WASHINGTON – A high-ranking Air Force official said Friday the service would stop launching national security satellites aboard United Launch Alliance’s Atlas 5 rocket if the Treasury Department finds that importing the rocket’s Russian engine violates U.S. sanctions.
Earlier this month, Sen. John McCain (R-Ariz.) asked the Air Force to prove that Russia’s recent reorganization of its space industry does not put ULA’s purchase of RD-180 engines in violation of sanctions the United States imposed against Russian officials in 2014.
U.S. government agencies, led by the Treasury Department, are taking a fresh look at whether RD-180 imports still steer clear of the sanctions.
Lt. Gen. Samuel Greaves, commander of the Air Force’s Space and Missile Systems Center, said the service would abide by Treasury’s findings.
“If we’re not supposed to be flying the RD-180s, they’re grounded,” he said, during a breakfast here hosted by the Air Force Association. “If these folks are on the sanctioned list, if the Department of Treasury comes back and says that there’s a problem with that relationship, then we have to work with the Congress and others to move ahead. We will not violate the law.”
The Air Force relies on ULA’s Atlas 5 rocket to launch a majority of national security satellites. ULA buys the RD-180, the first stage engine for the rocket, from Florida-based RD-AMROSS, a joint venture between Energomash and Pratt and Whitney of Hartford, Connecticut. RD-AMROSS, in turn, buys the engines from NPO Energomash of Khimki, Russia.
The grounding of the Atlas 5 would create a significant obstacle for the Pentagon, where top officials say space is more valuable to their warfighting efforts than at any other time in history.
“We [would] have some decisions to make,” Greaves said.
McCain, the chairman of the Senate Armed Services Committee, used the National Defense Authorization Act of 2016 to impose strict limits on the number of RD-180 engine ULA could order for future Air Force launches. But Sen. Richard Shelby (R-Ala.), wielding his clout on the Senate Appropriations Committee, used a must-pass spending bill to eliminate the RD-180 restrictions that had become law just weeks earlier.
McCain, joined by House Majority Leader Kevin McCarthy (R-Calif.), in late January introduced a standalone bill to reinstate the RD-180 restrictions.
That same week, McCain chaired a military space launch hearing where he called for the Air Force to get a fresh legal opinion on whether RD-18o imports violate sanctions the U.S. imposed on a slew of Russian officials the wake of Russia’s 2014 annexation of Ukraine’s Crimean peninsula.
In a Feb. 10 letter to Air Force Secretary Deborah Lee James and Frank Kendall, the Pentagon’s acquisition czar, McCain singled out two high-ranking Russian officials whose newly given roles overseeing Russia’s state-run space sector warrant a closer look in light of the sanctions.
RD-AMROSS spokesman Bradley Akubuiro told SpaceNews the officials McCain named — Russian Deputy Prime Minister Dmitry Rogozin and Sergei Chemezov, an adviser to Russian President Vladimir Putin — are not members of the RD-AMROSS or NPO Energomash boards, nor do they financially benefit from RD-180 sales.
“With each new sanctions announcement, RD AMROSS works with its supply base, including NPO Energomash, to conduct the proper due diligence to ensure our compliance with the U.S. sanctions regime, and to date have identified no business relationships that implicate the U.S. sanctions regime,” Akubuiro said Feb. 16.
Spurred by a SpaceX lawsuit, federal authorities in 2014 examined the RD-180 purchases for violations of sanctions the United States imposed on dozens of Russian officials following Russia’s conflict with Ukraine.
Then, Treasury and Justice department officials said “to the best of our knowledge, purchases from and payments to NPO Energomash” do not constitute a violation.
But the government is taking another look at the issue following Putin’s Dec. 28 order reorganizing Russia’s space sector. This restructuring included placing the Russian space industry and the space agency Roscosmos under a new state corporation, also named Roscosmos.
“The situation has changed,” McCain wrote Feb. 10 (See full text of McCain’s letter below).
In the near future, wrote McCain, the new Roscosmos is expected to merge with the state-owned United Rocket and Space Corporation. Because URSC owns about 75 percent of Energomash, such a move would make Energomash a subsidiary of Roscosmos, he said.
McCain pointed out that Roscosmos is now chaired by Rogozin; Chemezov is also on the Roscosmos board.
