When, in April 2018, the US Treasury imposed sanctions on Russian billionaire Oleg Deripaska and his companies, the oligarch was busy making preparations for celebrating Orthodox Easter and did not seem too surprised. “The events of this morning are unpleasant, but quite expected,” he wrote in a Forbes e-mail that day. “Of course, the reasons for putting my name on the list are untenable, ridiculous and absurd.”
Almost a year later, Deripaska is not so calm. On March 15, the businessman filed a lawsuit against the American Ministry of Finance, its head Steve Mnuchin and Andrea Gaski, director of the Office of Foreign Assets Control (OFAC). Deripaska argues that the United States violated "the requirements of the law" by subjecting it to sanctions "simply because this decision is politically advantageous or popular."
The billionaire lawyer claims that the charges that OFAC uses as an illustration of Deripaska’s criminal past - bribes, money laundering, extortion, an order to kill a businessman whose name is not known - are not supported by anything. The lawsuit also says that Deripaska’s fortune fell by $ 7.5 billion, or 81%, after the imposition of sanctions was announced last April, and that he became “radioactive for everyone who does business with him anywhere nor was it in the world. "
In addition, the oligarch claims that the sanctions damaged his reputations at home. He points to recent statements by Russian politician Gennady Zyuganov, who says that Deripaska gave his companies "to the Anglo-Saxons," agreeing to reduce his stake in the company to less than 50%.
This is most likely not the case, says Stephen Fish, professor of political science at the University of California at Berkeley and author of Democracy Derailed in Russia: The Failure of Open Politics (“How democracy got off the rails in Russia: the failure of open politics”). “This is just a political show. Nobody takes Gennady Zyuganov seriously, ”says Fish.
Forbes came to the conclusion that Deripaska’s claims about his personal condition are wrong, and his claim has little chance of success. On April 6, 2018, on the day when the sanctions were announced, Deripaska’s fortune was $ 6.76 billion (according to Forbes Real-Time). On the day he filed a lawsuit (March 15, 2019), his fortune was $ 3.58 billion, 47% less. Over the past year, the minimum size of his fortune was $ 3.07 billion (December 19), 56% less than the initial amount. Despite the fact that public companies in which he owns majority packages, were really badly hit by sanctions, the value of the shares of none of the companies did not fall by 81%.
Deripaska and his representatives did not respond to numerous requests to comment on the details of his personal status contained in the lawsuit.
In addition to the mysterious statements about the decreasing state, the question remains: how convincing is Deripaska’s legal arguments. According to Forbes lawyers with experience in working with sanctions, as well as political scientists and economists specializing in Russia, Deripaska has a modest chance of winning a lawsuit due to poor legal reasoning and the low success of such lawsuits in the past.
Deripaska's lawyer from Washington, Erich S. Ferrari of Ferrari & Associates, refused to substantively talk about the Deripaska case, but agreed to talk with Forbes. “Perhaps we should take into account the fact that suits against OFAC are rarely successful,” says Ferrari. “But, of course, simply because OFAC often wins, a person should not give up trying to remove his name from the lists if he believes that these lists are erroneous.”
The role of Deripaska in meddling in elections, if he is involved at all, is unclear, but the purpose of the sanctions was to give Russia a signal, attacking those who benefited from close acquaintance with Putin, says Bruce Marx, internationally resolved lawyer who specializes in Russian-American relations (Marx three times unsuccessfully sued Deripaska on behalf of his former business partners). “He is undoubtedly an oligarch with close ties to the Kremlin, connections that the British judge called“ the umbilical cord, ”said Marx, referring to the dissenting opinion of Judge Christopher Clarke, drawn up in London in 2008, when Deripaska’s former business partner sued him for non-compliance with the terms of the transaction (the parties entered into a settlement agreement). "They hope that by subjecting Deripaska to sanctions, they will show the Kremlin that [the Russian government] should change their behavior towards Ukraine and the elections in America."
As for Deripaska’s claim that the charges that OFAC uses as an illustration of its criminal past — money laundering, extortion, racketeering, death threats — are not supported by anything, Marx thinks otherwise. “Many US courts have filed lawsuits, including me personally, using written evidence given under oath that Deripaska was involved in extortion and other criminal activities,” says Marx. “The idea that the US government does not have enough information to substantiate Deripaska’s inclusion in the sanction lists is ridiculous.”
But despite the presence of written evidence, Deripaska was never convicted of criminal activities that OFAC and its former business partners referred to. Marx represented some of Deripaska’s former business partners in cases against a Russian oligarch in federal court in the Southern District of New York, and then in Delaware in the early 2000s. Deripaska and his former partner Mikhail Cherny were accused of using death threats, fraud and cooperation with the Russian-American Izmailovo mafia in order to gain control over various assets in Russia. Both cases were left without consideration with the rationale that they should be considered in Russian courts. After leaving the case without consideration, Marx filed claims in the Caribbean courts, where the parties entered into a settlement agreement, the terms of which were not disclosed.
