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By John Helmer, Moscow

The newest type of American bunker-busting bomb is expensive. So it’s understandable that the United States Air Force (USAF) doesn’t want a Russian to sabotage the bomb by installing steel casings which break apart before landing, or fuzes which detonate prematurely, or tail kits flying off- target, or warheads which bounce instead of bust.

On April 6, the US Treasury dropped a bunker-buster on the Russian oligarch Victor Vekselberg (lead picture, top) in an attempt to destroy the worldwide business of his Renova group of companies. The US Treasury declared  Vekselberg had been targeted “for operating in the energy sector of the Russian Federation economy.  Vekselberg is the founder and Chairman of the Board of Directors of the Renova Group.  The Renova Group is comprised of asset management companies and investment funds that own and manage assets in several sectors of the Russian economy, including energy.”

Vekselberg has also owned 26.8% of the Swiss steelmaker Schmolz+Bickenbach (aka Swiss Steel, S+B), which in turn owns all of the US steel forgings specialist, A. Finkl & Sons (aka Finkl Steel) of Chicago. Because the loss-making Swiss group was counting on the USAF bomb contract to boost revenues and profits from Finkl — it accounts for about 10% of S+B’s annual revenues — it was a sore point for the loser of the bomb contract, Ellwood National Forge Company of Ellwood, Pennsylvania,  that a Russian under sanctions might get his hands on the bomb deal, and even on the bomb itself.

So Ellwood, a privately owned company, protested to the General Accountability Office (GAO) in Washington, the government spending watchdog, that Finkl should be disqualified. Eight weeks after the contract had been signed, the GAO and USAF agreed with Ellwood, and announced Finkl’s contract was cancelled.  According to an August 30 letter to S+B, “the Air Force … has determined that Finkl is a US company that is under FOCI [foreign ownership control or influence]. Therefore, Finkl is non-responsible and ineligible for award. For this reason, on 30 August 2018, the Air Force sent a notice of termination to Finkl.” 

On June 27 the Defense Department had announced the award of almost $900 million in bunker-buster bomb builder contracts. Scroll down to the Air Force listing for the warhead contract. That was for $476.9 million to a company called the Superior Forge and Steel Corporation of Lima, Ohio; it’s privately owned and depends on bomb-making to survive. The contract value, as reported,  isn’t clear on how many 2,000-pound explosive warheads Superior Forge will deliver – not less than 300 in the first contract year, maybe 3,500 by the end of five years. In time, as many as 15,000 warheads may be built.  The number will depend on how many underground foreign cabinet rooms, presidential hideouts, general staff bunkers,  and reinforced command and control centres the US wants to liquidate  over the five-year contract period. The USAF and US military publications  call the contract “indefinite delivery/indefinite quantity”.  The down payment to start is $16.7 million

A 2015 USAF photo of a warehouse with American bunker-buster bombs, with special penetrator warheads and special tail kits, at Udeid Air Base, Qatar.  Source: https://thedefensepost.com/

On the same day in June, a contract was signed by the USAF to pay A. Finkl & Sons of Chicago $419.6 million for between 300 and 3,500 bomb casings to go with the warheads. It was another indefinite delivery/indefinite quantity deal, according to the military industry press.  Down payment for Finkl in the first year, $15 million.

Finkl is a century-old specialist in forgings of super-hard steels. On its website it doesn’t say anything about its expertise in building bomb parts. Finkl is also silent about having been bought out in 2007 by Schmolz+Bickenbach. At the time, S+B announced   its biggest investment was in new steel works at Finkl, but neither the takeover price for Finkl nor the cost of the Chicago investment has been reported to shareholders in the S+B reports. Finkl told the press at the time of the takeover it was going for “an undisclosed price”. 

The profit margin on bunker-buster bomb forging is much greater for Finkl and S+B than mining drills, tools and dies, the traditional product lines of the American group. The more urgent the USAF need for bombs, the bigger the Finkl margin. It isn’t known how much Vekselberg knew of this; since the US sanctions were imposed he and the Renova group don’t comment on American sanctions.   

The urgency of the bomb contract is North Korea. As one US military industry report claims, the bunker-busters are “an essential component of any strike against North Korea, including a limited operation to try and neutralize its ballistic missile and nuclear weapon capabilities, as well as missions against other potential adversaries with extensive subterranean military infrastructure, such as Iran or China.” A wee problem, according to the US experts:  “If the fuze detonates the bomb’s main explosive charge too early, or fails to function at all, it is unlikely to cause the desired damage. At the same time, building such a system that can withstand the shock of falling from high altitude and then slamming through multiple layers of reinforced concrete or other similar barriers is no easy task.”


Source: http://www.thedrive.com/

In the published version of US targeting for several types of these bombs, there’s no mention of Russia. Vekselberg’s 26.8% stake in Finkl and S+B isn’t aimed by the USAF at Renova headquarters in Moscow or other Russian targets, at least not in the open press.

