Ukraine against the Italian steel giant Danieli: "Help Putin's rearmament". The reply: "We respect the sanctions" -

Ukraine against the Italian steel giant Danieli: "Help Putin's rearmament".  The reply: "We respect the sanctions" -

Friulian Danieli it is a silent excellence of Italian industry. The group keeps a relatively low profile, but has become a global player in the production of wrought steel and in steel processing technologies same: in the last year its turnover has exploded to over 3.6 billion euros with activities in many dozens of countries, net income nearly tripled to 219 million and employees are now just under ten thousand.

Danieli thus seems to have successfully overcome the international shocks of recent years, from the pandemic, to the return of inflation, to the war in Ukraine.

But the company doesn't just have admirers. It doesn't have any in Kiev, at least. According to Agiya Zagrebelska, head of the sanctions directorate of the National Agency for the Prevention of Corruption of the Government of Ukraine: «According to information from open sources and according to customs information, several transactions took place between Danieli and Severstal after the start of the invasion in all over our country. This information - continues Zagrebelska - they give us the basis for considering Danieli an international sponsor of the war in Ukraine». The accusation against the Italian company concerns the supply of machine tools and components for working the steel then used for the endowments of the Moscow army, starting precisely from the activities of the Severstal group.

The «creature» of the oligarch Mordashov

Severstal is a major conglomerate for the military-industrial complex in Vladimir Putin's Russia. The group is more than 75% controlled and chaired by Alexey Mordashov, 57, a fortune estimated at $21 billion at the start of the war and since February 28, 2022 subject to EU sanctions. Severstal is not directly subject to restrictive measures but the European Union legal doctrine on "best practices" on the matter, based on an interpretative document issued on 4 May 2018 by the Council of the European Union, indicates that any controlled company is to be considered under sanctions for more than 50% by a subject sanctioned (such as Mordashov). And, indeed, Severstal is not just any company. With its steelmaking business, it is a major supplier to the Russian military. It produces steel for armor, steel for military ground transportation, and General Director of Severstal's Steel Division Sergey Toropov explained in 2015 that the company also produces special steel hulls for military submarines and warships. But how much truth is there in the Ukrainian government's accusations against Danieli? In general, the Friulian group rejects the statements coming from Kiev. Says Fabio Londero, Danieli's General Counsel: «Our group has suspended all contracts with sanctioned parties such as, for example, Severstal. We are well aware of the legal and reputational consequences of our activities on the Russian market. We can only criticize a series of statements about our activity in Russia that appear, to say the least, inaccurate». Londero acknowledges that Danieli had opened a contract with Severstal in 2020, perfectly legitimate at the time, even though Moscow had already been embroiled in a low-intensity war in the Donbass for six years. But Danieli's lawyer also adds a clarification: his group does not know the destination of the steel produced by the Russian client. «We have always carried out analyzes of compliance on the integrity of the commercial counterparts - says Londero - but we cannot have the tools to control the use that is made of the raw and semi-finished products made by Severstal and sold to third parties».

The Dutch Expedition

So far the statements of principle. In concrete terms, however, the analyzes of the Council for the economic security of the Ukrainian government have brought out new details regarding Danieli. On August 10 last year, after more than five months of open warfare and more than five months after Mordashov was placed on the sanctions list, a subsidiary of the Friuli-based group has supplied Severstal with a cooling stave. The supplier company is Danieli Corus, based in the Netherlands. The product being sold is an industrial technology that cools the inner walls of a blast furnace during the melting and processing of steel. So, in this case, supplies to Mordashov's group did not stop at the beginning of the war and with the start of sanctions. Londero, Danieli's General Counsel, does not deny that the transaction between Danieli Corus and Severstal took place last August. But he adds: «The operation referred to a contract signed before the entry into force of the sanctions ed was carried out only after in-depth analyses, which led our subsidiary to believe that the shipment was compatible with European standards". In fact Danieli Corus had moved in time. Immediately after the sanctions against Mordashov on February 28, 2022, you asked BenninkAmar Advocaten, a law firm in Amsterdam, for an opinion. Who in a reply dated the following 7 March had acknowledged how the technology in question could be "dual use" (civil and military), but had concluded: "Although the provision of goods and equipment to Severstal (the cooling stave, ed) can be considered in principle as an indirect provision to Mr. Mordashov, there are valid arguments to affirm that the economic resources will not in practice be used by Mr. Mordashov or to his advantage». Based on this argument, according to the law firm, there would have been no violation of the sanctions and therefore the technology could be sold to the group that supplies Putin's military-industrial apparatus. But in its opinion the law firm BenninkAmar adds an observation: "We cannot completely exclude that the authorities decide otherwise, if the question is addressed to them - reads the document -. We therefore suggest putting the question to the (Dutch, ed.) Ministry of Foreign Affairs», warning that the authorities «are keen to choose the most cautious position». Danieli explains that he sent a request to the Foreign Ministry in The Hague almost five months later, "in the week of July 27" (which was a Wednesday) and that "the Dutch authority never provided a reply". In any case, less than ten working days later the component left for Severstal's blast furnaces in Russia.

