Thursday, August 15, 2019
Moscow Mitch is deep in the red mud.
"Last summer, it looked like things were finally about to change for Ashland, Ky. For two decades, the jobs that once supported this Appalachian outpost of 20,000 people on a bend in the Ohio River have been disappearing: 100 laid off from the freight-rail maintenance shop; dozens pink-slipped at the oil refinery; 1,100 axed at the steel mill that looms over the landscape. Then, on June 1, 2018, standing on a stage flanked by the state’s governor and business leaders, Craig Bouchard, the CEO of Braidy Industries, pointed across a vast green field and described a vision as though he could already see it.
In the little-used park just off I-64, Braidy would build the largest aluminum mill constructed in the U.S. in nearly four decades. The $1.7 billion plant would take aluminum slab and roll it into the material used in everything from cars and planes to soda cans. It would employ 600 full-time workers earning twice the average salary in the region, Bouchard said, and create 18,000 other jobs across the state. Gesturing at the empty space around him, the CEO described an employee health center, a technical lab, a day care and hundreds of employees walking around “carrying iPads.” More than just making aluminum, the plant would help “rebuild northeast Kentucky, and in fact all of Appalachia,” Bouchard told the crowd.
There was just one problem: Bouchard still needed a major investor to make the vision a reality. After months of searching, the only option was problematic. Rusal, the Russian aluminum giant, was tailor-made to join forces on the project. But it was under sanctions imposed by the U.S. Treasury Department. Its billionaire owner, Oleg Deripaska, a close ally of Russian President Vladimir Putin’s, was being investigated by special counsel Robert Mueller for his potential involvement in the effort to swing the 2016 presidential election. The Treasury sanctions—punishment for the Kremlin’s “malign activities” around the world, including “attempting to subvert Western democracies”—made it illegal for Americans to do business with Rusal or its boss.
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So Bouchard faced a dilemma. Keeping his promise to bring good new jobs—a project that had already been touted by the White House—would mean partnering with a firm that had deep ties to the Kremlin. Which mattered more, the economic needs of a depressed region, or the national-security concerns raised by the Mueller investigation? Hundreds of miles from the congressional hearings and think-tank debates over Russian influence in Washington, Braidy Industries and the surrounding community had to weigh whether Russia’s 2016 plot had caused enough damage to American security, or American pride, to spurn a chance at an economic miracle.
Bouchard concluded they had no choice. He knew it could be controversial, if not outright illegal, to work on a deal with Rusal while it was still fighting to free itself from U.S. sanctions, he told TIME in an interview. But after a long talk with his lawyers about the risks of even discussing such a partnership, he traveled to Zurich in January 2019 for what he calls a “meet and greet” with a Rusal sales executive. Over dinner at La Rôtisserie, a restaurant with a view of the city’s 12th century cathedral, the executive told Bouchard that the company was ready to do business. “They said, ‘If we get the sanctions off, let’s meet again,’” he recalls. “And I said, ‘Wow, that’s interesting.’”
By mid-April, an exuberant Bouchard was standing at the New York Stock Exchange, announcing that the Russian company had purchased a 40% stake in the Ashland plant for $200 million. Back in Kentucky, the news was met with celebration and relief. “People who were skeptical are seeing that it’s big time,” says Chris Jackson, a 42-year-old former steel-mill worker. When he enrolled in a training program for the Braidy plant, Jackson recalls, many in the community doubted the jobs would ever materialize. “The Rusal agreement just showed everybody this is legit.”
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. 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.
Deripaska denies he has interest in meddling in U.S. affairs. “If they didn’t touch me, I wouldn’t have to be so interested in U.S. politics,” Deripaska told TIME in February, after attending a panel with U.S. lawmakers in Munich. “But here I am,” he added with a smile.
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.”
A crowd gathers at the groundbreaking for the new Braidy aluminum plant on June 1, 2018
A crowd gathers at the groundbreaking for the new Braidy aluminum plant on June 1, 2018 John Flavell
Back when Bouchard and Kentucky Governor Matt Bevin broke ground in June 2018, they shared a bottle of Korbel and plenty of optimism. That October, Trump touted the new aluminum mill at a rally at Eastern Kentucky University, heralding it as a symbol of blue collar revival. Back in Ashland, locals praised Bouchard’s commitment to the region, pointing to his investments in scholarships and promising playground equipment for local schools. In an area struggling with the twin crises of job losses and the opioid epidemic, the tall, genial CEO with a contagious grin has embraced an image of economic savior. When he walks around Ashland, Bouchard says, “Middle-aged women will just come up to me crying and hug me.”
Some in the region literally banked their future on the mill. More than 100 people, many of them middle-aged workers laid off from local steel and railroad companies, shelled out $15,000 for a two-year degree at a Braidy-partnered community college, spurred by the prospect of a job at the new plant. “You can finally see the gleam of hope in people’s eyes,” says Judge Executive Robert Carpenter, the top elected official in Greenup County. “I go to sleep every night with a smile on my face about it.”
