War of Words Heats Up Over Prokhorov's Zimbabwegate
It's Day Three of the Great Zimbabwe Flap, and the rhetoric over a New Jersey Congressman's challenge to Russian bazillionaire Mikhail Prokhorov's purchase of the Nets is heating up. Prokhorov fired back at Rep. Bill Pascrell Jr. (D-My-Constituents-Don't-Want-to-Drive-Through-Two-Tunnels-to-Watch-the-Nets-Lose) yesterday, calling the charges that he'd violated economic sanctions against Zimbabwean dictator Robert Mugabe "erroneous," and saying that "we have no dealings whatsoever with companies or individuals on the sanctions list."
The NBA — which has already put on hold Prokhorov's approval as the new Nets majority owner (and minority owner of the planned Barclays Center arena) until the state figures out how to unchain Freddy's patrons and clear the arena site — chimed in that Prokhorov was fine in their book, issuing a statement reading in part: "U.S. companies are not prohibited from doing business in Zimbabwe; rather, they are prohibited from conducting business with specifically identified individuals or entities in that country. The NBA is aware of no information that Mr. Prokhorov is engaged in business dealings with any of these individuals or entities."
To at least one sanctions expert, though, Prokhorov's Zimbabwe dealings are far from trivial. Usha Haley, an Economic Policy Institute research associate who told the Post that Prokhorov was engaged in "sanctions-busting," tells Runnin' Scared that she doesn't buy the metals magnate's defense: "They have been working with Zimbabwe's officials that have been banned by the U.S. government — there's no doubt about that."
Haley is the author of one of the most exhaustive studies of sanctions laws to date, an investigation of the effects of sanctions against apartheid South Africa that she included in her book Multinational Corporations in Political Environments: Ethics, Values and Strategies. Her conclusion: In large part, all the divestment campaigns and government sanctions against South Africa failed, because companies were able to maintain arm's-length dealings with their old partners behind the sanctions wall. "Most of these companies said they left South Africa, but they didn't actually leave," she says. "They erected facades, putting all kinds of administrative barricades between themselves and their operations in South Africa. In spirit, they violated these sanctions. And that's what I'm saying is happening with Prokhorov — except it looks like the trail is hotter with Prokhorov."
While Haley is quick to note that she doesn't know all the details of Prokhorov's Zimbabwean dealings, she points out that Onexim, Prokhorov's umbrella company through which he plans to buy the Nets, is 50 percent owner of RenCap, a New Zealand-founded firm that has extensive investments in Zimbabwe. In this light, RenCap's defense that its CEO didn't attend the February economic forum in Zimbabwe that sparked Pascrell's attention is irrelevant, since the whole point of subsidiaries is to carry on business as usual while maintaining plausible deniability for higher-ups.
Haley says her studies show that "the only way to affect companies through sanctions is to directly hit their bottom line." By contrast, she calls the current U.S. policy towards Zimbabwe a "shotgun approach": "Mugabe and his henchmen are not complaining about the sanctions, per se. They're complaining about travel restrictions" — a sign, she says, that without stricter enforcement, sanctions will end up toothless. (TransAfrica, one of the leading advocates of South African sanctions in the '80s, has meanwhile called for lifting some Zimbabwe sanctions, saying they hurt small farmers without putting much pressure on Mugabe.)
And if it turns out that Prokhorov is a sanctions-buster, what then? The Treasury Department, which Rep. Pascrell has asked to investigate the matter, is authorized to levy heavy fines and even ten-year prison terms for violators, though monetary penalties appear to be the more common enforcement method: Last year Treasury socked companies that had ducked sanctions with $772 million worth of fines, including more than half a billion dollars billed to Credit Suisse for its role in helping Iran launder money through U.S. banks.
Even a nine-figure fine would be chump change to Russia's richest man, though (estimated net worth: $13 billion). And Treasury has no jurisdiction over the organization who really matters in Prokhorov's Nets purchase: the NBA, which has shown no indication that it intends to wait around to see what the feds say anyway, and which probably isn't going to be dissuaded from approving a cash-flush owner for one of its sad-sack franchises just because Deadspin says he "makes Donald Sterling look like George Bailey."
If Prokhorov were somehow sidelined, however, it would likely lead to the demise of the entire Atlantic Yards deal, since his cash is key to Bruce Ratner's razor-thin margins. The betting lines still have to have this as a longshot, but stranger things have killed development deals in this town.