Forbes columnist Kenneth Raposa on why investment firms do business with sanctioned Russian companies.
The West often forgets that Russia is a capitalist country. Remember Yeltsin and American experts from Harvard and Boston consulting group who tried to teach Russians the ins and outs of mergers and acquisitions and public equity? Yes, this was when we still loved Russia.
Now the evil and scary Russian capital market is back; he is no longer as wild as before, but he is again luring American firms into his lair. This year, JP Morgan (NYSE: JPM) and Goldman Sachs (NYSE: ) ranked second and third in commissions on deals involving Russian companies, receiving even more brokerage and underwriting fees than last year.
Brokerage fees are exactly what Carter Page received from the Rosneft (MICEX: ROSN) deal. Page is Trump's adviser on international relations, who is constantly cited as an example of the Trump team’s “connections” with Russia.
However, he is no more connected to the Russians than JP Morgan and Goldman Sachs. This is entirely legal, and Wall Street investment banks would be willing to enter into even closer ties if they could.
As of April 20 affiliated companies Both banks in Moscow topped local brokerage ratings. They take part in the most different types transactions, including issuing shares and bonds or issuing loans.
According to consulting firm Freeman & Co., the volume of investment banking transactions involving them over the past 12 months has grown by 32% compared to the same period last year.
VTB Capital remains the leader in this area: it owns 18% of the investment banking services market, which as of April 20 was estimated at approximately $16 million.
In turn, JP Morgan and Goldman Sachs made it into the top three for the first time in five years, IntelliNews reports. JP Morgan comes in second with an 11.4% stake, or about $10 million. A year ago, the bank was in sixth place in the ranking. Jeffrey Nassof, vice president at Freeman, says:
“If we look at the state of the post-sanctions market in the short term, it looks quite strong. Interestingly, this year Western banks managed to act as intermediaries in some very large transactions - for example, a couple of months ago Goldman, Credit Suisse and Morgan Stanley led the IPO of Detsky Mir.”
In 2016, US investment banks lost access to Russian markets capital due to . That same year, Russia returned to the bond market after a two-year forced break due to sanctions from the United States and the European Union.
But even after IPOs and international bond offerings became available again, Russian issuers were wary of foreign intermediaries for fear of being subject to sanctions. US banks were also nervous, and for much the same reason.
Sanctions were imposed on Russia in July 2014. They affected specific individuals, but Western companies still prefer to remain cautious when doing business with Russia, because those who tried to act in defiance of the sanctions in the past were subject to severe fines.
Thus, BNP Paribas (EURONEXT: BNP) was fined a record $8.9 billion for banking transactions with Iranians, who were under US sanctions at the time.
Current US sanctions on Russia prohibit joint ventures in oil and gas exploration, including the financing of drilling and exploration and the exchange of technological know-how.
In addition, the United States has applied sanctions against Russian banks that prohibit American companies from receiving loans from these banks or issuing credit funds to them. VTB Bank (MICEX: VTBR), which owns VTB Capital, was also sanctioned.
The sanctions do not apply to US organizations from other sectors of the economy and do not prohibit consulting services. The exact terms depend largely on how government courts interpret the sanctions, but in general, U.S. firms are allowed to do business with Russian companies, and those who do so are confident they have not violated the rules.
Now they include two Wall Street titan banks and an organization that is inextricably linked to the Trump administration.
Sources in the Russian oil, gas and financial services industry say former Trump adviser Page worked with Gazprombank as one of the intermediaries for Rosneft's Glencore (LSE: GLEN) and Qatar's sovereign wealth fund late last year.
Some speculate that Page deposited the money in an offshore account and then gave it to Trump as a gift for lifting sanctions.
But people familiar with the matter say the offshore accounts were intended for British executives with long-standing business ties to Russia. Rosneft and Gazprombank are under sanctions, but this only applies to transactions in the energy sector.