“Much of the impetus for the MOP [Massive Ordnance Penetrators] program in the first place appeared to be Iran’s push to bury its nuclear enrichment infrastructure deep underground to protect against an American or Israeli pre-emptive strike. The regime in Tehran has only expanded those construction projects, having now built large subterranean facilities to house its missiles, as well. China has also increasingly turned to tunnels as a way to mitigate the threat of a short- or no-notice aerial or missile strike on key facilities and weapon systems. The People’s Liberation Army’s Second Artillery Corps, the Chinese government’s name for its land-based nuclear forces, alone has a tunnel network stretching more than 3,000 miles, which the country’s state media has termed an ‘Underground Great Wall,’ while the People’s Liberation Army Navy notably built a large submarine base underneath a portion of Hainan Island in the South China Sea.”

It wasn’t until Finkl’s forging rival Ellwood alerted the command bunker of the bomb industry in Washington that the USAF guessed that under the influence of the Russian oligarch the bomb might be turned against Washington itself. According to Ellwood, Finkl was owned by Schmolz+Bickenbach, a public shareholding company listed on the Zurich Stock Exchange; its current market capitalization is 718 million Swiss francs ($739 million), less than half what it was in 2014. The shareholding of the company is public: Vekselberg is reported by the company as owning 11.34% through his Cayman-registered Columbus Trust, and another 1.25% through his Renova Innovations Technologies Ltd. unit. Also, until the US sanctions were announced in April and before Vekselberg began divesting, Liwet Holding AG, based in Zurich, was a subsidiary  of the Renova group. So counting the additional stakes which the associated units hold in S+B, the total Russian stake amounted to 26.76%.

Source: https://www.schmolz-bickenbach.com/

In Russian corporate practice, Vekselberg’s direct and indirect shareholding of just over 25% of S+B is enough to block the company’s board from having Finkl drop a bomb on Vekselberg. It isn’t enough to direct Finkl to drop a bomb on anyone else. 

According to the US statute which regulates foreign ownership, control or influence (FOCI) of these things, “a U.S. company is considered to be under FOCI whenever a foreign interest has the power, direct or indirect (whether or not exercised, and whether or not exercisable through the ownership of the U.S. company’s securities, by contractual arrangements or other means), to direct or decide matters affecting the management or operations of the company in a manner that may result in unauthorized access to classified information or may adversely affect the performance of classified contracts.” When S+B bought Finkl in 2007, it was cleared to do so by the board of US intelligence, security and investment agencies known as the Committee on Foreign Investment in the US (CFIUS). A similar CFIUS process in 2007 authorized Roman Abramovich’s steel company Evraz to buy a steelmill in Oregon state which produces plate for US Army tanks. 

Co-owners of Oregon Steel, Alexander Abramov (left) and Roman Abramovich (right). Centre, Anatoly Chubais, the Russian government official protected by US governments since 1992, and  the only head of a Russian state company not to be designated by the US Treasury’s Office of Foreign Assets Control.  

Abramovich, who has been very close over the years to President Vladimir Putin, has not been targeted by US sanctions; Vekselberg has been in conflict with Putin more than once. Circumstances change, and the US regulations for FOCI allow the possibility that US intelligence may discover things about Vekselberg which it hasn’t about Abramovich, or about the difference between the steel for bunker-buster bombs and the steel for tanks. According to the US law on FOCI,  “changed conditions, such as a change in ownership, indebtedness, or a foreign intelligence threat, may justify certain adjustments to the security terms under which a contractor is cleared or, alternatively, require the use of a particular FOCI mitigation or negation agreement. Depending on specific circumstances, DSS [Defense Security Service] may determine that a contractor is no longer under FOCI or, conversely, that a contractor is no longer eligible for an FCL [Facility Security Clearance]”.

The US regulations allow many options for protecting Finkl’s bomb-making plants from Vekselberg’s 26.76% of S+B in Zurich, and mitigating his influence, while continuing the USAF contract. Ellwood preferred, and the Pentagon agreed, to cancel the $419.6 million contract altogether. Ellwood will now have a fresh shot at the bomb and the money.

S+B has declared it may appeal. “We want to highlight that the US Government did not cancel the contract due to Mr Vekselberg’s holding in S+B but simply because Finkl Steel is owned by a Swiss Group and therefore seen as a company under foreign ownership, control, or influence (FOCI). For us, this is a very important difference.”  The company is also claiming “there would be very little impact to the business because the award was not built into any forecast. Actual [revenue] from the award was expected to be minimal in 2019 and to begin ramping up in 2020. In parallel, we continue to pursue a number of additional growth initiatives in the defense sector as well as several other industries to drive the business forward.”

The Swiss financial establishment isn’t as sanguine. “FOCI [foreign ownership control or influence] isn’t the right four-letter word for what is happening,” comments a Swiss banker. “The US Government’s laws and rules oughtn’t to apply abroad like this but they do. It’s clear here in Geneva, as it is in Moscow and London — the US is at war with Russian business. It aims to destroy whatever it can. It expects US allies in Europe to follow suit. The message is the Swiss must cut ties with Russian business, or the Americans will do it for us – and do it to us.”


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