The sanctions smoke screen: ongoing business partnerships the press missed

You don’t want to call sanctions a hoax because they legitimately put compliance pressure on our businesses and people. But do they put any pressure on the actual targets? It’s part of our news cycle and even our language to think so. After all, what is a “sanction” if not a punishment for breaking the rules?

In a move that was presented as severe by the press and by government, the Treasury Department promised sanctions on the Russian Direct Investment Fund (RDIF), though virtually everyone acknowledges this will have no immediate effect. What is not as widely known is that it will have almost no noticeable impact at all. RDIF is a case study in an ongoing theme.

The RDIF entity is still partnered with western corporations and will continue to be. If this sounds far-fetched, you’ve been deceived, along most of the population.

Before considering the many partnerships that remain in tact despite sanctions, note one American entity that seems to be taking no measures at all to conceal the truth about RDIF.

The threat of sanctions was announced at the beginning of this month but did not deter New York-based Global SWF LLC from boasting that “RDIF Shrugs Off Geopolitical Risks” and that “Co-Investment Partners are Undeterred.” (Source) I would like to thank them for their honesty in spelling out precisely why sanctions are a smoke screen:

The fund has largely remained untouched by the sanctions with a raft of co-investments with foreign peers over the years. The Fund plays an important role in Russia’s industrial policies and it has attracted over US$40 billion into joint funds from 16 different countries. It has created joint investment plants with: the Kuwait Investment Authority (KIA), the Korean Investment Corporation (KIC), Abu Dhabi’s Mubadala, the Qatar Investment Authority (QIA), the China Investment Corporation (CIC), Bpifrance, and Bahrain’s Mumtalakat. Altogether, these pledged more than US$6 billion of inward investment in the Russian economy.

Ironically, Russia holds the presidency of the UN Security Council–a body allegedly tasked with “maintenance of international peace and security.” (Source) Global SWF has pointed out how this advantage protects RDIF and preserve Russia’s economic strength, highlighting the differences between possible RDIF sanctions with Iranian sanctions (which did harm the Iranian people):

Sanctions on Iran have hampered economic relations with Europe in particular, while relations with most Gulf Arab states were already under pressure. Nevertheless, the country has circumvented the sanctions regime through closer relations with China. RDIF has also forged robust relations with China, particularly via the Russia-China Investment Fund which was established in late 2019, and Beijing is likely to remain a loyal Moscow ally for the foreseeable future.

The same may not be true of RDIF’s relationships with its French and Korean peers while Arab funds are likely to slow rather than break their deals with Russia…

Russia also has an additional advantage Iran lacks: permanent membership of the UN Security Council, which it can use to veto action against it – with the support of allies like China and others. RDIF will benefit from Russia’s geopolitical clout.

RDIF has also forged robust relations with China, particularly via the Russia-China Investment Fund which was established in late 2019, and Beijing is likely to remain a loyal Moscow ally for the foreseeable future.

BPIFrance and SWF are aren’t the only western corporations enjoying business partnerships with RDIF. Stephen Schwarzman, Blackstone’s co-founder and chair, joined RDIF’s international advisory board in 2011 (Source) and Blackrock UK has partnered with RDIF before; Blackrock has also received RDIF’s sponsorship to purchase a stake in a Russian company. (Source) A quick search will show a large number of investments with several western entities. (Source)

Interestingly, in its defense of RDIF, Global SWF LLC claims that “RDIF itself is not a legal entity.” This can be confusing, as multiple sources identify “Russian Direct Investment Fund Management Co” as a private equity firm that invests in multiple industries and “Russian Direct Investment Fund Management serves customers in Russia.” Hidden behind complex corporate structures, no doubt, it is difficult to imagine what else the companies could be if not legal entities. Are they chimeras? Unicorns?

The entities were legal enough to land on the Sectoral Sanctions Identifications (SSI) List in 2015 (for all the good that did) and legal enough to to invest in US-based and British-led technology company, Virgin Hyperloop One (headed by Sir Richard Branson, UK), even while sanctioned. (Source) Perhaps it is the group’s complex structure that allows it to bypass sanctions and continue to thrive, making the freezing of its accounts more difficult than freezing the bank accounts of Canadians who were suspected of having participated in the Truckers’ Convoy protests, for instance. (Source) A little help from the west doesn’t hurt.

This is to say nothing of the individuals who should have been sanctions, for consistency, but were not. Take a look at Roman Abramovich, “who owns stakes in steel giant Evraz, Norilsk Nickel and the U.K.’s Chelsea soccer team.”

Even as Canada, U.S., UK and other nations “have ramped up sanctions on more than 100 Russian individuals and entities, these assets of the country’s elite have avoided any direct hit. So too have their high-end real estate holdings, which in London range from Chelsea penthouses to Highgate mansions.” (Source) A similar tale to that of RDIF can be told for several other individuals and entities on current sanctions lists. Their western ties run too deep for sanctions to deal a crippling blow — and these aren’t ‘deep ties’ in any vague sense. The corporate ties are clearly documented in trade documents, Shareholder Agreements documented by the Securities and Exchange Commission itself, corporate registries and official press releases. Where are the anti-corruption journalists covering these? The following sources may help fill in the blanks.

RDIF and Titan (one of many publicly available SEC documents)

RDIF Feeder and other entities, both dissolved and active

The State Bank of India (SBI) and the Russia Direct Investment Fund (RDIF)

Russian Direct Investment Fund and China Investment Corporation (CIC)

RDIF and Black River, Algorithmics

RDIF and Silver Lake Partners, KKR and UFC