On the other hand, the joint venture between Exxon (NYSE: XOM) and Rosneft to drill hydrocarbons in the Kara Sea, which also involved the exchange of technological developments, was completely banned in accordance with the sanctions. Exxon is estimated to have lost about $1 billion.
Many investment firms do business with sanctioned Russian companies.
In March, Gazprom (MICEX: GAZP) issued $1.02 billion in bonds, which were in high demand among US and European investors.
Bond buyers are essentially lending money to the company. The lead underwriters for the placement were JP Morgan, Deutsche Bank (NYSE:), Gazprombank and VTB Capital. That same month, Gazprom raised another $750 million through the sale of dollar bonds, becoming the first Russian company to enter the market since the annexation of Crimea.
According to IntelliNews, the total volume of primary and secondary public offerings on the Moscow Exchange this year amounted to $1.2 billion and was a record for the last six years.
Prepared by Taya Aryanova
Investing.com - Russian authorities are exploring ways to create a crypto-ruble in the hope that their own digital currency will help the country circumvent Western sanctions, the Financial Times writes. According to Moscow officials, President Vladimir Putin has ordered the development of a cryptocurrency, and government agencies are quickly mastering blockchain, the technology that underlies Bitcoin and other digital currencies.
Sergei Glazyev, Putin's economic adviser, said at a recent government meeting that the cryptoruble could become useful tool to circumvent international sanctions. “This tool is very suitable for us to operate on behalf of the state. We can settle accounts with our counterparties around the world, regardless of sanctions,” Glazyev said. He added that the cryptocurrency would be “the same as the ruble, but its circulation will be limited in certain ways,” allowing the Kremlin to monitor its every move.
After a meeting with the creator of the cryptocurrency Ether, Vitaly Buterin, Putin ordered his cabinet to develop a structure for regulating cryptocurrencies, writes an international business publication. In the fall, the head of the Russian Ministry of Telecom and Mass Communications, Nikolai Nikiforov, reported that the department had already prepared proposals for the technological part of issuing the national cryptocurrency. Nikiforov clarified that the new currency will be impossible to “mine” like Bitcoin, because it will be “a closed model with a certain volume of regulated emission.” Last month, Sergei Glazyev proposed his version of the crypto-ruble for settlements between the state and corporations. According to the presidential adviser, such currency will be issued according to the decision of the authorities - “no mining is possible.” “This is simply a decision by the authorities to issue a discrete stream in non-cash form monetary units", explained the presidential adviser.
As with the Internet, interest in cryptocurrencies shows the Kremlin’s desire to use a technology originally developed to avoid the influence of governments for its own purposes, the FT notes. Blockchain technology uses cryptography to allow multiple participants to transact with each other, exchange information, and contribute new data without having to contact a central authority. And although the cryptoruble is not intended to liberalize, but rather to centralize control, distributed ledger technology appears to be a tool suitable for the purposes of the Russian authorities.
Some of the world's largest central banks are also exploring the potential of blockchain technology. For example, in Sweden, where society is voluntarily moving away from cash, the central bank (Riksbank) is considering issuing its own digital currency, eKrona, and one likely technology could be blockchain. Some authoritarian states such as North Korea are reportedly hoarding cryptocurrencies to make payments on the black market or, in the case of Venezuela, trying to create their own. But it is much more difficult to create a government-backed cryptocurrency that will replace existing funding models, such as raising capital for state-owned banks or financing the defense sector, which are precisely the targets of sanctions.
Existing blockchain-based cryptocurrencies allow transactions without identification, which makes them a popular tool among fraudsters, but it remains unclear how the cryptoruble will help Russian companies and individuals avoid international sanctions or avoid detection of violations by authorities USA. It is also unclear whether the cryptoruble will be issued by the Russian central bank or commercial banks countries and who can open an account. “Crypto is not a panacea,” said Alan Waxman, First Vice President of Gazprombank. The Office of Foreign Assets Control, the division of the US Treasury Department that enforces sanctions, is not so easy to outwit, he added.