The story of Red October

The cooling stave isn't the only piece the Udine group acknowledges having shipped to Russian firms linked to the military-industrial complex after open warfare began. On April 9, the general manager of the company Krasny Oktyabr ("Red October"), a Russian producer of special steels, addressed the issue of European sanctions in an interview with a company media. Krasny Oktyabr, as an article in the Vedemosti newspaper from 2018 explains, in fact, it produces in its Volgograd plants the special steels used for the Russian T-14 «Armata» tanks and for the Su-57 fighters. Thus Konstantin Volkov, general manager of Krasny Oktyabr, said on 11 April: «We had concerns about the continuation of cooperation with the Italian company Danieli. However, our partners - Volkov declares verbatim - have decided to continue collaborating and we have already received an offer from them for the purchase of spare parts». Here we need two clarifications and the first concerns the sources. This passage from the Krasny Oktyabr executive on Danieli's willingness to continue collaborating, despite the war, disappeared from the interview that appeared on the site "". Yet it remains in the text of the same interview published on the Krasny Oktyabr company website (the «Corriere» keeps both versions). Second necessary clarification: in any case Danieli has not violated any sanction by collaborating with Krasny Oktyabr, also because some Russian companies have learned to move in the last year to avoid falling back into Brussels' restrictions. In this case, everything happened around March 9, 2022 when, two weeks after the start of the war, the European Union entered Dmitry Pumpyansky on the sanctions list. A billionaire, close to Putin, Pumpyansky was chairman and 90.6% shareholder of the TMK (metal pipes) conglomerate that has controlled Krasny Oktyabr since 2021. It is not known whether he has also relinquished control of its shares, there are no announcements about it . But as soon as he was hit by the sanctions, the oligarch stepped down from his role in the group in order to keep it safe from Brussels' measures. Danieli does not deny having sold material to Kransy Oktyabr during the war. Says Londero, the Friulian group's lawyer: «In March 2022, the subsidiary Danieli Volga supplied the company with a standard spare part worth a few thousand euros for a damaged roller. Failure to replace the part could have caused a dangerous accident for the local operators. Moreover - adds Londero - the spare part is not among the sanctioned products, nor is the customer sanctioned». Agiya Zagrebelska, the head of the sanctions directorate of the Ukrainian government's National Agency for the Prevention of Corruption, gives a different reading: «Any kind of cooperation with the Russian military-industrial complex should be stopped - says the Kiev official -. This includes the end of any supply, even of spare parts, and the interruption of any contract and relationship, even of technical support and maintenance". Zagrebelska continues: «The crucial aspect is that Danieli, after a year of denials and apologies, recognizes this supply: this contradiction is exactly what gives Russia the ability to circumvent the sanctions and continue military production. Any supply, even if not of high technology, still facilitates military production, especially given the well-known reputation and history of Krasny Oktyabr in manufacturing for the (Russian, ed) army» (Danieli claims he does not know who the company's customers are ).

The planting of the Italians on the Volga

A peculiar aspect of this story concerns the origin of the supply to Krasny Oktyabr: comes from Danieli Volga, the subsidiary of the Italian group located in Dzerzhinsk, in the Nizhny Novgorod Oblast. It is a production site opened years ago to support supplies to Russian customers and started with 120 employees, according to the local press. Londero explains that a rapid downsizing is underway: «Danieli will suspend any further activity for new projects in the territory of the Russian Federation - he says -. Following the conflict with Ukraine and to comply with the sanctions imposed by the European Union, the company has decided to drastically reduce its activities in Russia in order to complete ongoing projects with non-sanctioned customers and for products not subject to restrictions. Following this decision - continues the lawyer of the Friulian group - the site of Danieli Volga recorded a decrease in activity of over 70% in 2022 and only trades with non-sanctioned Russian customers. Furthermore, we are evaluating a sale of the industrial activities of the Russian subsidiary». Here too, the Ukrainian representative Zagrebelska does not agree: «We are not aware of the existence of purely civilian and non-sanctioned clients of Danieli - she accuses -. Most of Russia's metallurgical industry is engaged in the military sector in one way or another.' It is by no means proven that all of Danieli's Russian customers are under sanctions, on the contrary. But as of the consolidated financial statements of June 30, Danieli Volga now has 146 employees, more than it had at the beginning. Certainly a look at the portal of the labor department of the Nizhny Novgorod region (the Corriere has a copy) shows as many as 17 different job offers from Danieli Volga on March 22, 2023: the company is looking for many profiles anything from forklift drivers to manufacturing or software engineers. Quite a few for an industrial plant whose parent company "evaluates the sale" and which in 2022 - as explained - had a 70% decrease in activity.

This article first appeared in Whatever it takes, Federico Fubini's newsletter. To register and receive it every Monday, just go here.

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