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Emigre Laser Company Chief Fights U.S. Treasury's 'Russian Oligarch' Designation

Valentin Gapontsev (right) with then Russian President Dmitry Medvedev at a Russian subsidiary of IPG Photonics in Fryazino, outside Moscow, in October 2009.
Valentin Gapontsev (right) with then Russian President Dmitry Medvedev at a Russian subsidiary of IPG Photonics in Fryazino, outside Moscow, in October 2009.

WASHINGTON -- Valentin Gapontsev is the kind of immigrant U.S. President Donald Trump’s administration has said it prefers: one who can contribute to economic growth.

The Soviet-trained scientist emigrated to the United States in the early 2000s and built a $7 billion technology firm that now employs about 2,000 high-paid specialists around the country.

Gapontsev even helps the United States chip away, slightly, at the trade deficit with China: His Oxford, Massachusetts-based IPG Photonics generates nearly half of its $1.5 billion in annual revenue from Asia’s largest economy.

For his contribution to the local community, the Oxford Business Association in 2013 presented Gapontsev with its Centennial Award, an honor it has given to only two other individuals over three centuries: Elliot Joslin, a pioneer in the treatment of diabetes, and Clara Barton, the founder of the American Red Cross.

Five years later, the U.S. citizen an industry group has called a “father of the fiber laser industry” was included in another select group -- a move that would pitch him into battle with his adopted country for 18 months.

In January 2018, the Treasury Department put Gapontsev on its list of “Russian oligarchs.”

The Treasury’s list -- requested by Congress as it sought to punish Russia for “malign activities,” including alleged attempts to meddle in the 2016 U.S. presidential election -- was close to a copy of the 2017 Forbes ranking of Russian billionaires.

Gapontsev appeared alongside people widely considered to be close to Putin, with personal ties going back to the 1990s. They include billionaires such as Arkady Rotenberg, who has won state construction contracts and whose wealth is estimated at $2.7 billion.

Troublesome Designation

If the inclusion of Gapontsev and other businessmen with no known strong ties to the Kremlin was an oversight, it’s one that has proven extremely difficult to rectify.

He has certainly tried.

Gapontsev, 80, hired a former ambassador to West Germany who negotiated a nuclear deal with Soviet leader Mikhail Gorbachev as a lobbyist. He got a former Navy secretary, scientists, members of Congress, and Massachusetts business leaders to push for his cause.

“My service as the 70th secretary of the Navy for 5 1/2 years and my additional public service taught me the importance of having a strong national economy and the significance to this country of having companies like IPG Photonics,” John Dalton, a former president and board member of IPG, wrote in a June 2018 letter to Treasury Secretary Steven Mnuchin.

Gapontsev‘s designation as a Russian oligarch “threatens the growth and profitability of that company,” Dalton wrote.

But the efforts ran up against a seemingly unbending barrier, finding himself unable to remove his name from the list because the Treasury has no mechanism in place to do so.

After the lobbying efforts failed, Gapontsev filed a lawsuit against the Treasury in December 2018, the first person to legally challenge the list.

The Treasury asked the court to throw out the case but, in a June 28 filing, the two sides said they had reached an agreement “in principle” to resolve the case.

However, it is unclear if Gapontsev’s name will be being stricken from the public list.

As a comprise, his lobbyists had proposed that the Treasury write a letter stating that Gapontsev does not meet the definition of an oligarch and that it was not contemplating sanctions against him. Gapontsev could then show the letter to concerned clients or banks, they said.

Samantha Sultoon, a scholar at the Washington-based Atlantic Council focusing on sanctions, said the law requiring the Russian oligarch list was pushed through Congress too quickly. As a result of haste, “there are now a number of legislative challenges,” she said.

IPG Photonics declined to answer questions or make Gapontsev available for an interview. His lawyers did not respond to requests for comment. The Treasury referred RFE/RL to its previous press releases on the Russian oligarch list.