In Russia in 2017, more than $300 million was raised as part of the ICO - the initial placement of tokens to finance business projects. Including about $43 million was raised for a mining farm headed by the Internet Ombudsman under the President of the Russian Federation Dmitry Marinichev.
The Central Bank of the Russian Federation and the Ministry of Finance of the Russian Federation have not yet supported the idea of a crypto-ruble. According to Russian news agency TASS, at a meeting on December 28 on legislation in the field of digital currencies in Russia, both Deputy Minister of Finance Alexey Moiseev and First Deputy Governor of the Central Bank of Russia Olga Skorobogatova said that they do not see the need to create a national digital currency.
Previously, the Central Bank of the Russian Federation stated that cryptocurrencies “have all the signs of a financial pyramid,” and the Ministry of Finance of the Russian Federation proposed limiting the purchase of cryptocurrencies for individuals, allowing it only to qualified investors on the Moscow Exchange.
Sasha Ivanov, CEO and founder of Waves Platform, Russia’s largest blockchain platform, noted that the cryptocurrency market is “essentially similar to the unregulated financial market of the 19th century in the United States.”
Meanwhile, the head of Vnesheconombank, Sergei Gorkov, believes that Russia can become a world leader in the development of blockchain technology, and that this technology can help get the job done government agencies more transparent.
Other experts disagree. “If you enter incorrect data, the chain will still be false,” said Executive Director another state Russian bank.
As it turns out, for American and European companies operating in Russia, life under the new normal has turned out to be more bearable, albeit fraught with greater risks and difficulties, than their leaders feared a year ago. While banks say business has virtually come to a standstill, the same cannot be said for many companies in other sectors. “Goods and services that in theory are subject to sanctions can in reality be supplied. Companies seem to be finding workarounds. And it's clear that [some Western governments] are turning a blind eye to this,” says Chris Weafer, founder of Macro-Advisory. “I think the main message here is that if you don’t put yourself out there too much, you’ll be fine.”
While lawyers and compliance professionals would cringe at such words, the same sentiment is shared by the sales teams of many foreign companies in Russia. “There are legal, semi-legal and illegal ways [to circumvent sanctions], and they are all widespread,” says a senior official at a foreign business association in Moscow. According to managers of two foreign companies, they are now redirecting the export of some goods to Russia through countries that did not impose sanctions: one through Turkey, the second through Brazil.
Vladimir Putin President of Russia, at SPIEF-2014
“(To investors) Think about your benefits and the possible dividends of working in Russia, do not succumb to pressure, blackmail - go your own way, and you will you will succeed, and we will help you."
According to a manager at a European energy company, some of its competitors now sometimes fulfill orders from Russia at factories in third countries that would otherwise be subject to restrictions on the supply of dual-use products. In particular, he said, factories in China and India are used for this.
One of the most popular workarounds is for sanctioned Russian companies to create other companies to purchase relevant products in the West. As a sales manager working in Russia for one French company, after his company informed a longtime Russian state-owned company in February that it could not supply it with the equipment it requested, it was soon contacted by another Russian company asking for exactly the same deal. “We had never heard of her or her shareholders before, but they asked for exactly the same products as our previous client, they knew the specifications, the price and who to talk to about it,” says the manager. “We did a quick check and found out that not a single shareholder from the register of this company is on any blacklist. That's all we can do, although we can generally guess what's going on here."
According to lawyers, all such operations can lead to problems. "The 'ostrich tactic' where you claim you didn't know the ultimate owner doesn't work," says Brian Zimbler, managing partner of American law firm Morgan Lewis in Moscow.
It can also be difficult for foreign companies to convince their Russian employees not to take risks. Dominic Sanders, a partner at the British law firm Linklaters in Moscow, speaks about this, explaining: it is difficult to understand that their colleagues, citizens of EU countries, can be charged with a criminal offense. “Russian employees of foreign companies read Russian newspapers. They perceive claims that this will all end soon and decide that they will take this risk like any other business risk,” Sanders says.
