RUSAL: Citing Compliance With Sanctions, OFAC Begins Process Of Dropping Designation

After spending over eight months laboring against some of the toughest sanctions levied in recent years by the United States government on a Russian firm, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) announced yesterday its intentions to end sanctions on En+ Group plc UC Rusal plc, and JSC EuroSibEnergo.

Per OFAC, the decision to end sanctions on the firms revolved around their restructuring and changes to corporate governance to bring operations in line with the U.S. government’s mandates. Of primary concern was the separation from founder Oleg Deripaska.

Though the trio of companies will see sanctions dropped by this time next month, OFAC emphasized that Deripaska will remain under sanction and his assets within the United States’ jurisdiction will remain frozen.

Treasury Secretary Steven T. Mnuchin lauded the cooperation of the trio of companies, but warned that swift and severe repercussions would result should the parties fail to fully follow through with the terms of the deal.

Treasury sanctioned these companies because of their ownership and control by sanctioned Russian oligarch Oleg Deripaska, not for the conduct of the companies themselves. These companies have committed to significantly diminish Deripaska’s ownership and sever his control. The companies will be subject to ongoing compliance and will face severe consequences if they fail to comply. OFAC maintains the ability under the terms of the agreement to have unprecedented levels of transparency into operations.

Quoted by the FT, Rusal said in a statement that it welcomed the decision and “will continue to do everything that is necessary to return the company to the regular working conditions.”

The terms of the deal struck among the Treasury Department, the sanctioned firms, and Deripaska will have Deripaska unable to receive cash or dividends from any of the firms. His stake in En+, which is currently 70 percent, will fall to 44.95 percent, while a Russian bank will take title to a portion of Deripaska’s shares used as collateral by En+ on certain obligations.

Deripaska will also be required to hand over shares of En+ to charitable foundations and assign voting rights above a 35-percent threshold to a voting trust under the agreement. Other shareholders deemed to have a familial or professional relationship will be compelled to do the same. Once the entire plan has been executed, En+ will retain ownership of 56.88 percent of Rusal, with Deripaska’s stake reduced to 0.01 percent.

In an official statement, Rusal pointed out that “there is no assurance that termination of sanctions imposed on the Company will materialize or eventually be consummated as contemplated or at all”.

Congress has 30 days at its disposal to confirm or reject OFAC delisting request. Senate Select Committee on Intelligence Chairman Richard Burr (R-NC) and Vice Chairman Mark Warner (D-VA) released a cautious statement following the announcement that signaled their willingness to approve OFAC’s request provided the deal is properly monitored.

LME aluminium prices fell on December 20th to their lowest level in 16 months, hitting $1,905.5/tonne in morning trading.

 

 



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