The Norwegian Oil Fund should support the sanctions against Russia

The oil fund will contribute to financing the welfare state over generations, but also be a responsible owner concerned with sustainable investments.

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Norway is a small country, but a big owner. Through the oil fund, we own shares in many of the world’s largest companies. Some of these companies appear to be circumventing the sanctions against Russia, as Aftenposten reports.

As a responsible owner, the Oil Fund should emphasize compliance with sanctions in the dialogue with the companies in the portfolio. Strengthening the culture for compliance with sanctions is in the owner’s interest and contributes to reducing the Oil Fund’s risk.

Killed by Russian authorities

During the last decade, sanctions have become an important international human rights instrument. As a reaction to impunity for human rights violations and corruption, several of the world’s democratic states have introduced so-called human rights sanctions.

Measures can be directed against companies, but also against persons who are responsible for serious human rights violations. These can be refused a visa and lose access to their assets, which are often salted down in the West.

Human rights violations in Russia have driven the development. When Sergei Magnitsky, an auditor who had exposed corruption, was killed by Russian authorities in a Moscow prison, his British employer Bill Browder launched a campaign to punish those responsible.

The Magnitsky campaign culminated in a law in the United States targeting the people involved in the corruption case and murder. This law became the seed of the new, global human rights sanctions.

Legal order in crisis

Russia’s aggression against Ukraine shows that the international legal order is in crisis. In order to defend international law, many of the world’s democracies have introduced sanctions against Russia. The sanctions are very extensive. Traditional punitive measures against trade, finance and services work together with human rights sanctions for a human rights purpose. The purpose is to stop President Vladimir Putin’s illegal war.

A report by the Helsinki Committee, the analysis company Corisk, Wikborg Rein and Rud Pedersen nevertheless shows that the sanctions are largely circumvented when it comes to the export of war-important goods to Russia. Trade with Russia often takes alternative routes via third countries such as Belarus, Kazakhstan and Turkey.

An article in the Frankfurter Allgemeine Zeitung, based on documentation from Corisk and the Helsinki Committee, showed that a Russian rocket that killed 23 civilians in a Ukrainian apartment block in April 2023 contained parts manufactured by a German company.

Infineon is one of Europe’s largest electronics companies and had sold integrated circuits and semiconductors which, via intermediaries, ended up in Russia – and were used in what was probably a war crime. The components left traces in customs registers that were visible to our investigators.

Takes a high risk by circumventing sanctions

Oljefondet owns shares worth around NOK ten billion in Infineon. Companies that circumvent the sanctions take a high risk. They risk breaking national sanctions laws. In serious cases, they also risk contributing to international crimes, such as crimes against humanity and war crimes.

For such crimes, there is universal jurisdiction (the companies can be prosecuted over large parts of the globe) and no statute of limitations.

In addition to possible criminal liability, victims can file lawsuits in many places around the world. There are still ongoing cases in the USA based on lawsuits against companies that violated the sanctions against the apartheid state in South Africa.

From the start, the Norwegian authorities have emphasized that the Oil Fund should not be a political tool. At the same time, it is difficult to avoid political risk when you have investments in over sixty countries on all continents. The oil fund will contribute to financing the welfare state over generations, but also be a responsible owner concerned with sustainable investments.

Successive governments have agreed that Norwegian interests are linked to security, respect for international law and the fight against corruption.

There were red flags

In autumn 2019, the Helsinki Committee warned that the Oil Fund was taking high risks in Russia and risked breaking its ethical standards. We specifically mentioned two energy companies (Gazprom and Surgutneftgaz) and one bank (Sberbank), all three of which were sanctioned because they financed Russia’s attack on Ukraine in 2014.

We suggested that sanctions should be emphasized in the administration in line with the increased importance of sanctions internationally. As is known, the Oil Fund’s portfolio in Russia was frozen after the major attack on Ukraine on 24 February 2022, and the values ​​may be lost.

The 30 billion is not a lot of money for the world’s largest fund – barely 2 per thousand of the value of almost NOK 17,000 billion. Worse, the Oil Fund, like large parts of the international investor community and the business community, invested in companies linked to Putin’s corrupt regime. There were red flags.

Four measures that should be considered

Several of the companies did not have regular audits or clarity about ownership and operations. In addition, the investments took place in a context where the Kremlin’s critics ended up in prison, exile or in the cemetery.

The fund was not alone in disregarding that context, but in the light of hindsight we can state that the fund took a high risk and invested against the owner’s interests in Russia. This lesson may help the fund today, but for now there is little to indicate that the fund attaches importance to compliance with the sanctions against Russia.

The oil fund, for example, voted against bench proposals on caution regarding sanctions violations at two general meetings in the USA in 2023.

Sanctions will affect international relations even more in the future and is a topic the Oil Fund should deal with in risk assessments and the exercise of ownership. Here are four measures that can strengthen the fund as a responsible owner:

• The fund should have an expectation document on sanctions.
• The fund should include compliance with sanctions in the monitoring of the companies and the ownership dialogue.
• The fund should take into account compliance with sanctions when voting at general meetings.
• The fund should consider excluding companies that are sanctioned or commit serious sanctions violations.

The oil fund must support Ukraine and international law, not invest in companies that indirectly support Vladimir Putin. Such investments are neither in our interests nor in the interests of future generations.