipated move was considered to be a Plan B in case the US sanctions remain in effect longer than expected. 

 

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