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He’s ‘oligarch’ No. 27. He Just Wants to Be Left Alone

August 12, 2018

By Steven Mufson

The Washington Post

OXFORD, Mass. -- Valentin Gapontsev, 79, is a laser physicist. He has been a U.S. citizen for 10 years. And he is chief executive and founder of IPG Photonics, a fast-growing company that makes specialized lasers and employs nearly 2,000 people in the United States, most on a large campus in this small town in south-central Massachusetts.

He is also No. 27 on a public list of 96 Russians that the Treasury drew up in January for a Congress that was unsettled by Russian interference in U.S. elections and searching for potential sanctions targets.

Gapontsev says he doesn’t belong on that list -- which was identical to a Forbes magazine list of Russian billionaires published in March 2017. The Treasury version is commonly known as the oligarchs list, and the Treasury says there’s no way to be removed from it.

While Russian oligarchs are enormously wealthy, and many are close to Russian President Vladimir Putin, not every wealthy business executive is an oligarch or politically influential.

“They just took the Forbes list. They match,” said Anders Aslund, a Russia expert and senior fellow at the Atlantic Council. “This is a completely nonserious list. It includes all the billionaires in Russia from a certain period. Many strongly oppose Putin. Many have been living abroad for a long time.”

Yet members of Congress are using the list as a tool for applying pressure on the Kremlin. Targets could be banned from entering the United States, and their assets could be frozen. A letter-writing initiative by lawmakers aims to get financial institutions to identify the assets of people on the list as another form of leverage that could make banks skittish about doing business with them.

Gapontsev’s inclusion shows the difficulty of locating pressure points while punishing Russia for interfering in the 2016 elections or for annexing Crimea in 2014, sanctions experts say.

“That list is an embarrassment to the U.S. government,” said Ambassador Daniel Fried, a retired Foreign Service officer who coordinated anti-Russian sanctions in 2014 after Moscow’s annexation of Crimea. “It was done so sloppily that there can be no reasonable defense of that list.”

Innovator among operators

Gapontsev says his story differs from those of Russian oligarchs. Many of them bought Soviet-era assets at low prices soon after communism fell. They thrived in oil, steel and other commodities that still underpin the Russian economy. A few of those who could navigate that turbulent era have grown rich, powerful and influential with the Kremlin, though they are not necessarily innovators or inventors or even smart marketers.

Gapontsev, by comparison, earned his doctorate and worked at the Moscow Institute of Physics and Technology. In 1990, at 51, he started his own business, IPG Photonics, which produces high-power, fiber-optic lasers for telecommunications and for cutting materials. He also opened facilities in Burbach, Germany.

But he soon moved the firm to the United States, then his biggest market. BellSouth was one of his main customers. He raised $100 million of private-equity investments from Merrill Lynch and Apax Partners.

The technology bust in 2001 nearly killed the company, but its revenue in 2017 soared 40 percent to $1.4 billion. Now it’s in the Standard & Poor’s 500-stock index of biggest U.S. companies, even though today 89 percent of its sales are outside the United States. Some of its customers include Mitsubishi Electric, Panasonic and General Electric. The China market is also growing rapidly.

The Treasury’s oligarchs list is an offspring of the Countering America’s Adversaries Through Sanctions Act, passed by overwhelming margins in Congress on Aug. 2, 2017, in a rare show of bipartisanship. The legislation demanded both classified and unclassified lists of “the most significant senior foreign political figures and oligarchs in the Russian Federation, as determined by their closeness to the Russian regime and their net worth.”

The Treasury says the public list was drawn up to satisfy Congress, and it focused on net worth.

“As there is not a statutory or regulatory definition of oligarch, Treasury included the $1 billion threshold as a reasonable number, which is the criteria contained in the U.S. Forbes list,” a Treasury spokesman said in an email. “The report is not a sanctions list, nor is it intended to be used as a sanctions list.”

But that’s the way Congress saw it.

Gapontsev, who along with several trusts controls about 30 percent of IPG Photonics, is worth about $2.3 billion.

“Needless to say, he was shocked to find himself on the list,” said Richard Burt, an adviser at McLarty Associates, which is registered to lobby for Gapontsev. “He never thought of himself as an oligarch or as being close to Putin.”

John Smith, who was the director of the Treasury’s Office of Foreign Asset Control until May and who has joined the law firm Morrison Foerster, said the public list was deliberately crafted to be broad enough to avoid revealing intelligence sources and tipping off the top targets.

“The difficulty was not wanting to signal or reveal names on the classified list as it put out the unclassified list,” Smith said. “It was going to be on basic objective criteria so that it would in no way reveal the classified list.”

