As I’ve said before, “At some point the Russians figured out that the best way to defeat America is by old-fashioned capitalism and corruption: find easily corruptible politicians in key positions of power and simply buy them, through bribery or with campaign contributions.”
“Moscow Mitch” McConnell took a beating this week in investigative journalism from the Washington Post and Time Magazine.
In January, as the Senate debated whether to permit the Trump administration to lift sanctions on Russia’s largest aluminum producer, two men with millions of dollars riding on the outcome met for dinner at a restaurant in Zurich.
On one side of the table sat the head of sales for Rusal, the Russian aluminum producer that would benefit most immediately from a favorable Senate vote. The U.S. government had imposed sanctions on Rusal as part of a campaign to punish Russia for “malign activity around the globe,” including attempts to sway the 2016 presidential election.
On the other side sat Craig Bouchard, an American entrepreneur who had gained favor with officials in Kentucky, the home state of Senate Majority Leader Mitch McConnell. Bouchard was trying to build the first new aluminum-rolling mill in the United States in nearly four decades, in a corner of northeastern Kentucky ravaged by job losses and the opioid epidemic — a project that stood to benefit enormously if Rusal were able to get involved.
The men did not discuss the Senate debate that night at dinner, Bouchard said in an interview, describing it as an amicable introductory chat.
But the timing of their meeting shows how much a major venture in McConnell’s home state had riding on the Democratic-backed effort in January to keep sanctions in place.
By the next day, McConnell had successfully blocked the bill, despite the defection of 11 Republicans. (h/t graphic: The Late Show with Stephen Colbert).
Within weeks, the U.S. government had formally lifted sanctions on Rusal, citing a deal with the company that reduced the ownership interest of its Kremlin-linked founder, Oleg Deripaska. And three months later, Rusal announced plans for an extraordinary partnership with Bouchard’s company, providing $200 million in capital to buy a 40 percent stake in the new aluminum plant in Ashland, Ky. — a project Gov. Matt Bevin (R) boasted was “as significant as any economic deal ever made in the history of Kentucky.”
A spokesman for McConnell said the majority leader did not know that Bouchard had hopes of a deal with Rusal at the time McConnell led the Senate effort to end the sanctions, citing the recommendation of Treasury Secretary Steven Mnuchin.
McConnell “was not aware of any potential Russian investor before the vote,” spokesman David Popp said.
Sorry, I’m not buying it. McConnell is a technocrat, he knows everything going on. His denial does not hold water.
Critics say the timing is disturbing.
“It is shocking how blatantly transactional this arrangement looks,” said Michael McFaul, who served as the U.S. ambassador to Russia during the Obama administration and now teaches at Stanford University.
Democratic senators have called for a government review of the deal, prompting a Rusal executive in Moscow last week to threaten to pull out of the investment.
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[I]n Kentucky, some leaders are questioning the wisdom of partnering with a Russian company recently punished by the U.S. government.
“Rusal is not okay,” said Kelly Flood, a Democratic state legislator from Lexington who said she regrets a 2017 vote to invest $15 million of state taxpayer money in the project. “It’s not okay that we’re turning to Deripaska, given the damage he’s done to our democracy. . . . Rusal’s reputation is now ours.”
The Post then goes into a lengthy detailed examination of how Craig Bouchard, the American entrepreneur from Braidy Industries, convinced Kentucky Governor Matt Bevins that this was a good project for an economically depressed region of Kentucky, and then how he obtained financing from Russian oligarch, Oleg Deripaska, only after the Trump administration lifted sanctions and “Moscow Mitch” McConnell killed the sanctions bill in the Senate. If you want all the minutiae details, read The Post report.
Time Magazine reported the same day on the national security implications, A Kremlin-Linked Firm Invested Millions in Kentucky. Were They After More Than Money? (excerpt):
But to some observers, the story of how a Kremlin-linked aluminum giant offered an economic lifeline to Appalachia is an object lesson of the exact opposite [that it is legitimate]. Critics of the deal, both Democrat and Republican, say it gives Moscow political influence that could undermine national security. Pointing to Moscow’s use of economic leverage to sway European politics, they warn the deal is a stalking horse for a new kind of Russian meddling in America, one that exploits the U.S. free-market system instead of its elections. “That’s just what the Russians do,” says veteran diplomat Daniel Fried, who shaped U.S. policy on Eastern Europe at the State Department from the late 1980s until 2017. “They insert themselves into a foreign economy and then start to influence its politics from the inside.”
