January 21, 2019

IPG CEO sues U.S. Treasury over Russian oligarch list

Photo | Courtesy
Forbes moved Valentin Gapontsev from its Russian billionaires list to its American billionaires list after the U.S. Treasury allegedly used the former to label Gapontsev as a Russian oligarch.

The Russian-American billionaire founder and chief executive of Oxford-based IPG Photonics is suing the U.S. Department of the Treasury for listing him as a Russian oligarch.

That designation could eventually freeze Valentin Gapontsev's assets or block him from being in the country.

"Dr. Gapontsev's wealth comes from his invention of market-leading industrial laser technologies, not from any corrupt parceling out of public assets to cronies of President Putin," the December court complaint said.

The Treasury, at the behest of Congress, compiled a list of Russian oligarchs and political operatives last year to comply with a law imposing sanctions on Iran, North Korea and Russia.

That law, Countering America's Adversaries Through Sanctions Act of 2017, required a report on the effects of imposing sanctions on Russian businesses in the U.S. with close ties to Russian President Vladimir Putin and the Kremlin.

Gapontsev, a Worcester resident, says in a 33-page complaint he does not belong anywhere near that list.

The list compiled by the Treasury simply copied the list of Russian billionaires from a March 2017 issue of Forbes magazine, Gapontsev alleges.

Forbes has since removed Gapontsev from that list, and he is now listed as an American billionaire because his residence, company and wealth are based in the U.S.

According to the complaint, the company's customers and financial institutions have begun questioning whether they should continue to do business with IPG.

"At least one counterparty stated they assumed that IPG Photonics, due to its founder, CEO, and substantial owner's designation as a Russian oligarch by the Secretary, is effectively disqualified from doing business with U.S. persons and corporations," the complaint said.

Most affected is the company's small but growing business with U.S. government contractors.

Now, the government and contractors have told the company "they believed they could no longer with with IPG Photonics" due to Gapontsev's inclusion on the list.

The complaint details how Gapontsev, born in the Soviet Union and raised in Ukraine, worked at the Soviet Academy of Sciences to research fiber-based lasers and amplifiers.

After publishing a scientific paper, an Italian telecommunications company contracted with Gapontsev's company, dubbed STC IRE-Polus Partnership, to develop a high-powered erbium fiber amplifier. That is credited as his first major breakthrough and was not funded by the Russian government, the complaint notes.

In 1997, Gapontsev's products were qualified for use in BellSouth, a U.S.-based telecommunications company for a fiber-optic network.

It was then Gapontsev established IPG Photonics and opened its Oxford headquarters after a $100 million in private equity investments from U.S.-based TA Associates and Merrill Lynch, which took a minority ownership in the company.

It was scientific innovation, hard work and contracts with western corporations that drove Gapontsev's wealth, he said.

According to the complaint, Russian entities are far from being the company's biggest customers.

"By region, 44 percent of the company's sales are to companies in China, 12 percent of the company's sales are to companies in the United States, 8 percent of the company's sales are to companies in Germany, 21 percent of the company's sales are to 'Other Europe,' and 15 perecnt of the company's sales are to 'Other Asia.' Of this 15 percent, approximately 2 percent of total sales were in Russia," the suit alleges.

Notably, some other customers include government contractors Lockheed Martin and Boeing.

The physicist says he has only met Putin once, in 2011, while receiving an award for scientific achievement by a Russian. But it was the U.S. and other countries he credits with his success.

"Dr. Gapontsev is the polar opposite of a Russian oligarch," the complaint said. "He had no friends in high places in the Russian government. His wealth came exclusively from his individual scientific innovation and global market demand for his unique products. He is not a 'Russian oligarch.'"

The suit charges Department of the Treasury Secretary Steven Mnuchin as a defendant, and summons include him, the Treasury, and the U.S. Attorney General's office.

The case, however, is on hold, with Congress and President Donald Trump failing to agree on a government funding package.


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