Dispatch July 31, 2019

Mitch McConnell, Russia Sanctions, and Rusal’s investment in Kentucky

In December 2018, the Trump administration announced it would lift sanctions from three companies linked to Russian oligarch and longtime Manafort business partner Oleg Deripaska. The sanctions were originally put in place to respond to Russia’s malicious cyber activities and attempts to subvert Western democracies.

Instead of punishing Deripaska, however, the deal negotiated by the Treasury Department freed him from hundreds of millions of dollars in debt—and allowed him and his allies to keep majority ownership of his most important companies. When a bipartisan group of Senators s­ought to block this deal, Mitch McConnell and the majority of his Republican colleagues voted it down.

Then, just three months later, one of these companies announced a $200 million investment into an aluminum mill in Mitch McConnell’s backyard.

That’s what a quid pro quo looks like.

Background: Oleg Deripaska is a Kremlin-linked oligarch who was sanctioned for his links to the Kremlin’s malign activities abroad.

  • Deripaska, whose holdings are valued at more than $14 billion, rose to prominence through Russia’s infamous “Aluminum Wars” during the 1990s. He emerged as the unrivaled leader of the Russian aluminum world.
  • Deripaska is closely linked to the Kremlin, and has been described in U.S. diplomatic cables as “among the 2-3 oligarchs Putin turns to on a regular basis.”
  • He is also allegedly linked to the Russian intelligence through his right-hand man, Valery Pechenkin, a former high-ranking KGB and FSB officer.
  • Deripaska is not simply a businessman, but admittedly operates as part of the Russian government. He has acknowledged possessing a Russian diplomatic passport and claims to have represented the Russian government in other countries.
  • In April 2018, the U.S. Treasury Department sanctioned Deripaska, noting that he “has said that he does not separate himself from the Russian state.”

Deripaska is linked specifically to the investigation into Russian interference in the 2016 US election.

  • Deripaska has a lengthy business relationship with former Trump campaign manager Paul Manafort. He reportedly began financing Manafort’s work promoting the Kremlin’s agenda abroad as early as 2005.
  • In 2006, Manafort signed a $10 million annual contract with Deripaska for work that would “greatly benefit the Putin government.” Over the course of a decade, Manafort and Deripaska’s business relationship totaled at least $60 million.
  • The relationship soured, however, leaving Manafort at least $19 million in debt to Deripaska, according to a court complaint filed by the oligarch.
  • As he began working for Trump, Manafort reportedly hoped to use his access to the campaign to “get whole” with Deripaska, even going as far as to suggest private briefings to keep him updated on the campaign (Both Manafort and Deripaska have denied these allegations).

On April 6, 2018, former National Security Advisor HR McMaster’s last day in office, he pushed through the only strong bout of economic sanctions during the Trump administration. And they hit Deripaska hard.

  • The Treasury Department sanctioned seven companies that were “owned or controlled by, directly or indirectly,” Deripaska. These companies included, per descriptions in the press release:
    • EN+ Group, a “leading international vertically integrated aluminum and power producer;”
    • EuroSibEnergo, “one of the largest independent power companies in Russia, operating power plants across Russia and producing around nine percent of Russia’s total electricity;” and
    • Company RUSAL PLC (Rusal), “one of the world’s largest aluminum producers, responsible for seven percent of global aluminum production.”

Deripaska and Russia lobbied the Trump administration and Capitol Hill hard to weaken the sanctions. It worked.

  • The intense lobbying campaign reportedly involved “law firms, public relations experts, a former United States senator, and a former Trump campaign official.”
    • This team pushed the idea that sanctions on Deripaska and his businesses would cripple the global aluminum market, and proposed that Deripaska would drastically decrease his ownership stakes to free his companies from sanctions.
  • In December 2018, the Trump administration announced it would be lifting sanctions off of three of Deripaska’s companies: EN+, Rusal, and EuroSibEnergo. The sanctions on Deripaska himself were not lifted.
  • Although the Trump administration originally “argued that [Deripaska] had to make painful concessions to get the sanctions lifted,” it quickly became apparent that the deal would in fact “free [Deripaska] from hundreds of millions of dollars in debt while leaving him and his allies with majority ownership” of EN+.
    • In a controversial move, Deripaska was allowed to transfer over ten million shares valued at more than $78 million of EN+ to a trust fund for his children as part of his divestment.

A bipartisan majority in the Senate tried to block Trump from weakening the sanctions, but  McConnell protected Deripaska and Russia and torpedoed the bipartisan effort.

  • In a rare bipartisan moment, Democrats were joined by eleven Republicans in an effort to block the deal and to enforce sanctions against Deripaska’s companies.
  • However, McConnell came out forcefully for lifting the sanctions, making a floor speech “accusing Democrats of politicizing the sanctions.”
  • McConnell and the remaining Senate Republicans prevented the bipartisan group from reaching the 60 vote threshold. The Trump administration officially lifted the sanctions in January 2019.

McConnell soon reaped his reward. Shortly after the sanctions were lifted, Rusal announced a massive investment in Kentucky, giving McConnell a political boost in a re-election year.

  • Merely three months after the sanctions were lifted (April 2019), Rusal announced it would be investing $200 million into a Kentucky aluminum mill run by Braidy Industries, becoming a 40% stakeholder in the project.
  • According to The Wall Street Journal, this mill would be “the largest new aluminum plant built in the U.S. in nearly four decades.”
  • The deal was hardly a coincidence – the investment was made possible because former top McConnell staffers lobbied on behalf of Braidy Industries for the project.
  • McConnell, it seems, had his eye on this project for a while. In August 2018, just months after Rusal was first sanctioned, McConnell spoke on the Senate floor about Braidy Industries, highlighting the jobs that the new aluminum mill would be bringing to Kentucky.
  • The state of Kentucky invested $15 million in the project, which is expected to bring 550 jobs to the area.

Just last week, Robert Mueller told the American people that Russia is still interfering in the democratic process. In response to recent criticism of his continued efforts to block election security bills, McConnell complained about being “accused of ‘aiding and abetting’ the very man I’ve singled out as our adversary and opposed for nearly 20 years: Vladimir Putin.” But McConnell’s long pattern of protecting Trump and Russia speaks louder than his complaints.