But by late fall 2018, doubt had crept in. At the plant’s future site, fading Braidy Driven banners from the groundbreaking were the only sign of the economic renaissance Bouchard promised. Company filings with the Securities and Exchange Commission showed that Braidy was still hundreds of millions of dollars short. Local newspapers began to question the project. Bouchard’s Facebook page became a community message board of sorts, where hundreds of commenters divided themselves into cheerleaders or “nay-sayers” who pressed him for answers. “A lot of people in this area had lost hope,” recalls Justin Turner, a 26-year-old father of two who enrolled in the community-college program in hopes of landing a job at Braidy.
Bouchard felt the pressure. He grew desperate enough to accept help from just about anyone, he told TIME. “If they’re running a whorehouse, I wouldn’t say yes,” he says. “But literally any upstanding businessman from any country, any nationality, any religion, I’d welcome them. Help me rebuild Appalachia.”
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.
Oleg Deripaska, a Russian oligarch, in a hotel suite in Moscow, on March 27, 2019.
Oleg Deripaska, a Russian oligarch, in a hotel suite in Moscow, on March 27, 2019. Emile Ducke—The New York Times/Redux
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.”
The announcement of sanctions sent ripples through the global economy. As companies scrambled to find new suppliers, aluminum prices surged 12% in a week, the largest increase since the 1980s. Deripaska claims he lost more than 80% of his net worth, or around $7.5 billion. The ensuing turmoil in the metals market helped Rusal fight back, as major corporations and European governments urged the U.S. to ease sanctions on the firm. “The U.S. government had some leverage, but Deripaska had leverage, too,” says Joshua Kirschenbaum, a former sanctions official at the Treasury Department. “It turned into a game of chicken.”
A Braidy sign looms over the future location of the company’s aluminum mill in northeastern Kentucky
A Braidy sign looms over the future location of the company’s aluminum mill in northeastern Kentucky Luke Sharrett for TIME
The man in charge of lobbying against the sanctions was Lord Gregory Barker of Battle, a British aristocrat. Even while serving in the House of Lords, Barker had agreed in 2017 to chair Deripaska’s conglomerate. Soon it fell to the former U.K. minister for energy and climate change to draft a strategy to free Rusal from sanctions by distancing the company from its owner. Dubbed the “Barker Plan,” it enlisted the bipartisan U.S. lobbying firm Mercury Public Affairs 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.
To some experts, it was a logical end to the face-off. “It was a reasonable deal,” says Brian O’Toole, a former sanctions expert at the Treasury Department under President Obama, “because the collateral damage of keeping that company under sanctions was so dramatic.” 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.
In recent weeks, McConnell has been taunted by protesters in Washington, on social media and back home, who have labeled him “Moscow Mitch” for his refusal to bring election-security legislation to a vote. It’s a moniker that has stuck in Kentucky, where Democrats started selling “Just Say Nyet to Moscow Mitch” merchandise, including Cossack hats. McConnell has slammed critics and the media for “modern-day McCarthyism” and says his record proves he has been tough on Russia.
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.
In a floor speech on Jan. 15, McConnell insisted the deal with Treasury “would continue limiting” Deripaska’s influence over Rusal and noted that Treasury can reimpose sanctions at any time. The Senate vote on Rusal came the next day. Eleven GOP Senators joined 46 Democrats in voting to uphold the sanctions, but it wasn’t enough. The critics needed a 60-vote supermajority to override the Trump Administration, but fell short by three votes—two of which were cast by McConnell and Kentucky’s Republican junior Senator, Rand Paul. The following day, 136 House Republicans broke ranks and joined House Democrats to oppose lifting sanctions, a rare but symbolic rebuke.
Ten days later, the sanctions on Rusal were formally lifted. Eleven weeks after that, Rusal announced its deal with Braidy.
CSX Transportation Inc. railroad tracks run past the idled blast furnace on the grounds of AK Steel's Ashland Works mill on May 15.
CSX Transportation Inc. railroad tracks run past the idled blast furnace on the grounds of AK Steel's Ashland Works mill on May 15. Luke Sharrett for TIME
A month after the sanctions were lifted, one of Rusal’s U.S-based executives, Andrey Donets, arrived in Ashland with three of his colleagues. They spent two days discussing strategies, touring schools, dining at the local country club and meeting community leaders. At the end of their trip, Bouchard pulled out some Kentucky bourbon, poured it into plastic cups and raised a toast. “In what we do, you dream big,” he recalls telling his new partners. “Or you go home.”
Bouchard remains buoyant about the deal. In interviews with TIME, he said the U.S. has nothing to worry about. The new aluminum plant will serve civilian customers, carmakers and the food and beverage industry, he says. (A company website says its aluminum alloys could have “military applications” in the future.) Few in Kentucky are focused on geostrategic concerns. “Rusal is a company. It’s not a country,” says Carpenter, the judge executive in Greenup County. “That kind of an investment, I don’t care who it’s with.”
But not 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. Other Democrats say if Rusal is banking on its investment in American jobs to protect it from future sanctions, that highlights a bigger problem. “The situation with Rusal broadly raises concerns that entities may in effect be ‘too big to sanction’ given the inter-connectedness of the global economy,” says a Senate Democratic aide.
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.”
—With reporting from Alana Abramson/Washington
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