There will be no punishment
Unlike 2014, when The White house On behalf of US President Barack Obama, he called on American businessmen to boycott the St. Petersburg International Economic Forum (SPIEF), today there is no ban on visiting it, according to US officials and businessmen. According to one diplomat, authorities still do not encourage the presence of leaders American companies on the forum, “but if they don’t ask [whether they should go], nothing will happen.” Two top managers of American companies operating in Russia confirmed that government officials told them that if they general directors they will go to the forum, “there will be no punishment.” SPIEF opens on June 18. According to the preliminary list, which the Financial Times has seen, it will include the chairmen of the boards of directors AT Kearney, Boston Consulting Group, PwC, EY. The CEOs of Royal Dutch Shell, BP, Total, Societe Generale, Metro, Carlsberg and a number of other leading European transnational corporations are also going to take part in it. True, some companies remain cautious. Thus, PepsiCo, for which Russia is the second largest market after the United States, will send there the head of the European division, and Telenor will send an executive vice president. At SPIEF there will be many representatives of companies from Asia, Latin America, the Middle East, including Argentina, China (including Alibaba founder Jack Ma), India, Iran, Mongolia, Turkey, Chad, Jamaica, etc.
Changes in regulation also help companies deal with sanctions. In the energy sector, European authorities have approved some projects related to cooperation between European companies and Russian ones; according to an industry source, in fact, they will even have the opportunity to work in the Arctic, although formally they are prohibited from helping Russian state-owned companies extract oil and gas there.
At the St. Petersburg forum starting on June 18, it may be announced that British BP will purchase from Rosneft a 20% stake in the project to develop the Siberian Taas-Yuryakh field for $700 million. And if US sanctions have retroactive effect (that’s why ExxonMobil had to freeze 9 out of 10 projects with “ Rosneft"), then the European ones do not. Therefore, the European authorities gave the go-ahead to Eni and Statoil to continue work in projects with Rosneft, and Shell, which cooperates with Gazprom Neft in the Salym Petroleum project, received the consent of the Netherlands to work in other Russian projects.
The US Treasury Department's Office of Foreign Assets Control, which enforces the sanctions, explained to banks and exporters that Russian companies subject to sectoral sanctions can still regularly attract loans for up to 30 days if they repay them in full each time. term. “This is essentially permission to continually lend to them in 30-day tranches,” Zimbler says.
Western trading firms are taking advantage of the permission, according to sources in the banking and energy industries. “We insist that there is always a gap of three to five days between these 30-day loans because we don’t want to give the impression that we are following only the letter and not the spirit [of the sanctions],” says a senior risk manager foreign bank in Moscow. “But we know that some oil traders do this.”
Translated by Mikhail Overchenko
The head of the Ministry of Energy, Alexander Novak, is perplexed about the EU sanctions against his subordinates. Photo by Reuters
Russia is trying to adapt not only to the crisis, but also to a series of sanctions. Despite a large number of projects in the oil and gas sector that fell under previous Western restrictions, there were no such scandals as recently occurred with the supply of Siemens turbines to Crimea. Perhaps this indicates convenient loopholes that both Russian and foreign project participants found. Experts from the Analytical Center for the Government of the Russian Federation believe that oil and gas workers have a chance to adapt to new US sanctions. And before the weekend, the European Union tightened sanctions against the Russian Federation.
The European Union on Friday expanded the list of anti-Russian sanctions due to the scandal with the supply of Siemens turbines to Crimea.
The restrictions included two officials from the Ministry of Energy, three enterprises that are accused in the West of prohibited supplies of equipment to Crimea, and the head of two of these enterprises.
The EU Council said that Deputy Energy Minister Andrei Tcherezov “shares responsibility for the decision on delivery gas turbines Siemens to Crimea." The head of the department of the department, Evgeniy Grabchak, was included in the sanctions list as “the person responsible in the Ministry of Energy for the development of electricity projects in Crimea.” Sanctions were imposed against the companies Interavtomatika, OJSC and LLC VO Technopromexport (the first of them has been in bankruptcy proceedings since 2016), and the general director of Technopromexport Sergei Topor-Gilka was also included in the list.
