Mining company alleges arrangement with Rusal subsidiary would have benefited Putin allies Oleg Deripaska and Viktor Vekselberg

Rio Tinto says it would have breached sanctions and illegally increased the wealth of two Russian oligarchs if it had not taken the dramatic step of cutting a Russian corporate giant out of a major Queensland alumina operation.

The Australian government’s sanctions against Russian billionaires Oleg Deripaska and Viktor Vekselberg, both allies of the Russian president, Vladimir Putin, prompted a swift response from the Australian mining giant earlier this year.

Both Vekselberg and Deripaska hold interests in Rusal, the Russian aluminium giant, which partnered with Rio Tinto to operate an alumina refinery in Gladstone, Queensland; Rio Tinto is a major employer in the region and a significant contributor to the state’s economy.

Fearing the arrangement would put it in breach of the Australian sanctions, Rio Tinto froze out Rusal’s subsidiary – a British Virgin Islands-based company named Alumina and Bauxite Company (ABC) – from the Gladstone operation.

The move triggered a lawsuit from Rusal’s subsidiary, which asked the federal court to restore its rights and privileges under the joint venture deal. It told the court it had “ringfenced” its operations to ensure that Deripaska and Vekselberg did not stand to benefit from ABC.

It also said it told Rio Tinto that it would “not supply or sell alumina to the Russian Federation” and was “not taxable in the Russian Federation”.

“In these circumstances ABC is not subject to the Personal Sanctions or the Export Sanctions,” the company said in its court filing.

The deal between Rusal and Rio Tinto saw the Gladstone refinery used to process bauxite into alumina. Rusal’s subsidiary delivered about 20% of the bauxite the refinery needs to make alumina, and the Russian operation got an equal share of the alumina output in return, which it then sells.

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In a defence filed earlier this month, Rio Tinto alleged that, if that arrangement had continued, it would “have made the Gladstone plant directly or indirectly available for the benefit of Mr Deripaska and Mr Vekselberg”.

“By the Gladstone Plant’s use, alumina would have been able to be produced and traded which would enhance the value of Mr Deripaska and Mr Vekselberg’s interests in ABC, Mr Deripaska’s blocked account … and/or Mr Vekselberg’s interest in the trust arrangement,” the company’s defence said.

“If [the joint venture company] loaded shipments for ABC of alumina that had been processed at the Gladstone Plant, it would have made alumina directly or indirectly available for the benefit of Mr Deripaska and Mr Vekselberg.”

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Rio Tinto used a “trigger” related to sanctions, contained in its joint venture agreement with Rusal, to freeze the company out of the Gladstone refinery operation.

In court documents, the Rusal subsidiary said the trigger’s use was “invalid”, because the activities of Rusal, ABC and their affiliates were not directly affected by the sanctions.

The company also said it had no plan to make assets “directly or indirectly” available to Deripaska or Vekselberg.

“Neither person will receive any dividend or right to a dividend from ABC in respect of ABC’s operations, and the revenue that ABC receives from supplying alumina to ABC will be received by ABC alone,” it said.

Both Rusal and Rio Tinto were approached for comment.