Who is Gapontsev?

Gapontsev was born in Moscow in 1939 and spent his youth in Ukraine, eventually graduating from the Lviv Polytechnic Institute. He moved back to Moscow to receive his doctorate in laser science materials.

He would later work for the Soviet Academy of Sciences. It would be in a basement laboratory in the heart of Moscow that he would start a company that eventually revolutionized the global laser industry.

Lasers have largely been used by manufacturing firms to process materials, such as cutting and drilling metal, but their use in other industries continues to grow.

Gas lasers have dominated the industry while fiber lasers, discovered at roughly the same time in the 1960s, initially didn’t generate enough power to be commercially viable.

In 1990, while working for the academy, Gapontsev was the first to suggest that fiber lasers were capable of achieving power in the range of watts when “doped” with rare-earth atoms and could become a viable alternative.

In December 1991, the month the Soviet Union ceased to exist, Gapontsev formed IRE-Polus with a few thousand dollars. It would later adopt the acronym IPG.

As the Russian economy collapsed and the figures who came to be called oligarchs emerged atop its natural-resources sector, Gapontsev’s work caught the interest of European companies like Daimler Benz Aerospace, followed by U.S. telecoms giant BellSouth.

Gapontsev became a U.S. citizen in 2008.
Gapontsev became a U.S. citizen in 2008.

Seeing greater opportunities in the United States, Gapontsev established IPG Photonics in the small town of Oxford -- about 90 minutes from Boston -- in the late 1990s.

In 2000, the year he produced the first 100-watt fiber laser, Gapontsev raised $100 million to expand his business by selling new shares in a private placement to Merrill Lynch and TA Associates. It was also the year Putin won his first election as president of Russia.

With his business up and running in Oxford, Gapontsev and his family emigrated to the United States as Putin consolidated power. Gapontsev eventually became a U.S. citizen in 2008.

IPG Photonics, which trades on the NASDAQ exchange, built the first 100-kilowatt fiber laser in 2013. Its stock has risen about tenfold since its 2006 IPO, valuing the company at $7.5 billion and the net worth of Gapontsev -- who owns 31 percent of it -- at $2.3 billion.

“His personal story is an illustration of the American dream -- emigrating to the United States and then using his scientific brilliance and determination to grow his own company…into a global leader in a new technology,” Dalton said in his letter to Mnunchin.

Forbes List

Gapontsev still holds Russian citizenship and his company still has a significant manufacturing presence in his homeland with about 1,700 employees.

He has been a regular on the Forbes list of the richest Russians since at least 2011, the year he met Putin for the first time, he says, while in Moscow to receive an honorary award for scientific achievement.

The English-language version of Forbes now includes Gapontsev as a U.S. billionaire, whereas the Russian-language Forbes -- which has a different owner -- includes him as a Russian billionaire.

In March 2017, the scientist took the 53rd spot in the list of richest Russians. The same year, as IPG Photonics was scooping up other firms and bringing its first 120-kilowatt multi-mode fiber laser to market, Congress was preparing a new sanctions bill in the wake of allegations the Kremlin had interfered in the 2016 election.

In August 2017, Congress passed the Countering America’s Adversaries Through Sanctions Act (CAATSA), which targeted Russia as well as Iran and North Korea.

Among its many parts, the law required the Treasury to submit a report identifying the “most significant senior foreign political figures and oligarchs in the Russian Federation, as determined by their closeness to the Russian regime and their net worth.”

The law called for “an assessment of the relationship” between those oligarchs and Putin or his ruling elite. It also required identifying the extent of the oligarchs' corruption and the source of their wealth. Congress required Treasury to submit the report as unclassified but said it could contain a classified annex.

On January 29, 2018, just before the deadline expired, Treasury handed its report to Congress. The unclassified section simply contained the names of 96 “Russian oligarchs,” including Gapontsev. The names exactly matched the 96 billionaires on the 2017 Forbes list of wealthiest Russians. A classified annex submitted with it contained an assessment of at least some of those on the list.

