Australia’s plodding action against Putin’s oligarchs

Assurances about the Australian response to the war in Ukraine can offer the impression of action when the reality is very different inside the machinery that has to maximise pressure on Russia if the conflict is to end. The wheels are turning too slowly in a Western political system that is being forced to adjust to the brutality of Vladimir Putin after years of thinking, foolishly and complacently, that he could be contained.

And the daily fodder of domestic politics, like Scott Morrison chipping Anthony Albanese about his weight loss, is a poor distraction from an emergency that tests the federal government’s ability to make hard decisions fast.

Illustration: Simon Letch Credit:

The results suggest the government is wholly unready to act on the Prime Minister’s language this week about sanctions on China if it aids the Russian invasion – a step with enormous consequences for the Australian economy compared with the modest exposure to Russian business. Could the government really impose sanctions on people implicated in the Xi Jinping regime if their interests stretched from resources to property and finance? Perhaps. But it would be slow, complex and costly.

The fate of two Russian oligarchs, Oleg Deripaska and Viktor Vekselberg, proves the point. Three weeks into an invasion that alters every calculation about global power, with horrific war crimes that are almost certain to grow worse, the government has been scrambling to decide what to do about these two Russian billionaires with big stakes in Australia.

Only in the past few days, when the media stepped up questions, has there been the slightest hint from Canberra that it would do something about the two oligarchs and their stake in a Queensland refinery that gives its Russian investors the right to 600,000 tonnes of alumina every year.

Morrison wants to toughen the measures against Russia and he heard a direct appeal for greater action when he spoke to Ukrainian Prime Minister Denys Shmyhal on Wednesday night. The message from Kyiv: “Increase pressure and sanctions.” Yet the government has been shockingly slow to do this in the one arena where it has the most leverage.

Oleg Deripaska made his fortune by assembling the assets of old state enterprises into a mining giant, Rusal, that makes about 6 per cent of the world’s aluminium. Viktor Vekselberg also started with Soviet aluminium refineries and moved into oil and gas with a conglomerate, Renova, that gave him a net worth of more than $10 billion last year.

Both prospered while Putin tightened his control of Russia. The diplomatic cables revealed by Wikileaks more than a decade ago show that United States diplomats knew how much Putin relied on Deripaska, in particular. A cable in 2006 said he was “among the two to three oligarchs Putin turns to on a regular basis” and was a “permanent fixture” on his overseas trips.

The Australian exposure to these two oligarchs is no secret. Deripaska controls 56.9 per cent and Vekselberg controls 32 per cent of Rusal. Their company has been in a joint venture with Rio Tinto for years. Rusal is the junior partner in the 80:20 ownership of Queensland Alumina Limited, which operates the refinery in Gladstone.

While it is the minority shareholder, Rusal gets the rights to one-fifth of all the alumina produced from this refinery. The astounding thing, three weeks into the war, is that nobody from the government or the industry has confirmed that alumina from Queensland has stopped going to Russian investors.

The warnings about these oligarchs are not new. The US imposed sanctions on Rusal in 2018 because of Deripaska’s links to Putin, although it withdrew them within a year when he seemed to step back from the company. The stake in the Queensland refinery should have been on the radar at the Department of Foreign Affairs and Trade well before the invasion on February 24.

The Australasian Centre for Corporate Responsibility warned about the two billionaires in a statement on February 28, but there was silence from the government. This masthead asked the government about them at 1.23pm on Monday and received a boilerplate reply at 5.37pm on Tuesday: “sanctions considerations are continuing”.

The Foreign Affairs Minister, Marise Payne, was acting on other fronts: she announced legal action against Russia over the downing of Malaysian Airlines Flight MH17 on Monday afternoon and also imposed more sanctions on key individuals this week. She announced sanctions on 33 people, including Chelsea Football Club owner Roman Abramovich, Gazprom chief Alexey Miller and Bank Rossiya chief Dmitri Lebedev.

Russian President Vladimir Putin, left, and Russian metals magnate Oleg Deripaska, right.Credit:

But none of those Putin cronies has interests in Australia that we know about. The hard decision for Payne and Morrison was whether to take the lead against those with stakes in Australian resources. The objective should have been to move fast.

The alumina refinery is not the only resources project with links to one of these oligarchs. Vekselberg owns 16 per cent of a company in Ireland and Canada, Falcon Oil & Gas, which in turns holds 22.5 per cent of a joint venture with Origin Energy to develop gas in the Beetaloo Basin in the Northern Territory.

The Falcon issue is more complex because the oligarch has a minority stake in a foreign company with a minority stake in a project that is yet to produce anything. The government can name Vekselberg but this does not mean a sanction on Falcon. The assumption, so far, is that he does not control the company.

The government points to the sheer complexity of the Deripaska and Vekselberg interests to explain why it has taken so long to single them out when so many other individuals have been sanctioned. One reason, say those involved, is that it had to make sure the sanctions did not lead to problems at Queensland Alumina Limited that might hurt local jobs.

Even so, Morrison is the one talking tough about the potential for further penalties on those who help Russia wage war.

“Is there potential for sanctions on China for its silence?” a journalist asked on Wednesday.

“Well, we will move in lockstep with our partners and allies on these issues, and the US has made some very clear statements about this and we support those statements,” Morrison said.

The test, however, is how quickly the government could act. And the answer, unfortunately, is not very fast.

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