Kremlin Tries to Minimize Sanctions Damage and Maintain Control Over Alrosa
May 25, 2023
  • Nikolai Petrov

    Independent scholar
Nikolai Petrov takes Alrosa, one of Russia’s biggest commodity companies, to show how sanctions are forcing the Kremlin to make certain personnel decisions and change its tax policy.
Sergei Ivanov Jr, whose father is one of Putin's closest associates, has stepped down as CEO of Alrosa, the world's largest diamond miner, most likely because he is on Western sanctions lists.
Source: Wiki Commons
On May 15, Sergei Ivanov Jr stepped down as CEO and chairman of Alrosa, the largest diamond miner in the world. This was a more important event than it might seem at first glance.

The now-former CEO is the son of one of Putin’s closest associates, Sergei Ivanov Sr, the only permanent member of Russia’s Security Council who is included in a personal capacity, not because of the office he holds. Ivanov Jr is one of the main “princes,” as the children of the Putin elite who hold important positions in the state administration and quasi-state businesses are sometimes called.

Ivanov Jr, who is now 42 years old, became vice president of Gazprombank at 24 before rising to deputy chairman three years later. In 2011, he headed the board of SOGAZ, the country’s largest insurance group, which is close to Gazprom and the Kovalchuk brothers, who are part of Putin’s inner circle. He was then named as senior vice president at Sberbank in 2016. Finally, he was tapped for the Alrosa job in March 2017.

Ivanov Jr’s departure is early – his contract ran through the spring of 2025 – but not unexpected: the first reports about him leaving appeared in early December 2022. According to Telegram channels, Ivanov Jr could be going to the private equity firm Volga Group of Gennady Timchenko, another member of Putin’s circle, though nothing has been officially announced about where he will go next.

Alrosa’s special status

The reason for Ivanov Jr’s departure from Alrosa is the sanctions imposed by the US Treasury on the very first day of Russia’s invasion of Ukraine, February 24, 2022. The document names both Ivanov father and son as one of the “families close to Putin.” Ivanov Sr was said to be “reportedly one of Putin’s closest allies,” having previously served as chief of staff, deputy prime minister and defense minister while currently being a permanent member of Russia’s Security Council.

Subsequently, Canada, Australia and the UK imposed sanctions on Ivanov Jr.

The same US Treasury document also lists Alrosa, against which additional sanctions had been adopted in April 2022 by the US and UK. The EU did not join these sanctions because of Belgium, the largest importer and cutter of Russian diamonds. Antwerp is home to the world’s largest diamond exchange, and sanctions against the Russian diamond sector could cost Belgium thousands of jobs.

Apparently, it was decided that at the head of Alrosa, which is geared almost entirely toward the global market, it is better not to have a person under sanctions. A switch was not made earlier probably just because there was no urgency – Alrosa has not come under EU sanctions.

A ‘regional’ instead of a ‘federal’ to skirt sanctions

On May 17, the Alrosa supervisory board, headed by Finance Minister Anton Siluanov, approved Pavel Marinychev as the new CEO and chairman. Since 2016, he had headed Alrosa’s subsidiary Almazy Anabara, before which he had served as first deputy prime minister of Sakha-Yakutia, where he oversaw, among other things, issues of geology and subsoil use. Thus, instead of a federal official, Alrosa is now headed by a regional one.

Alrosa is the main taxpayer in Sakha, which owns a third of the company’s shares (25% are held by the region and 8% by districts, called ulusy). Another third of the shares are held by the Russian federal government, with the other third in free float (owned mostly by European and US investment funds). It is very important, therefore, that a representative of the core regional elite is now heading the company. (Note that initially, six months ago, when information about Ivanov Jr’s upcoming departure first appeared, it was a federal official, Alexei Moiseev, the deputy head of the Ministry of Finance who has been a member of the Alrosa supervisory board since 2018, who was seen as the main candidate.)
It seems that the appointment of the “regional” Marinychev is not so much a gesture of Moscow toward Sakha as a cover operation, a tactic to skirt sanctions.
An Alrosa diamond processing plant in Nyurba (Yakutia). Source: Wiki Commons
Only later will it be possible to fully evaluate the substance of the operation, though some important components are visible even now.

Federal control with a regional manager

Alrosa was once a regional company, but in 2008, after a long standoff between Moscow and regional authorities and serious popular unrest, it came under federal control. Under Ivanov, as part of this “federalization,” the management was moved from Sakha to Moscow and Novosibirsk, while the company expanded into Africa – Angola and Zimbabwe.

Now, technically, “regionals” are again at the helm, though Alrosa is too important a resource, and the Kremlin will not relinquish control over its management.

Back in December 2022, when the first information about Ivanov’s impending departure had just appeared, Putin signed a law that would split the mineral extraction tax (MET) paid by Alrosa from March 10 to May 10, 2023, with 46% going to the federal government and the other 54% to the region.

This law required changes to the Tax Code, as previously all MET revenues went to the region. The change also meant that the tax burden for Alrosa for extracting natural diamonds on all its properties in the period from March to May was implicitly increased by RUB 9.5 billion a month, or RUB 19.0 billion total. This was a one-time tax on commodity companies to help reduce the federal budget deficit.

At that time, Putin also signed a decree authorizing transactions with 51 million common shares of Alrosa (0.7% of the capital), which was seemingly intended for Ivanov Jr personally as a “golden parachute.”

Alrosa will certainly remain a financial resource for the Kremlin – its 2021 estimated revenues from diamond exports amounted to $4 billion. In addition, it is a serious geopolitical resource given its active presence in the West, India and Africa. Among other things, this could make it a good platform for influence and espionage operations. Overall, during the period that Ivanov Jr was in charge, the necessary infrastructure seems to have been built, which can be maintained under the current, nominally regional leadership.
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