What worries national-security experts is not that Rusal, Braidy or Deripaska broke any laws in the deal. It’s that they didn’t. A TIME investigation found that Rusal used a broad array of political and economic tools to fight the sanctions, establishing a foothold in U.S. politics in the process. “You cannot go against them in a policy decision, even though it’s in our national interest, when they have infiltrated you economically,” says Heather Conley, who served as a Deputy Assistant Secretary of State under President George W. Bush. “They use our laws, our rules, our banks, our lawyers, our lobbyists—it’s a strategy from within.”
To free itself from sanctions, Rusal fielded a team of high-paid lobbyists for an intense, months-long effort in Washington. One of the targets was Kentucky’s own Mitch McConnell, the Senate majority leader, who helped thwart a bipartisan push to keep the sanctions in place. Since May, two of McConnell’s former staffers have lobbied Congress on behalf of Braidy, according to filings. Ahead of the 2018 midterm elections, one of Rusal’s longtime major shareholders, Len Blavatnik, contributed more than $1 million through his companies to a GOP campaign fund tied to McConnell.
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Backers of the deal say its critics are playing politics or being paranoid. The U.S. benefits from economic ties to foreign powers, they say, as long as everyone plays by our rules. McConnell, who declined an interview with TIME, told reporters in May that his position on Rusal was “completely unrelated to anything that might happen in my home state.” Blavatnik’s company, Access Industries, told TIME his donations to both Democrats and Republicans over the years were driven “only by a desire to further a pro-business, pro-Israel agenda,” not a pro-Russia one. Rusal says its motives are purely financial. “Rusal keeps out of politics in all its markets,” the company told TIME. Industry experts agree that, apart from any political dividends, the plant in Kentucky will likely reap significant profits for its owners.
Since taking office, President Donald Trump’s Administration has tightened the rules on foreign investments that could pose a threat to national security. But in Ashland, as at the White House, few people want to see the deal undone. In the hilly towns around Ashland and Greenup, the nexus between Rusal, Braidy and national security matters little next to the jobs the deal would bring. Some 11,000 people have already applied to work at the future mill, according to Braidy.
In the end, one of the lessons of the pact may be that the U.S. has its hands tied when it comes to this brand of Russian influence. Fighting back would cost jobs that Americans need. Deripaska, who personally remains under sanctions, is glad to point out the dilemma. As he put it to TIME in February: “By hitting us, you hit yourselves.”
Time then goes into a lengthy detailed examination of how Craig Bouchard, the American entrepreneur from Braidy Industries, obtained financing from Russian oligarch, Oleg Deripaska. Bouchard claims he understood the risks and potential consequences:
It’s not that Bouchard didn’t know the risks involved in working with Russian billionaires. In 2008, he and his younger brother, Jim, sold their U.S. steel assets to a firm controlled by Alexey Mordashov, a Russian metals tycoon, in a transaction valued at around $775 million at the time. While the deal helped make them wealthy, it also deepened Bouchard’s concern over the role of Russian oligarchs in strategic U.S. industries. The next year, he co-authored a book titled “America for Sale,” which warned that foreign investors pose a threat to America’s economic and national security.
“[If] Putin harbors a nasty wish to throw a wrench into the works of the U.S. economy, then he now has acquired the means to do so,” Bouchard wrote. When it comes to industries vital to defense, like steel and aluminum, “the bottom line is that we believe it is risky business to trust Russian oligarchs,” the book concluded.
Ten years on, Bouchard’s warning looms over the deal he cut in Kentucky. As Europe’s largest aluminum producer, Rusal employs over 60,000 people in 13 countries. “The company is indispensable,” says Jorge Vazquez, head of Harbor Aluminum, a market-intelligence firm. Rusal even had a green story to tell: its smelters in Siberia run on hydropower, so it pollutes less than most rivals.