The Ministry of Energy of the Russian Federation expressed bewilderment at the EU decision, calling it interference in a dispute between two economic entities and a violation of international law. “The EU made the decision based solely on political considerations,” the Russian ministry said in an official statement.
Earlier, representatives of Siemens stated that all four turbines intended for the project in Taman were illegally delivered to Crimea, and offered to cancel the contract and buy them back (NG has repeatedly written about the situation - see Nos. dated, and July 2017) .
The Russian oil and gas sector has existed for three years under sanctions implemented by the US, EU and other countries, but experts do not remember anything like the scandal with turbines in this sector.
Experts from the Analytical Center for the Government of the Russian Federation report in their latest energy bulletin that the Russian oil and gas sector has partially adapted to the “old” sanctions through government support, partnerships with countries in the Asia-Pacific region (APR) and the flexibility of EU regulations. However, experts are already calling the new US anti-Russian measures a transition from targeted sanctions to area-wide fire. New law involves a significant expansion of restrictions. If earlier we were talking only about the projects of Gazprom, Gazprom Neft, LUKOIL, Rosneft and Surgutneftegaz in Russia, now the sanctions will be extended to all projects of these companies, including foreign ones.
As a government think tank notes, the fact is that previous sanctions provided loopholes to circumvent - it was possible, for example, to buy equipment supposedly for foreign projects, but use it inside the Russian Federation. At the same time, government analysts are confident that loopholes will be found in the new document. The law leaves a chance to attract American technologies to Russia, since projects in which the share of companies under sanctions is less than 33% are exempt from the ban. If this figure were lower, then projects such as Azerbaijan’s Shah Deniz 2, which is considered an alternative to Russian gas supplies to Europe and in which LUKOIL owns 10%, would be at risk, the think tank said in a review. Theoretically, it is possible to buy sanctioned equipment for such a project and use it in Russia.
According to the assurances of the head of the Ministry of Energy Alexander Novak, work is underway on the production of equipment for the oil and gas sector to replace imported ones full swing, it is planned to be completed by 2020. In addition, as Sergei Pravosudov, director of the Institute of National Energy, told NG, some of the projects that are formally subject to sanctions have been suspended not because of them, but due to deteriorating market conditions.
“As for production on the Arctic shelf, Prirazlomnaya was put into operation before the introduction of sanctions, and new projects were suspended due to a sharp drop in oil prices. The same is with the shale project of Surgutneftegaz: the company is slowly implementing it on its own, technologies are being mastered, personnel are being trained abroad,” says Pravosudov.
Tightening sanctions is not critical, but will require continued adaptation, according to experts from the Analytical Center for the Government of the Russian Federation.
In Western information sources in Lately The topic of how Western companies bypass or try to bypass the anti-Russian sanctions pushed by the United States of America is gaining momentum in popularity.
As you know, our ardently adored partners took sanctions against Russia to the extreme degree of absurdity, thus trying to cause popular unrest, and with the indispensable desire of the people to greet the American liberators with bread and salt.
But here’s the problem: people are not rushing to the American Embassy with bread and salt, and they are not falling on their knees in front of a photograph of the interior of the Oval Office. Moreover, many Western companies have decided that Uncle Sam, of course, is big and formidable, but you don’t always need to look into his mouth.
As soon as Uncle Sam turns away or goes into the wind, the creative spirit of representatives of business structures quickly reveals itself, in fact demonstrating that any sanctions modern world you can bypass, not notice, jump over, kick, etc., etc. Even if these sanctions are imposed by the most exceptional of the exceptional powers of the Universe.