Today, according to Forbes Russia, Deripaska’s condition is concentrated in a multitude of industries — energy, construction, insurance, finance, airports, and agriculture. But the bulk of his wealth is brought by En + Group, a listed company, founded by him in 2002, who manages the assets of a businessman in the field of aluminum mining and hydropower, including UC Rusal, one of the world's largest aluminum mining companies. En + Group shares are listed on the London and Moscow stock exchanges, and its assets are located in more than 19 countries. The share price on the London Stock Exchange fell by 40% on April 9, 2018, on the first trading day after the imposition of sanctions. On the same day, the cost of UC Rusal decreased by 50%.
After the imposition of sanctions, Deripaska complied with OFAC requirements, reducing its ownership in the En + Group to less than 50%. Before the sanctions, Deripaska owned about 70% of the holding. Through the issuance of new shares, the transfer of pledged shares to the state-owned VTB Bank and donations of shares to the charity fund, Deripaska has reduced its ownership share to 44.95%. Now its value is $ 2.5 billion (this is about $ 1.2 billion less than it would have belonged if it had not been forced to reduce its share). On January 27, 2019, the Ministry of Finance lifted the sanctions on the En + Group and several other companies associated with Deripaska. However, Deripaska himself is still on the sanctions list, and his assets in the UK are still frozen.
Oligarch is able to rise from the ashes. Deripaska began as a small metal trader, while he studied physics at Moscow State University, from which he graduated in 1993. During the post-Soviet privatization in the 1990s, Deripaska met the brothers Lev and Mikhail Cherny and began working with them to consolidate the country's largest aluminum smelters. “It was then that the problems started,” Deripaska told in an interview with Forbes in 2001. In an era known as the “aluminum wars,” dozens of top managers, bankers, traders and mobsters were killed in the battles for metals. In the end, Deripaska, who told Forbes in an interview in 2001 that he stayed away from conflicts between gangs and worked on assembly lines at aluminum smelters, won and became the owner of Russian Aluminum, the predecessor of UC Rusal, which he founded along with Roman Abramovich.
Deripaska continued to expand his empire, borrowing hundreds of millions of dollars from banks and the Russian government to acquire shares in industrial and insurance companies and further consolidate the aluminum industry. He first entered the Forbes billionaire list in 2002 with a fortune of $ 1.1 billion. His fortune reached a record $ 28 billion in 2008 as a result of rising aluminum prices and the acquisition of the GAZ automaker, Aviakor aircraft manufacturer and insurance company Ingosstrakh. In March of that year, he was the richest man in Russia and the ninth richest man in the world. Then there was a financial crisis, and his condition declined by a staggering 87.5%, to $ 3.5 billion in just a year, when Deripaska was under the burden of debt obligations and unsuccessful investments, including Norilsk Nickel shares, the price of which fell by 80% soon after the purchase.
But he survived and, most likely, thanks to the Kremlin. He had to sell shares of the Canadian automaker Magna International in the amount of $ 1.5 billion and shares of the German construction company Hochhtief in the amount of $ 500 million to cover margin calls. But he received a loan of $ 4.5 billion from the state-owned bank, which allowed him to keep Norilsk Nickel shares. Then, in 2010, UC Rusal announced debt restructuring, and he brought the company to the Hong Kong stock exchange. At the time of IPO, Deripaska owned a stake worth over $ 8 billion, which returns his fortune to $ 10.7 billion that year.
Deripaska feels confident in Kremlin circles and is considered a “Teflon oligarch,” says Amy Knight, a former research fellow at the Woodrow Wilson Center and author of the book “To Kill: The Putin Regime and Political Murder” . Deripaska, along with the three Russian billionaires from Alfa Group (Mikhail Fridman, German Khan, Peter Aven), is among the favorites of Russian President Vladimir Putin and has unlimited opportunities to get out of unpleasant situations, says Knight. "They know how to fulfill the wishes of Putin, who could destroy them all, and at the same time enjoy the wealth and impunity that other oligarchs lack."
"Deripaska stands for the whole team," adds lawyer Marx. The Russian government "understands the conditions and pressure under which Deripaska was, and I don’t think anyone at Putin’s level will seriously blame him for what he did," he said.
Then why does Deripaska file this lawsuit if the chances of success are so insignificant? “This is, in general, ridiculous, but Deripaska loves to shock,” says Anders Oslund, an economist and senior researcher at the Atlantic Council research center, which specializes in Russia and Ukraine.
Perhaps Deripaska himself best formulated the problem in a 2001 interview for Forbes: “We just have image problems.”