But the company has a troubled past. In the 1990s, an array of mobsters, oligarchs and corrupt officials fought a bloody turf war for control of the aluminum assets privatized by the Russian state. Deripaska emerged from the struggle victorious. Still in his early 30s, he managed to consolidate Russia’s key aluminum assets and form Rusal in 2000. He developed close ties with the Kremlin, becoming a “more or less permanent fixture on Putin’s trips abroad,” a 2006 U.S. embassy cable reported. The cable, later published by WikiLeaks, describes Deripaska as “among the 2-3 oligarchs Putin turns to on a regular basis.”
As his empire grew, Deripaska enlisted U.S. lobbyists to support his interests. Among them was GOP political operator Paul Manafort, who offered Deripaska a lobbying strategy that he said would benefit “the Putin Government,” according to the Mueller report. Manafort and Deripaska fell out in 2009 over unpaid debts.
But in the summer of 2016, Manafort became the chairman of the Trump campaign. “He owed us a lot of money,” one of Deripaska’s close aides, the former Russian intelligence officer Victor Boyarkin, told TIME in 2018. “And he was offering ways to pay it back.” Through intermediaries, Manafort sent Deripaska internal polling data and offered “private briefings” about the campaign, according to Mueller. As the special counsel investigated their relationship, the Treasury Department announced sanctions against Deripaska and Rusal in April 2018. In explaining the decision to sanction Deripaska, the Treasury Department cited allegations that he had, among other alleged offenses, “bribed a government official, ordered the murder of a businessman and had links to a Russian organized crime group.” Deripaska has denied these accusations as “groundless, ridiculous and absurd.” In a lawsuit filed in March in the District of Columbia, he accused the Treasury Department of “irrationality” for relying on such claims, which his lawyers said “originate from decades-old defamatory attacks by Deripaska’s business competitors.”
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The U.S. lobbying firm Mercury Public Affairs was enlisted to help win over Washington, at a fee of $108,500 per month, according to filings.
Mercury handed the assignment to a team of D.C. insiders that included former GOP Senator David Vitter and former Trump campaign aide Bryan Lanza. (Barker, Lanza and Vitter declined interview requests from TIME.) In marathon talks with the Treasury Department, the lobbyists argued that the U.S. had made a mistake in going after Rusal, former Treasury officials say. Allies in Europe agreed. Ambassadors from Germany, France, the U.K. and other E.U. states urged U.S. officials to ease the sanctions on Rusal and its parent company. They argued in a January 2019 letter to Senate Democratic leader Chuck Schumer that “the livelihoods of 75,000 workers across the European Union” depend on it. “The sanctions hurt everyone,” Deripaska wrote in an email to TIME on Aug. 13.
Treasury Secretary Steve Mnuchin came around to this logic. Ahead of G-20 meetings in July 2018, he told Reuters the goal was “not to put Rusal out of business.” So Rusal dangled a deal, offering to “permanently remove” Deripaska’s control over the firm by lowering his ownership stake to less than 50%, according to documents reviewed by TIME. After some discussions, Deripaska’s stake in Rusal’s parent company was reduced from 70% to 45%, with some of the difference going to family members and professional associates. A few days before Christmas, the Trump Administration announced it intended to lift the sanctions.
Under the deal to lift sanctions on Rusal, Deripaska, his family, and his close associates are also barred from using their shares to influence the company or to benefit from it.
But opponents of the deal say it’s laughable to believe Deripaska’s influence is really gone. “Ownership is the wrong test,” says Senator Mark Warner, a Virginia Democrat, arguing Deripaska maintains influence over Rusal. Led by Schumer, Senators from both parties moved to block Treasury from lifting the sanctions. Yet Rusal had a powerful ally in McConnell, who backed Treasury’s move.
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Critics also seized on McConnell’s links to Blavatnik, a dual U.S. and U.K. citizen who is one of Rusal’s biggest shareholders. Born in the Soviet Union and naturalized in the U.S. in 1984, Blavatnik earned most of his fortune, estimated by Forbes at $16.5 billion, as a partner to Deripaska and other Russian oil and metals tycoons. Blavatnik’s family has donated to both Republicans and Democrats. But in recent years, his companies have been especially generous toward the GOP. Those contributions have since included a total of $3.5 million to the Senate Leadership Fund, a super PAC run by McConnell’s former chief of staff, according to Federal Election Commission data. The money helped Republicans keep control of the Senate in the 2018 elections, securing McConnell’s perch as the majority leader.
