Israel Eyes Russian Dairy Project With Fund Under Western Sanctions

Russian Direct Investment Fund would invest $80 million in project to build facilities across Russia

Russian President Vladimir Putin speaks during a meeting with Qatar's Emir at the Kremlin in Moscow, on March 26, 2018.
SERGEI KARPUKHIN/AFP

Israel’s Agriculture Ministry, together with Environmental Protection Minister Zeev Elkin, is promoting a major project to develop dairies in Russia that would involve a Russian sovereign wealth fund that has been sanctioned by the United States, Britain and the European Union.

The Russian Direct Investment Fund, which manages $10 billion, was put under sanctions in 2014 by then president Barack Obama after Russia invaded Ukraine. Its steering committee includes some of the most powerful people in Russia, including central bank governor Elvira Nabiullina and Finance Minister Anton Siluanov.

The fund more recently attracted attention after it was revealed that Erik Prince, the founder of Blackwater private security group and campaign adviser to U.S. President Donald Trump, met with RDIF’s chief, Kirill Dmitriev, weeks before Trump’s January 2017 inauguration.

The meeting with Dmitriev is being examined by special counsel Robert Mueller. The Financial Times reported on Sunday that multiple sources close to Dmitriev said his wife is close friends with Russian President Vladimir Putin’s younger daughter.

The fund was formed in 2011, but it was inactive until 2014, when the West imposed sanctions on Russia. A source familiar with RDIF’s operations told TheMarker the fund’s mission is to circumvent the sanctions.

“This was their way of fooling the Americans, but it didn’t work,” said the source, who asked not to be identified. “From what I know of the fund, it is a mechanism that is prone to corruption, because the fund isn’t subject to the same criteria as government banks in Russia.”

The Israeli and Russian governments have been discussing the project for the past two years. It involves erecting commercial dairies across Russia each with 3,000 to 5,000 cattle.

Developing the facilities and installing the equipment would be done by the Israeli company LR Group, which would also become a partner in some or all the dairies. The animals are to be imported from the Netherlands and New Zealand. LR would invest $20 million in the project and RDIF $80 million, with the rest of the financing coming from banks.

But sources familiar with the project have said Israel shouldn’t be involved in skirting Western sanctions and are surprised that Eklin has become involved since his portfolio has no brief for the undertaking. They have also asked why the Agriculture Ministry never held a competitive bidding process to choose the contractors.

In response, the Agriculture Ministry said it was not in discussions with anyone financing the dairy project and was only holding talks with its Russian counterpart. A spokesman for Elkin said he was involved in his role as Israeli chairman of the Joint Israel-Russian Economic Committee. “The dairy project is a flagship project that the president of Russia and prime minister of Israel agreed on two years ago,” he added.