According to court records, the Treasury acknowledged it “consulted” the Forbes publication when composing its own list.

Gapontsev’s lawyers argued that the department had failed to conduct the “serious inquiry” required by CAATSA for its unclassified report.

“The Secretary [of the Treasury] has published a disparaging designation of Dr. Gapontsev for the world to see but made secret all the analysis that may exonerate him,” they said in their lawsuit.

The purpose of the law was to identify “those Russian nationals who are close confidants of President Putin and have no other explanation for their vast wealth other than corrupt distributions of public assets from the Putin regime,” the lawyers argued.

Had it done a serious inquiry, the Treasury would not have listed Gapontsev, they said, contending that he does not meet the definition of an oligarch, has no close ties to the Kremlin, and built his company based on his own creations. They also pointed out that he is a U.S. citizen.

The Treasury said CAATSA only demanded a list of the wealthiest Russians and not a list of Russians that derived their wealth from Kremlin connections.

In its defense, it pointed to a U.S. sanctions law targeting Iran that specified that a list of senior political figures and oligarchs would be based on the wealth and ties to the Iranian government “of each such figure and oligarch.” CAATSA did not contain that expression.

The Treasury also disputed Gapontsev’s assertion that his U.S. citizenship should have played a role in their decision, claiming a December 2016 comment about U.S. oligarchs by Dana Rohrabacher -- a Republican member of the U.S. House of Representatives at the time -- “apparently encompasses Gapontsev.”

“We have oligarchs in the United States. Many of them happen to be technology developers, okay, they came up with a new type of technology, they earned billions of dollars on it,” Rohrabacher, who has repeatedly praised Putin and called for closer ties with Russia, told a hearing dedicated to corruption in Europe and Eurasia.

At the same hearing, however, Rohrabacher said “we can’t just say because someone has a lot of money, that they are an oligarch, which then says that they are evil in some way."

And that is at the heart of Gapontsev’s lawsuit -- the claim that being called a “Russian oligarch” can damage an individual’s reputation and business in the United States.

‘No Process Available’

His lawyers contended that the label has caused customers and potential clients -- including the U.S. government -- “to believe they cannot deal with Dr. Gapontsev or IPG Photonics” though they gave no specific examples of the company losing any deals.

The Treasury, in its defense, said it clearly stated that the oligarch list “is not a sanctions list” and that inclusion does not create “any other restrictions, prohibitions, or limitations on dealings with such persons by either U.S. or foreign persons.”

Furthermore, the department said it couldn’t remove Gapontsev from the list even if it considered his argument valid because Congress did not give the “oligarchs” the right to sue under the law.

“Nowhere in the statute did Congress create any cause of action -- much less any private right to sue or any private remedy that would be available upon suit -- that would permit an individual to litigate an alleged violation of CAATSA,” the Treasury said in its response.

Gapontsev’s lawsuit was filed following about 10 months of high-powered, behind-the-scenes lobbying.

Members of Washington-based government relations firm McLarty Associates -- including Richard Burt, the U.S. ambassador to West Germany from 1985-89 and chief negotiator for the 1991 START nuclear-arms reduction pact with Moscow -- frequently contacted Treasury and State Department officials to plead Gapontsev’s case.

In a declaration, Burt said Treasury officials told McLarty and Gapontsev’s lawyers “that there was no administrative process available…to challenge the secretary’s decision to designate Dr. Gapontsev as a Russian oligarch and that there was no mechanism by which plaintiffs could administratively request to have Dr. Gapontsev removed.”

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    Todd Prince

    Todd Prince is a senior correspondent for RFE/RL based in Washington, D.C. He lived in Russia from 1999 to 2016, working as a reporter for Bloomberg News and an investment adviser for Merrill Lynch. He has traveled extensively around Russia, Ukraine, and Central Asia.

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