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[N]ot everyone in Kentucky was excited about the Russians’ arrival. After Donets’ visit, a red billboard funded by a liberal group was erected on a busy stretch of I-75: “Russian mob money . . . Really, Mitch?” “The only reason Oleg is here is because Mitch McConnell opened the gate,” says Representative Kelly Flood, a Democrat from Lexington. “We are now all aligned with this criminal.” The deal created unease among some Republicans too. “I would not have taken the Russian money,” James Comer, the GOP Congressman representing Kentucky’s First District, said on the day the partnership was announced.
Yet even critics of the deal were leery of the fallout from killing it. In 2017, Governor Bevin had cut an unusual agreement in which the state directly invested $15 million in the new aluminum mill. At least 750 investors, most from Kentucky, put in money as part of the “crowdfunding” portion of Braidy’s common stock offering, Bouchard said. In effect, Kentucky taxpayers were partners in the project. “To pull out as a state now is to pull out on the people of Ashland,” says Flood.
Other Western democracies have learned that such bonds can carry consequences. Oligarch-owned companies have helped the Kremlin influence politics across Europe. Since Putin came to power in 2000, Russia has used economic leverage to “force a change in policy” or undermine governments in at least 19 European countries, Laura Rosenberger, a former National Security Council official under Obama, told a House committee last May.
On rare occasions, Russian oligarchs have even described how this strategy works. “What is a factory in a one-factory town? It’s what all life revolves around,” the billionaire Dmitry Firtash, a longtime ally of the Kremlin in Ukraine, told TIME in a 2017 interview. “We don’t just pay wages. We provide the social safety net. So people believe us.” When he and his factories put their support behind a political cause or candidate, “that influences people,” Firtash explained. “That’s what ensures electoral support.
Only in the context of the Mueller investigation have U.S. policymakers begun to worry whether the tools of economic influence that Russia honed in Europe could work just as well on American politics. Russia’s direct investments in the U.S. amounted to less than $4 billion in 2018—a relatively minor sum—although its billionaires have long had an outsize presence in some industries, including the tech sector. “The Obama Administration was slow in general to recognize the problem,” says Fried, the former State Department official. “We’ve come to realize we’re not so special in that regard. We’re just targets like everybody else.”
The fight is not over in Washington. Treasury “needs to take potential harm to national security from Rusal’s proposed investment seriously,” Oregon Senator Ron Wyden, the top Democrat on the Senate Committee on Finance, said in an Aug. 11 statement to TIME. Wyden has been pushing for a review of the deal.
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It’s not as if the U.S. has no protections against malign foreign investment. But thanks to a regulatory loophole, the Rusal–Braidy deal skated past the agency that vets foreign investments for threats to national security. According to the mandate of the Committee on Foreign Investment in the United States (CFIUS), the agency does not investigate so-called greenfield projects, which are built from the ground up. And brand-new plants like the one in Ashland might just fit through that loophole, says Aimen Mir, who ran the agency for four years until 2018. As a general rule, he tells TIME, the agency tries to keep the U.S. as open as possible to legitimate foreign capital. “All other things being equal,” Mir says, “we should be welcoming of investment.”
That attitude has begun to shift under the Trump Administration. Through legislation passed last summer, CFIUS will get expanded powers to collect data on foreign investments and block the ones it deems to be a threat. In April, the agency pressured the Russian billionaire Mikhail Fridman to sell his fund’s stake in a U.S. cybersecurity firm, Cofense Inc.
Those powers may soon be tested, because there are signs Rusal is not done investing in the U.S. Soon after the Kentucky deal was announced, Lord Barker sent a letter to the governors of eight more U.S. states. In the April 18 note, he touted the benefits of the Rusal investment and said the company was “eager to evaluate other opportunities around the country and your state in particular.”
To critics of Russian economic influence, the letter sounded one particularly ominous chord. “As part of our international growth strategy, we see significant opportunities across the whole industry value chain in North America,” Barker wrote. The investment in Kentucky, he added, “is just the beginning of our long-term ambitions.”
Who will be next to bite at the shiny lure of Russian oligarch money, and undermine the national security of the US by giving Russia leverage over our economy?