Rogozin and Chemezov were among the first Russian officials President Barack Obama slapped with sanctions during the Crimean crisis. Neither Rogozin nor Chemezov are permitted to enter the United States and any U.S.-based assets they own were frozen.
“In overseeing Russia’s military, including its space and rocket industry and instructing Energomash’s board, Rogozin exercises control over companies like Energomash,” McCain told James and Kendall in his letter. “Like all Russian state corporations, Roscosmos will be governed by a board appointed by Putin from a pool of his closest associated and other government apparatchiks – some of whom the U.S. and the European Union have individually sanctioned.”
Rogozin said in 2014 that anyone who thought he benefited from the sale of the engine was a “moron.”
February 10, 2016
The Honorable Deborah Lee James
Secretary
United States Air Force
1670 Air Force Pentagon
Washington, DC 20330-1670
The Honorable Frank Kendall III
Under Secretary of Defense for
Acquisition, Technology and Logistics
3010 Defense Pentagon
Washington, DC 20301-3010
Dear Secretary James and Under Secretary Kendall:
On January 27, 2016, you testified before the Committee on military space programs and the Department of Defense’s (DOD) continued use of Russian-made RD-180 rocket engines. Given recent developments, you committed to reviewing two important aspects of the Evolved Expendable Launch Vehicle (EELV): (1) possibly ending early the nearly $1 billion taxpayer-funded annual subsidy on EELV Launch Capability (ELC) in light of United Launch Alliance’s (ULA) no-bid decision on EELV’s first competitive launch, and (2) possibly revising the DOD’s position on whether pending U.S. sanctions against Russia would bar continued purchases of RD-180 rocket engines in light of President Putin’s decision to restructure Russia’s space enterprise, including RD-180 manufacturer NPO Energomash, under a new state corporation.
With this letter, the Committee elaborates on its concerns on each of these issues and asks that you provide information and documents responsive to its requests.
EELV Launch Capability (ELC) Subsidy
Originally, the ELC subsidy, which has amounted to about $1 billion each year, has been paid to ULA as part of the EELV contract since 2006 to make sure that ULA, as the sole launch provider at the time, could be ready to launch critical national security payloads when needed. Recognizing that this subsidy is an anachronism in a competitive environment, this Committee led the way to passing legislation that prohibits future awards of the subsidy after the current Phase I Block Buy contract.
With at least one new entrant now certified to compete for launches, on September 30, 2015, ULA announced that it would not submit a proposal in response to a request for proposals (RFP) for the launch of a Global Positioning System Satellite III-2 (GPS-III-2), EELV’s first competitive launch. Meanwhile, ULA cynically reassigned engines that were not covered by congressional restrictions on its ability to use Russian engines to non-military launches. It also worked behind the scenes to airdrop legislative relief from those very same restrictions, which originated from this Committee, into a year-ending, trillion-dollar omnibus appropriations bill that was unamendable by Congress.
On December 8, 2015, the Committee sent a letter to Secretary Carter questioning the merits of the reasons ULA cited for no-bidding EELV’s first competitive launch. While any contractor, of course, retains the right to compete or not compete for a DOD contract, in this case, the DOD has paid, and will continue to pay through the end of the current block buy, nearly $1 billion in taxpayer subsidies for ULA to maintain EELV launch capability. For this reason, the committee was—and remains—very troubled by the speciousness of ULA’s decision.
On January 26, 2016, responding on behalf of Secretary Carter, Deputy Secretary Work conceded that the Committee’s concerns were “serious” and agreed that, notwithstanding ULA’s purported reasons, “[the DOD is] not aware of any constraints that would preclude ULA from submitting a proposal in response to an RFP for any upcoming EELV launches”.
With this in mind, at the recent hearing, Secretary James committed to reviewing the options that are available to the Air Force given ULA’s decision not to bid on a recent GPS III competitive launch opportunity.
Against this backdrop, please respond to the following by February 22, 2016.
- What options, including but not limited to early termination of the ELC subsidy, are available to the Air Force given ULA’s no-bid decision regarding the GPS III competitive launch? Please consider options under all available theories of relief, including but not limited to, reopening the contract under its essential terms, breach of contract, promissory estoppel, etc.
- Please provide the Committee with the definitive legal opinion letter and decision memoranda addressing this question.