More than anyone else, Reuters is worried about this, as it cannot move away from Siemens turbines supplied through subsidiaries to Crimea (although it still needs to be proven there). He can’t move away, but here it is again out of the blue. Not only the Germans decided to fool Uncle Sam, but now, as it turns out, also the Norwegians. Everyone wants to eat, and Washington is trying to cut down rations for its “partners” more and more. So they resort to tricks.
The article looks more like a kind of Western version of a slander, but what deserves attention is not so much the material itself as the fact that more and more of his foreign partners are actually sending the American “uncle”. They are sending it in a whisper for now, but the final address of the “trip” can be clearly seen even in a whisper.
So, about the outrageously elegant Norwegian scheme “revealed” by Reuters.
As you know, the so-called shale industry came under American sanctions. To put it simply in simple language, the United States has actually banned everyone who supported the sanctions from entering into trade and technological relations with the Russian Federation where it concerns the production of shale hydrocarbons. That’s how they wrote “shale hydrocarbons.”
Instead of making a finger, the Norwegians, realizing that profits were flowing out of their hands in an unknown direction, decided to make a knight’s move and simply replace one word in contracts with Russian companies.
The Norwegian Statoil changed the word “shale” to “lime”, and things started... At the same time, Statoil’s managers do not particularly hide the fact that the US sanctions policy, as they say, has gotten to them. They say: your sanctions apply to shale “reservoirs”, but we, together with Rosneft, do not touch the shale at all, but drill deeper - at the level of lime deposits. If you impose sanctions on limestone layers, we will “discover” other layers that are not subject to prohibitive measures.
One can imagine how much poison poured out of the bodies of those who in the US Congress chewed bubble gum day and night in order to give birth to sanctions that would really destroy the Russian economy, and even force their European partners to dance to the American pipe.
Even more venom was poured out when the same Reuters published a continuation of its saga about 400 and one relatively honest way of circumventing overseas sanctions measures. The material states that the closest allies of the States, the loyal Britons, decided to take advantage of the Norwegian experience (oh horror!).
Thus, the British company BP is also ready to move away from using the word “shale” in the contract, automatically freeing itself from sanctions chains. Moreover, a large British company came up with such an initiative to the government of the United Kingdom. And the government, unless the shadow of an American stick with nails flashes somewhere, has no reason to refuse BP.
After all, no one has really imposed sanctions on the “lime reservoirs” yet, and even if sanctions are introduced, it will only be after the fact, which opens up work with the same Rosneft for the British on the “lime” layers. And since we are talking about billions of dollars in profits, here the American-British “alliance” is testing its strength.
Against this background, the thousand times sanctioned Gazprom again gained access to the OPAL gas pipeline. This is the largest gas artery in Germany, which supplies gas from Nord Stream to the gas transportation systems of continental Europe.
For some time now, OPAL has been virtually silent, since access to it was blocked for Gazprom. And then, the day before, it turned out that the Russian gas giant again has a 40% share of the total gas pipeline capacity. Gas transit through Ukraine was immediately cut. And then some in the West remembered that compressor station The Opala in Brandenburg was built by Siemens. Well, what are you going to do... again did Siemens impose sanctions?..
And if we take into account that OPAL has a continuation in the form of the Czech gas pipeline “Gazelle”, going to Slovakia, then we can assume that soon the reverse of “Slovak” gas for Ukraine will become somewhat more expensive in price...
Now in the West they are wondering who exactly gave Gazprom access to Opal, practically not giving a damn about the so-called third energy package. However, whoever this mysterious discoverer of Opal turns out to be for Gazprom, the European Commission, in fact, has no reason to find fault.
The fact is that the Russian gas giant received its share at an open auction. Simply no one was able to pull off this auction... Except Gazprom...
Everything is economically pure - the third energy package remained pristinely intact... That is, the sanctions again remained somewhere on the left side.
We can only wait for new publications about how Uncle Sam’s partners, demonstrating that they have begun to get tired of the sanctions games, will generate new ways to honestly challenge restrictions in economic contacts with Russia.
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