How US Allies Are Undermining the Russia Sanctions for Profit
(and at the expense of Syrian civilians)
We recently heard the UN Ambassadors from France, Italy, and Japan express their outrage at the renewed use of chemical weapons by Syrian President Bashar Al-Assad. Oozing with indignation, the Ambassadors proclaimed to the live-streaming cameras that the blame for Assad’s barbarous actions lay squarely at Russia’s feet. They implored the Russian government to end its support for his regime: facilitation, they declared, is complicity.
What we did not hear was that these same three governments, just four months ago, engaged in their own facilitation of sorts. Long after Russia’s shameful actions in Ukraine and Syria and its meddling in US and European elections was well known, Italy, France, and Japan dodged the US sanctions regime by providing more than $1 billion of loans to Yamal LNG, a sanctioned megaproject that will generate billions of dollars for the Russian government.
Yamal LNG is a $27+ billion natural gas production and liquefaction project developed by Novatek, Russia’s largest independent gas company which is sanctioned by the US Treasury because of its ties to the Kremlin. The project is designed to produce 16.5 million metric tonnes of LNG per year for sale to customers around the world—one of the largest on the planet. It could generate revenue in excess of $10 billion per year.
It is also one of the most complex undertakings given its location above the Arctic Circle, a region that is frozen solid for most of the year and isolated from oil and gas infrastructure. Its construction requires a truly global cooperative effort by governments and companies.
On July 16, 2014, the US imposed a new round of sanctions against Russia for its actions in Ukraine. Novatek was added to the Sectoral Sanctions Identifications List, which expressly prohibits US companies from providing long-term loans to Novatek and its affiliates. These sanctions are practically designed to stop Yamal LNG, which needs a significant amount of long-term loans to get built.
Gennadiy Timchenko, one of the wealthiest members of Putin’s inner circle and a major Novatek shareholder, is also on the sanctions list. Timchenko is the founder of Gunvor, a global multi-billion dollar commodity trading company whose opaque ownership may include Putin.
According to the US Treasury: “Timchenko’s activities in the energy sector have been directly linked to Putin. Putin has investments in Gunvor and may have access to Gunvor funds.” The US Treasury believes that Gunvor may be a primary source of the Russian president’s rumored vast wealth.
Before the Novatek sanctions were established, a group of government banks, including the US Export-Import Bank (US Exim), the Japanese Bank for International Cooperation (JBIC, the Japanese government bank), Compagnie Française d’Assurance pour le Commerce Extérieur (COFACE, the French government bank), and Servizi Assicurativi del Commercio Ester (SACE, the Italian government bank), were negotiating a multi-billion dollar loan to Yamal LNG.
These negotiations were suspended when the Novatek sanctions were imposed. Yamal LNG was shut out of the international financial markets and unable to raise the massive amount of funds it needed.
Novatek turned to Chinese banks as alternate lenders. The Chinese government invested in the undertaking by providing $12 billion of debt from state-owned banks and by purchasing a 9.9 percent ownership share in the project through the state-owned Silk Road Fund. The Chinese government also owns 20 percent of Yamal LNG through China National Petroleum Company (CNPC).
The Russian government helped to fill the gap left by the international banks by providing another $2.36 billion from its National Welfare Fund (Russia’s sovereign wealth fund) and $4 billion from state-owned banks, including Sberbank, Gazprombank, EXIAR, and VEB, all sanctioned entities. This support is on top of a multitude of tax incentives and Putin’s public backing of the project and regular meetings with its owners and executives.
The extraordinary level of support that Yamal LNG has received from the Kremlin demonstrates its critical importance to the Russian government, which stands to gain billions of dollars in tax revenue, billions in profits for Kremlin cronies, and significant geopolitical influence.
The rest of the money needed to build the project (to say nothing of the technological know-how) was provided last December by US allies and conveyors of pseudo-outrage: the French, the Italians, and the Japanese. COFACE, SACE, and JBIC had returned to the negotiating table after US Exim and others withdrew from the process because of the sanctions.