Later, the Treasury leveled sanctions against seven people on the list and a dozen companies they control.

Congress vs. the oligarchs

Yet it’s Congress that is making Gapontsev anxious.

Sens. Marco Rubio, R-Fla., and Chris Van Hollen, D-Md., are co-sponsoring a measure called Defending Elections From Threats by Establishing Redlines (DETER) that would blacklist people on the oligarchs list from entering the United States and freeze their assets, but only those “who directly or indirectly contributed to such (election) interference.” On July 19, four more Democrats and four more Republicans agreed to co-sponsor the bill.

Separately, Sens. Jeanne Shaheen, D-N.H., and Sheldon Whitehouse, D-R.I., are asking financial institutions for information about the assets of those on the public oligarchs list.

“Given their wealth and relationship to the Russian state, many oligarchs in Russia either wield or are susceptible to considerable political influence,” they wrote.

In the House, Rep. Val Demings, D-Fla., introduced an amendment that became part of the defense authorization act that would seek “the location, size and contents of any assets of any oligarch” on the list to “further expose key networks which the corrupt political class in Russia uses to hide the money it steals.”

The cries for new sanctions could grow with the prospect of a Putin visit to the United States.

“I think Congress wanted to have some ammunition in the U.S. government’s pocket,” Smith said, “not only to deal with election interference that has already occurred but to have ready if there were further malicious activities by the Russian government.”

Recently, Gapontsev, a dual citizen, persuaded Forbes to move him to the list of American billionaires. The Trump administration hasn’t budged.

“There is not a formal mechanism for removing names from or amending the report,” the Treasury said, “nor is there a requirement or expectation that the report will continue to be updated prospectively.”

Had he been the target of sanctions, Gapontsev could go through a delisting procedure at the Treasury’s Office of Foreign Asset Control.

Elizabeth Rosenberg, senior fellow at the Center for a New American Security and a former Treasury official, said Gapontsev wasn’t the only person trying to get off the public list. Others had sent “emissaries or teams to plead their cases” with lawmakers or the Treasury.

Rosenberg said Gapontsev might have a good case, but some of the reasons he has used to get off the list haven’t worked in past sanctions cases. Other oligarchs have dual citizenships. Others have business interests in the United States. Others have distanced themselves from Putin.

‘A brilliant man’

In the hall outside Gapontsev’s office, there is a wall of black-and-white photos of “50 years of laser luminaries,” including Nobel Prize winners. One award photo shows a younger Gapontsev, who is quoted as saying, “My dream is to see lasers -- like computers -- become a tool of choice in mass production.”

Lasers convert electrical energy to optical energy. The firm focuses on fiber lasers, which deliver greater precision while using less power. IPG Photonics’ products help cut metal parts for cars and appliances, weld electric-car battery components and smartphones, go into 3-D printers, and improve solar-cell efficiency and medical care.

Gapontsev, whose English is heavily accented, has leaned on McLarty Associates to lobby the administration and key members of Congress. And John Dalton, a former board member and investor who knew Treasury Secretary Steven Mnuchin’s father at Goldman Sachs, has rallied to Gapontsev’s side.

Dalton, who was President Bill Clinton’s secretary of the Navy, calls Gapontsev “a brilliant man” who has “contributed an awful lot to this country.” Dalton says Gapontsev “has created a lot of wealth for himself and a lot of other people. It’s a success story, the American Dream kind.”

Gapontsev doesn’t describe it quite that way. His wife, he says, would prefer to live in Germany, where the company has about 1,300 employees. His son lives in Moscow.

But his grandchildren live in the United States, and he has a beach house. He likes the loyalty and camaraderie of U.S. workers. It’s still the best place to do business, he says.

Gapontsev worries about the impact of the Treasury’s actions, tariffs and immigration restrictions. “The administration will kill American high-tech companies,” he said.

Although the company has a U.S. base, IPG Photonics once held talks with Russia’s Gazprom, a state-controlled natural-gas company, about welding steel pipe in the field. But it canceled the negotiations when the United States imposed sanctions on Alexei Miller, the chief executive of Gazprom, in 2014.

He says that then-Russian President Dmitry Medvedev once asked him to move IPG Photonics’ operations to a high-tech center established in 2011 in the Moscow suburb of Skolkovo, but Gapontsev said it made no sense for his business.

He still travels to Moscow for monthly three-day visits to oversee operations at the IPG Photonics plant there. But he says the most important part of the business is in Oxford.

“We position ourselves as an independent American company,” he said. “That’s all.”

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