Russian companies struggling with the impact of Western sanctions are adopting a tried-and-true tactic from their Western counterparts – they are hiring powerful lobbyists to work behind the scenes.
Russian Minister of Foreign Affairs Sergey Lavrov (right) and President of Russia's Rosneft oil company Igor Sechin. Photo: RIA Novosti
The latest Russian company to hire lobbyists in the U.S. or Western Europe to protect its interests from economic sanctions is oil giant Rosneft. The Wall Street Journal recently reported that Rosneft has hired the London firm Zaiwalla & Co. This firm was probably chosen because, in the past, it has successfully defended the interests of a large Iranian financial institution, the Mellat Bank, which had fallen victim to Western sanctions.
This kind of lobbying by Russian companies (not within the power circles of Russia, but outside the country) is a relatively new development. In addition to Rosneft, Russian enterprises such as Gazprombank and the independent natural gas producer Novatek have also lined up lobbyists to make their case.
Advocates of Gazprombank now include two retired U.S. senators – John Breaux and Trent Lott. Gazprombank, in particular, was included in the list of Russian companies that had limits imposed on their access to loans and acquisition of modern technologies. The former senators will defend the interests of Gazprombank in the banking legislation and regulations sphere. As it is stated on a website of the U.S. Congress dedicated to lobbying by foreign representatives in the United States, the activities of Breaux and Lott are related to the adoption of sanctions against Russia.
Novatek, which also came under U.S. sanctions, signed a contract with the U.S. lobbying firm Qorvis MSL LLC. This firm, like the London-based Zaiwalla that was hired by Rosneft, has the reputation of a company that has been able to solve some “tough cases.” Among those who turned to this firm’s services in 2012-2013 was the Embassy of Bahrain, the governments of Guinea and Fiji, the regional government of Kurdistan, and the Embassy of Saudi Arabia.
Russian companies that have chosen to lobby their interests in the West may have been inspired by the local success achieved in the U.S. by the manufacturer of Proton rockets – the Khrunichev Space Center. This organization was able to avoid sanctions by resorting to the services of professional lobbyists.
Due to newly imposed sanctions, the Khrunichev Space Center was unable to acquire in the U.S. electronic components for its satellites. This situation was complicated by the fact that the U.S. space agency NASA had ceased nearly all contact with the Russian Federal Space Agency (the only cooperation was work on the International Space Station). This situation made it impossible to automatically launch the Proton from the Baikonur Cosmodrome.
That is when a subsidiary of Khrunichev in the U.S. – the International Launch Services (ILS) – signed an agreement for lobbying services with The Madison Group, which specializes in high-tech industries, trade and transport.
After nearly four months of work, the American lobbyists got their way – the ban imposed on the sale of components for satellites was removed from the sanctions list. The representatives of ILS say that a worst-case scenario was avoided, only thanks to the help of American professionals at The Madison Group. Those professionals were able to convince the people who make important decisions in Washington about the importance of the Proton for commercial launches worldwide. This was done in the usual way for lobbyists – they arranged several meetings with specific people in the White House and the U.S. Congress.
Lobbying in the West for Russian companies is a new phenomenon. The USSR, as we all know, had never turned to the services of Western PR agencies. Historians tell us that Tsarist Russia engaged the services of American lobbyists to sell Alaska in the nineteenth century. As to how well advised this transaction was, this is still being hotly debated, but the fact remains – the American lobbyists coped well with their task and within the given timeframe.
In modern Russia, the first person who began to hire law firms in the West was the prominent Russian oligarch Vladimir Gusinsky. However, this happened only after the media tycoon and banker had left Russia. Moreover, the connection of Gusinsky with the Washington law firm Akin, Strauss, Hauer & Feld, which defended the interests of Media-Most, created a scandal in the U.S. capital in the 2000s.
Back then, Dimitri Simes, director of the Nixon Center, said that Gusinsky was hiring former ambassadors for an anti-Russia campaign. He was answered in an open letter by the former U.S. ambassador to the USSR, and later Congressman, Robert Strauss, who said that such an accusation of his participation in an anti-Russia campaign was tantamount to “slander.”
What can be achieved by engaging in lobbying activities by current Russian companies, public or private, that have fallen victim to U.S. and EU sanctions? We’re about to find out.
“Yes, Rosneft is public company, but it still has a right to defend its interests in the legal and judicial sphere,” the Russian news agency FederalPress was told by Andrey Gorodetsky, deputy director of the Institute of Economics, Russian Academy of Sciences (RAS). “Today, the main question is the legality of the sanctions. There is a special status and procedure for the introduction of international sanctions as a tool of the United Nations, designed to avert wars. When sanctions are imposed privately by individual countries, it at times looks like a kind of means of competition and geopolitical struggle, developing into an economic war.”
According to Gorodetsky, behind the current sanctions against Rosneft are the competitive interests of the United States, which is interested in supplying shale and natural gas, and therefore the legitimacy of such measures seems very doubtful.
At the same time, Gorodetsky suggests that, “If Rosneft is able to defend its interests in the European courts, then this experience will encourage other Russian companies to work on protecting their businesses, and legally fight the sanctions.” “Global competition today is extremely acute, and very tough methods of struggle are being used on the international market,” he says. “Today we must operate in the legal field; we just have to learn to fully take advantage the legitimate methods of dispute resolution.”
However, in Russia, Rosneft’s decision to turn to a London law firm as a means of last resort raised some challenging questions – not about the efficacy of the move, but about its morality. According to the Russian media, the company is willing to spend on the services of lawyers in London 17.7 million pounds sterling ($28.3 million). Yet, at the same time the company was turning to the British firm for help, Rosneft had officially asked Russian authorities for assistance in the amount of 2 trillion rubles ($47.6 billion) from the National Welfare Fund.
The head of Rosneft, Igor Sechin, tried to explain in detail how he was going to spend the money from the Fund. According to him, this money – if Rosneft ever does receive it – will be invested into offshore projects in the Far East and Eastern Siberia. With that, he stressed that his company’s oil and gas resources on the shelf amount to approximately one-fifth of the entire reserves in the world. According to Sechin, any state support given to Rosneft will have a positive impact on the Russian economy as a whole.
The rating agency Moody’s does not agree with him. According to the agency’s vice president, Thorsten Nestmann, if the Fund provides the oil company with a subsidy, it could lead to another downgrade of Russia’s debt rating. Incidentally, Mr. Sechin did not leave this statement without an answer. He predicts the possible closure of European oil refineries, which will suffer from the fact that the West imposed sanctions on Rosneft.