Here’s How Trump Can Make Better Use of Corporate Sanctions
The U.S. president’s deal with Russian oligarch Oleg Deripaska should teach policymakers a sharp lesson.
The Trump administration’s decision, which went into force on Jan. 27, to lift sanctions on several companies owned by the influential Russian oligarch Oleg Deripaska, has proven controversial. Congress nearly blocked the action—more than 80 percent of members of the U.S. House of Representatives and 57 Senators supported a resolution to overturn the plan. Only the Senate’s 60-vote filibuster threshold kept the resolution from landing on President Donald Trump’s desk.
The controversy centered on the terms of the deal. Deripaska, a longtime associate of Russian President Vladimir Putin, will remain sanctioned personally. But Deripaska’s major holdings, including Rusal, one of the world’s largest aluminum companies, were removed from U.S. sanctions lists after the oligarch agreed to cut his ownership stake in them to 45 percent and the companies agreed to new, independent oversight to ensure that Deripaska cannot fully control them. Controversy only increased after the press got hold of the deal’s , which showed that Deripaska’s close associates and foundation kept approximately another 12 percent of the company and that Deripaska himself got hundreds of millions of dollars in debt relief for the shares he divested.
U.S. officials in the executive branch and Congress should draw at least three major lessons from the fight over lifting sanctions on Deripaska’s companies.
First, the U.S. government needs better sanctions tools to target large, globally integrated companies. The most compelling argument for Trump’s deal was not the restrictions it put on Deripaska, who remains a billionaire ensconced in luxury, living in Russia, and who seems unlikely to stop the range of malign activities and attacks on U.S. interests that he has been accused of over the years. For example, he has long been suspected of corruption, extortion, and organized crime ties, and in 2018 the Treasury Department accused Deripaska of intervening in Montenegro’s 2016 election.
The strongest argument in favor of the Deripaska deal was that the no-deal alternative would have been worse. In the weeks after the U.S. Treasury first sanctioned Rusal in April 2018, global aluminum markets shot up 20 percent, and countries outside of Russia that were home to Rusal plants, including Ireland and Jamaica, began to warn of mass layoffs. Aluminum importers in the United States, in Germany, and around the world had to grapple with the price shock. The Treasury responded with licenses that allowed Rusal to stay open, stabilizing markets, while the United States worked out the deal with Deripaska. Had the Treasury not reached a deal and simply reimposed the sanctions in full, turmoil would have returned to aluminum markets, and U.S. allies may have faced serious harm.
The lesson is that if the United States wants to impose sanctions on companies like Rusal, the Treasury and other U.S. agencies need more effective, scalpel-like tools capable of imposing sharp costs while minimizing collateral damage, as opposed to traditional U.S. sanctions, which blanket all business within a targeted company. Had the U.S. deployed a more focused tool on Rusal, not only would the attendant costs have been lower, but Deripaska and his companies would also have had less leverage in their negotiations with the Treasury—and the United States would probably have gotten a better deal.
Indeed, the United States has already experimented with more precise tools in other contexts. When the Obama administration wanted to sanction large Russian energy companies and banks in 2014, it did not simply put the companies on the standard blacklist, which could have caused tumult in financial and energy markets. Instead, the United States created a new kind of sanction that restricted target companies’ ability to borrow money but didn’t force them to immediately cease operations. Similarly, last year the United States put pressure on the Chinese telecommunications giant ZTE by prohibiting the sale of key technologies to the company, but it didn’t prohibit other transactions, such as U.S. suppliers receiving payments from ZTE. A borrowing restriction or technology restriction might not have been the right tool for Rusal, which operates in a different industry. But the U.S. government should have come up with a tailored, narrow sanction that fit. If the United States wants to keep using sanctions aggressively, it should get more creative about what sanctions mean.
A second, related lesson is that the United States should generally only remove sanctions on companies if they and their owners take steps to alter the behavior that prompted the sanctions in the first place, rather than agreeing to lift sanctions on companies largely in response to corporate shell games. Indeed, Treasury Secretary Steven Mnuchin has said that one of the goals of sanctions is to “change behavior.” But in the end, Trump’s deal with Deripaska made no effort to require that he cease his malign activities. Instead, it simply required reshuffling corporate ownership structures. While this approach is within the law, it appears to defeat much of the stated purpose of the sanctions. It is also a marked departure from many past sanctions removal cases, in which the United States did requite a major behavioral shift. Just last year, for example, Trump administration sanctioned two Turkish officials involved in the detention of an American pastor, Andrew Brunson, but removed the sanctions after Brunson was released. There, Turkey had to address the cause of the sanctions. This should be the norm.
Indeed, agreements to remove sanctions in exchange for corporate reshuffling don’t just let individual targets off the hook, but they also risk weakening sanction as a tool. The unintentional but dangerous message the Rusal deal risks sending is that shady oligarchs and other likely sanctions targets should simply structure their businesses around sanctions risks by keeping stakes in their companies just below the 50 percent threshold that the United States now seems to view as its cutoff, rather than refraining from acting against the United States. How long will it be before Treasury starts finding that a number of Iranian companies claim they are only 45 percent owned by Iran, and thus should be freed from sanctions?
Of course, there will be rare cases where there are strong policy reasons to remove a company from the U.S. sanctions lists even if one of its owners does not reform. But in those cases, at the very least, the United States should insist that the sanctioned owners divest substantially all of their shares, retaining at most a minor stake, rather than the near-majority stake Deripaska kept.
The final lesson of the Deripaska deal is that the United States needs a Russia sanctions strategy. attack last year. Trump’s tough sanctions on North Korea and Venezuela, along with his reimposition of forceful sanctions on Iran, stand in stark contrast to his Russia posture. Given the multiple threats Moscow poses to the United States and its friends and allies—though interference in democratic elections, attacks on Ukraine, and support for North Korea, among others—Washington needs to develop and deploy a comprehensive, tough, and sequenced sanctions strategy that begins to push back meaningfully on Moscow’s growing economy and expanding energy exports.The odds are that Trump’s deal with Deripaska would likely have been controversial regardless of the circumstances, given Congress’s increasingly hawkish posture toward Moscow. But the level of controversy was exacerbated by the Trump administration’s failure to adequately prioritize Russia sanctions over the last two years. In 2018, for example, the administration imposed sanctions on approximately six times as many Iranian targets as Russian ones. The White House is now nearly three months late in implementing legally required sanctions against Russia in connection to the Salisbury, U.K., nerve-agent
Sanctions will always be an imperfect tool, and policymakers will always struggle to find an appropriate balance in deploying them. But keeping sanctions effective over the long term requires policymakers to learn lessons from tough cases. The best that can be hoped for Trump’s deal with Deripaska is that policymakers learn a sharp lesson, and that they impose and roll back sanctions more sensibly in the future.