The Italian, French, and Japanese governments actively undermined the US sanctions in order to provide a commercial advantage to their companies, who will profit from building the plant, owning it, transporting its gas, and buying its gas.
For example, Total, the French oil and gas company, whose long track record of bribery indictments and scandals is too long to list here, owns a 20 percent share in Yamal LNG and another 16 percent share in Novatek. Total has invested billions of dollars in the project and contributed important technological know-how.
Several other leading French and Japanese engineering and construction companies, including Technip, JGC and Chiyoda, are also involved. There is a long list of companies from many US allied countries who will profit by subverting these critical US sanctions, including South Korea’s Daewoo and more than 20 Italian companies, one of which is a subsidiary of General Electric. Without the cutting-edge technological capabilities provided by these companies and the financing from their respective governments, it is unlikely that Yamal LNG could have been built.
The French Minister of Finance, Michel Sapin, concisely summarized France’s interest in cooperating with Russia on Yamal LNG and on “similar projects” in the future, a sentiment somewhat different from the one expressed recently by the French UN Ambassador:
I personally agreed in principle to participate COFACE agency acting on behalf of the state in this important project to support export contracts of many French companies (Total, Technip, Vinci Antrepoz / TMSI); so I would like to note the interest of the French authorities to the industrial partnership between Russian and French companies, which can be extended to other similar projects.
The Chairman of Intesa, the commercial bank that arranged the COFACE and SACE loans, explained the situation in a characteristically Italian fashion during an interview with Kommersant, a Moscow business daily:
“[COFACE and SACE] Look[ed] at us with wondering eyes, and I said, why not?”
He went on to brag that his bank managed to persuade European authorities that Yamal LNG was excluded from the scope of sanctions targeting Russia and members of Putin’s inner circle.
A spokesman for SACE provided the same reassurance that his bank is in full compliance with the sanctions regime and confirmed that its financing is connected to important Italian commercial interests.
The Japanese government has similarly expressed enthusiasm about cooperating with the Russian government in the strategic energy sector, which is broadly targeted by US sanctions. Kazuko Shiraishi, Japan’s ambassador in charge of arctic affairs, in a recent interview with The Diplomat explained:
In particular Japanese companies have been involved regarding the design, procurement, and construction areas of the project. Additionally, some Japanese companies have contracts to carry LNG from Yamal LNG trains to Asia and Europe… The Japanese participation in Yamal is very important and as an Arctic project even more so. Japanese companies are very much invested in the outcome of the Yamal LNG project.
On September 5, 2016, JBIC, the Japanese government bank, signed a memorandum of understanding with Novatek to “create business opportunities for Japanese companies” and “build strategic relationships with important partners in the areas of oil and gas development and LNG procurement and … by helping create business opportunities for Japanese companies.”
JBIC’s CEO, Tadashi Maeda, expressed the Japanese government’s eagerness to financially support Novatek’s future investments when he explained at the time the MOU was signed, before JBIC’s loan to Yamal LNG had even closed, that his bank would be interested in participating in Novatek’s upcoming Arctic LNG 2 project.
Foreign governments and companies aren’t alone in their circumvention of the US sanctions regime for commercial gain. The private financial advisory firm that supported JBIC, SACE, and COFACE in the Yamal LNG deal, thus profiting at the expense of US foreign policy interests, continues to act as a paid financial advisor to US Exim and to advise clients seeking to raise money from US Exim (and, by extension, from the US taxpayer).
That key US allies — beneficiaries of generous US defense undertakings — would so brazenly sabotage a critical US foreign policy objective should be an outrage to the US government and to US taxpayers.
The indignation expressed by France, Italy, and Japan at the UN this month is meaningless and wholly inconsistent with their involvement in the Yamal LNG project. If “facilitation is complicity”, Italy, France, and Japan would do well to end their own facilitation of Assad’s atrocities by ending their financial support for Yamal LNG and honoring the US sanctions regime. As the project is expected to start operations this year, it may be too little too late.
