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Russian oligarchs lose billions as US sanctions take hold

New US sanctions against Russian entities announced last week have succeeded in ratcheting up the financial pressure on President Vladimir Putin’s inner circle, with some of the country's richest men losing more than $12 billion in a single day.

AFP archive photos | Aluminium magnate Oleg Deripaska (L) and Viktor Vekselberg of the Renova Group.
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The US Treasury Department announced on Friday that it had levied new sanctions on seven Russian billionaires and 12 of the companies they own or control, along with 17 senior government officials, a state-owned weapons trading firm and its subsidiary bank.

“The Russian government operates for the disproportionate benefit of oligarchs and government elites,” said Treasury Secretary Steven Mnuchin in a statement announcing the measures. “The Russian government engages in a range of malign activity around the globe, including continuing to occupy Crimea and instigate violence in eastern Ukraine, supplying the [Syrian President Bashar al-] Assad regime with material and weaponry as they bomb their own civilians, attempting to subvert Western democracies, and malicious cyber activities. Russian oligarchs and elites who profit from this corrupt system will no longer be insulated from the consequences of their government’s destabilizing activities.”

By Monday, many Russian stocks were in freefall, with Russian and US media reporting that the 50 richest businessmen in the country had lost more than $12 billion in a day.

The Russian RTS index dropped 11.4 percent, its most significant one-day decline in almost four years.

“What happened on Friday opens a new stage in relations with Western countries,” said Kirill Tremasov, chief of research at Loko-Invest and the former director of the forecasting department at Russia’s economy ministry, in comments to Reuters.

“We have found ourselves in a new reality. And it is very, very serious.”

Oleg Deripaska

In taking aim at Putin's allies, at least two Russians with ties to US President Donald Trump's entourage have also been targeted.

One of those hardest hit was Oleg Deripaska, ranked by Forbes as Russia’s 19th-richest businessman with a net worth estimated at $6.7 billion before the sanctions took hold; at the time of writing, his fortune had fallen to $3.8 billion. He is the founder of Basic Element, a Russian industrial group with interests in aluminum, energy and construction, among other sectors. Through Basic Elements he controls the En+ Group, an energy company worth $9.8 billion in sales, and which in turn owns Rusal, one of the largest global aluminum producers. Rusal’s shares on the Hong Kong’s market have since collapsed by 50 percent, causing its value to plummet by $4.3 billion.

>> Read more: Is the Russian economy Putin’s Achilles’ heel?

Glencore, the world’s largest commodities trader, began cutting ties with Deripaska on Tuesday, saying it had cancelled a planned swap of an 8.75 percent stake in Rusal for shares in the En+ Group.

“In essence, the sanctions barred Deripaska from participating in the global dollar economy and the impact was immediate: international investors dumped stock and bonds issued by his companies as aluminum traders refused to buy Rusal’s metal,” according to Bloomberg.

Deripaska has ties to former Trump campaign chairman Paul Manafort, who has been charged in connection with Special Counsel Robert Mueller's investigation into Russian interference in the 2016 election. Deripaska first encountered Manafort when the latter was consulting for a Ukraine-based oligarch and associate of ousted president Viktor Yanukovich. The Associated Press reported in March 2017 that Manafort signed a $10 million annual contract with Deripaska in 2005, a claim Deripaska denied and later contested in a lawsuit.

The Washington Post reported in September that Manafort offered to provide Deripaska with private briefings about the 2016 US election less than two weeks before Trump became the Republican nominee. A Deripaska spokesman denied he ever received such an offer.

Viktor Vekselberg

Ukrainian-born Viktor Vekselberg is the owner and president of Renova Group, a major Russian conglomerate. He made his first million selling scrap copper from outdated cables, rising to a current net worth of $13.5 billion, according to Forbes. Once known as Russia’s richest man (and now in ninth place), Vekselberg is also famous for having paid more than $100 million to purchase nine Fabergé eggs from the family of US media magnate Malcolm Forbes and subsequently returning them to Saint Petersburg.

Sulzer, one of three Switzerland-based manufacturers in which Vekselberg’s Renova holds stakes, moved to insulate itself from the effects of the sanctions on Monday by agreeing to buy 5 million of its own shares from Renova, its largest shareholder.

Vekselberg has longstanding ties to Trump’s entourage and reportedly donated money to the US president’s inaugural committee. Citing federal filings, The Washington Post wrote that two US-based Vekselberg associates donated a total of $1.25 million to the committee. Vekselberg was present in Washington, DC, for Trump’s inauguration ceremony in January 2017.

Vekselberg also worked with Trump’s commerce secretary, Wilbur Ross, on refinancing the Bank of Cyprus, a favourite offshore destination for some $30 billion in Russian wealth before it collapsed in 2013. During its subsequent restructuring a large portion of its assets were converted into shares and Russian nationals took majority ownership of the bank. In 2014, Ross helped lead a €1 billion takeover of the bank that offered Russian shareholders a buyout. In the process, Vekselberg’s Renova Group became the bank's largest foreign stakeholder.

Sergei Karpukhin, AFP | Russian President Vladimir Putin drinks champagne during a ceremony at the Kremlin in November 2016.

Kirill Shamalov

The new raft of US sanctions infiltrated Putin’s own family dynasty by naming Kirill Shamalov, who married the Russian president’s youngest daughter, Katerina, in February 2013. Media reports indicate Shamalov and Katerina may have since separated.

As a minority shareholder in Sibur, Russia’s largest petrochemical company, he has grown his wealth to become Russia’s 72nd-richest businessman with a net worth of $1.4 billion.

Igor Rotenberg

Igor Rotenberg is a son of Arkady Rotenberg, a childhood friend of Putin’s and his judo sparring partner from their younger days in Saint Petersburg.

Igor Rotenberg is now worth $1.1 billion, according to Forbes.

Arkady Rotenberg and his brother Boris are already under sanctions due to their close relationship to Putin. In 2015 it was announced that Arkady would oversee the construction of a massive bridge that would connect the Russian mainland to Crimea.

Suleiman Kerimov

Suleiman Kerimov, a member of the Russian upper house, is estimated by Forbes to have a net worth of $5 billion. He was detained in France in November last year on suspicion of bringing hundreds of millions of euros into France without reporting the money to French tax authorities. He is suspected of transporting up to €20 million at a time in suitcases and laundering the funds by purchasing villas.

He is also accused of failing to pay some €400 million in taxes on the vast properties he has purchased. He is currently under house arrest in Nice.

Andrei Skoch

A deputy in Russia’s lower house of parliament, the State Duma, Forbes magazine estimates Andrei Skoch's net worth at $4.6 billion. But it is his father, Vladimir, who has vast and diverse business interests through his stake in USM holding. USM owns shares in Megafon, Russia’s second-largest mobile phone operator; in MAIL.RU Group, a Russian internet giant; and in the social media networks Odnoklassniki and VKontakte, the latter of which is Russia's answer to Facebook. USM also holds stakes in Asian online retail giant Alibaba as well as Uber, Spotify, Airbnb and Zalando.

The US Treasury alleges that Skoch has been a leading figure in Russian crime syndicates.

“Skoch has longstanding ties to Russian organized criminal groups, including time spent leading one such enterprise,” it said in its statement.

Vladimir Bogdanov

Vladimir Bogdanov, the chief executive of Surgutneftegaz oil company, has an estimated net worth of $1.8 billion, which makes him the 53rd-wealthiest oligarch in Russia.

Surgutneftegaz has been under US sanctions since September 2014.

 

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