A Russian billionaire on the ‘Kremlin List’ is suing the U.S. government

Valentin Gapontsev and Prime minister Dmitry Medvedev

What happened

In addition to U.S. sanctions, a major problem for Russian businessmen is the so-called Kremlin List. This is a group of wealthy Russians “close to Vladimir Putin” put together in January 2018 in response to a requirement of sanctions law CAATSA. The list does not mandate sanctions, but any named person automatically faces difficulty doing business. After the publication of the list (an exact copy of Forbes Russia’s annual ranking of billionaires), it was criticized for including businessmen who don’t have direct relationships with Russia. One of these individuals was the owner of American company IPG Photonics, 79-year-old Valentin Gapontsev, who hasn’t lived in Russia since 1995 and has assets in the U.S. worth some $7 billion. Gapontsev is now suing the U.S. Department of the Treasury, and Steven Mnuchin personally.

• Gapontsev’s indignation is understandable. His court filing states that the U.S. government set out to include all people trusted by President Vladimir Putin who made their fortunes through “a corrupt division of state assets.” But Gapontsev worked in a research institute in the Soviet era and left Russia in 1995, five years before Putin was first elected president. As an immigrant, Gapontsev built a business on the basis of his scientific knowledge. His company, IPG Photonics, is now valued at $6.8 billion on NASDAQ and accounts for a large part of the global market for high-performance fiber lasers. Gapontsev has met Putin only once: when he was given a state award. The court filing states that it is unfair to call him “an oligarch close to the Russian president.”
• IPG Photonics has suffered serious problems since Gapontsev was named in the list: many clients, particularly those with U.S. government contracts, have said that they can no longer work with the company. Banks began carrying out additional due diligence and a major international database, Visual Compliance, now classify Gapontsev as a potentially problematic business partner. Shares in IPG Photonics have fallen 40% since the beginning of 2018.
• The Kremlin List was hastily thrown together in January. The information about several people on the list was incorrect and the proximity to Putin of most is unproved. Atlantic Council expert, Anders Åslund, who advised the U.S. authorities, confirmed that members of President Donald Trump’s administration put the list together at the list minute. “Somebody high up — no one knows who at this point — threw out the experts’ work and instead wrote down the names of the top officials in the Russian presidential administration and government plus the 96 Russian billionaires on the Forbes list,” Åslund wrote at the time.

Why the world should care

U.S. sanctions against Russia have different levels of success, depending on who you talk to. But the Kremlin List is an exception. Those on the list are united by their wealth (assessed by journalists), not by their proximity to Putin. Many of them earn their money not thanks to the Kremlin, but in spite of it — and those who have suffered the most from the Kremlin List are the ones with the most international businesses.