What's happening to Rusal, the world's second-biggest aluminum producer, and other assets partly owned or controlled by Oleg Deripaska, marks an important change in the U.S. sanctions regime for Russia: For the first time, the sanctions actually bite. An example is being made of a billionaire who isn't part of President Vladimir Putin's inner circle, but whose business is unpopular with the administration of President Donald Trump.
Previous U.S. sanctions have concerned Russian companies and individuals with little or no business in the U.S. That's not the case with Deripaska. His holding company, En+, owns 48 percent of Rusal, and in 2017, 14.4 percent of that company's revenue - $1.4 billion - came from the U.S.
The company has told customers not to pay what they owe it while it studies the sanctions' effect, because the sanctions could turn out to mean that no transactions with Rusal property, including cash, can be conducted in the U.S.
That could make any payment to Rusal in U.S. dollars illegal, no matter where in the world it came from. The U.S. Treasury Department has allowed time for the Deripaska-related companies to wind down their businesses, but it makes sense for Rusal in particular to get a clear understanding of what's going on. And in any case, it's being told overnight to get rid of a large chunk of its aluminum export business.
In just one day, on Monday, according to the Bloomberg Billionaires Index, Deripaska lost almost 15 percent of his net worth, about $1.1 billion. That's harsh - and, if the U.S. regulator's goal is to hurt Putin's cronies, it's also hard to understand.
Deripaska acquired his significant assets under Putin's predecessor, Boris Yeltsin. He even married into the former president's extended family: His wife, Polina, is the daughter of Yeltsin's one-time chief of staff, Valentin Yumashev, who himself married one of Yeltsin's daughters.
The Treasury statement placing Deripaska on the sanctions list mentions that the Russian billionaire "has said that he does not separate himself from the Russian state." That comes from a 2007 Financial Times interview, in which Deripaska declared that he'd be happy to hand Rusal to the Russian government if it told him to do so. That, as it soon became clear, was just a figure of speech.
In 2009, at the height of the global financial crisis, Deripaska's business empire was almost crushed by $14 billion in debt, and he applied to then-President Dmitri Medvedev for a bailout. What he proposed was a conversion of $6 billion in debt, owed to state banks, into non-voting shares in Rusal, which the government would hold and which he might then repurchase once the crisis was over. The government passed on the idea.
I was editor of the Russian website Slon.ru when our reporters documented about 20 requests Deripaska made of the government during the crisis. Some of them brought results, others were declined. One of the reporters who worked on that story, Konstantin Gaaze, estimated in an article published this February by the Carnegie Endowment that Deripaska made around 50 written requests in 15 years under Putin and Medvedev. Most, according to Gaaze, have been approved: For example, the health ministry approved the purchase of 11,000 ambulances made by Deripaska's GAZ factory (now, like his other assets, under U.S. sanctions). But some of the bigger proposals fell through, including Deripaska's attempt to sell several million tons of aluminum to the government in 2008. In 2009, Deripaska asked Putin in a personal letter to roll over $4.5 billion in debt to the state development bank for five years; Putin only agreed to one year.
Deripaska, who realized early that Putin wouldn't tolerate business interference in politics, has kept his head down and enjoyed a decent relationship with the Kremlin, as have most other Yeltsin-era billionaires. (Mikhail Khodorkovsky, jailed after he showed too much independence and interest in politics, was an exception.) But he was never a Putin crony, a participant in his hockey games, a judo sparring partner, a fellow KGB veteran.
If Deripaska is a beneficiary of the Putin regime, it's mainly because he's been able to convince the government that the health of his businesses is essential for their more than 100,000 employees - one of the biggest private workforces in Russia. Putin's only public quarrel with Deripaska was about workers, too: In 2009, a seething Putin went on national television from Pikalevo, where Deripaska co-owned a factory, to persuade the tycoon to pay back wages to workers.
It's difficult to say exactly what made Deripaska, and not fellow Yeltsin-era billionaires such as Vladimir Potanin, Mikhail Fridman, Roman Abramovich or Mikhail Prokhorov, a target of such harsh U.S. sanctions. These others, of course, may be targeted later, and investors have been dumping Russian stocks and hurting other billionaires: According to Forbes Russia, members of its rich list collectively lost $12 billion on Monday. Any wealthy Russian, any Russian company is fair game now - something that rightly gives investors pause.
I can, however, see only one reason why Deripaska has been singled out now, and it has nothing to do with his failed business relationship with Trump's former campaign manager, Paul Manafort.
Russia was the No. 2 supplier of aluminum to the U.S. market after Canada. In this case, when we say Russia, we mean Rusal, the country's dominant aluminum producer. Trump's import tariffs on aluminum were designed to hurt Russia more than China. By sanctioning Deripaska and his companies, the U.S. took a huge chunk of imports off the market much more effectively than it could have done with the tariff. U.S. consumers, of course, will pay for this as domestic producers and other exporters raise prices, and the tariffs will be all the less useful.
As for Deripaska, he will get help from the Russian government again. Rusal has warned that the sanctions might mean a default on a portion of its debt. That's most likely to happen to its more than $1 billion in dollar-denominated debt. But, as ever, the company's biggest creditors are Russian state banks, and the Kremlin will keep Rusal solvent one way or another as it reorients toward Asian markets. It won't be a huge headache for Putin: He's seen worse, including with Rusal during the financial crisis.