- How would early termination impact the repricing of remaining block buy launches?
- With regard to paying the ELC subsidy, if no relief is available to the Air Force, why not? Why did the DOD/Air Force not negotiate the availability of relief into the contract throughout the relevant period? If the ELC subsidy is “anachronistic” in a competitive environment, as Secretary James recently testified, why did the Air Force proceed with an ELC contract award to ULA, valued at more than $800 million, in September 2015, when competition was clearly contemplated?
- Prospectively, what relief does the DOD/Air Force have vis-à-vis the ELC subsidy if ULA no-bids future competitive launches? If it has none, why not?
- To what extent will current or future ELC subsidies cover costs connected to the continuing availability of the Delta IV for EELV launches? Given ULA’s lack of interest in no longer using the Delta IV medium variant, what relief does the DOD/Air Force have with regard to the ELC subsidies it has paid and will continue to pay ULA in connection with Delta IV’s unavailability in the future?
- Of the total ELC awarded in FY16, what percentage is allocated for Delta IV launches and what percentage is allocated for Atlas V launches?
U.S. Sanctions Against Russia
On April 28, 2014, a prospective new entrant to the EELV program filed a lawsuit in federal court asking that it enjoin the purchase of RD-180s by ULA from Russian rocket manufacturer NPO Energomash because it is owned or controlled by the Russian government in violation of sanctions the U.S. imposed on Russia in reaction to its invasion of Ukraine, under Executive Order 13661. Space Exploration Technologies Corp. v. The United States and United Launch Services, L.L.C., No. 14-354 (U.S. Court of Fed. Claims) (April 2014). After first ordering a preliminary injunction, the court reversed itself based on opinions by the U.S. Department of the Treasury and the U.S. Department of Justice that they were unaware of any information indicating that such purchases contravene U.S. sanctions.
Notably, in the Treasury and the Justice Departments’ opinion letters support the court’s decision, Bradley T. Smith, Chief Counsel, Office of Foreign Assets Control, and Mary E. McLeod, Principal Legal Advisor, respectively, noted:
“[C]ontrol by Deputy Prime Minister Rogozin of NPO Energomash, if true, could be a potential basis for OFAC to block formally the property and interests in property of the company pursuant to Executive Order 13661, particularly under [the section of the Executive Order that] authorizes the blocking of property and interests in property of persons ‘owned or controlled’ by a senior official of the Russian Federation Government or by a person whose property and interests in property are blocked under the order…[H]owever, Executive Order 13661 requires that the Department of the Treasury make an affirmative determination to trigger blocking under the ‘controlled by’ provisions of the order…[Today,] no such determination has been made with respect to NPO Energomash…[nor has] OFAC [ ] made [any] determination that the property and interests in property of NPO Energomash are otherwise blocked pursuant to Executive Order 13661. Therefore, to the best of our knowledge, purchases from and payments to NPO Energomash currently do not directly or indirectly contravene Executive Order 13661.”
Both the Treasury and Justice Department promised to come forward should this situation change.
The situation has changed.
In July 2015, President Putin signed a new law that consolidated the Russian space industry under a single state corporation, an entity called Roscosmos to replace a similarly named federal space agency. This was done to enhance the power of the Russian government to better implement state space policy and control the space industry.
On December 28, 2015, President Putin signed an order that will effectuate this law, dissolving the space agency and placing the Russian space industry and all its assets under the authority of Roscosmos. We understand that, as a result, when this reorganization is soon completed, Roscosmos will merge with the state-owned United Rocket and Space Corporation (URSC), a majority shareholder of Enregomash, and Energomash will become a subsidiary of Roscosmos.
In addition, in August 2015, Putin appointed Igor Komarov chief executive of the newly-created Roscosmos. Komarov is a former chairman of one of Russia’s largest carmakers and an advisor to Sergei Chemezov. Chemezov, who has also been appointed to the board, is said to have served as a KGB officer with Vladimir Putin in Germany back in the 1980s. He has been targeted by U.S. sanctions.
Under the same order, Putin also appointed Russia’s Deputy Prime Minister Dmitry Rogozin, who is also close to Putin and targeted by U.S. sanctions, the Chairman of Roscosmos’ board. In overseeing Russia’s military industry, including its space and rocket industry and instructing Energomash’s board, Rogozin exercises control over companies like Energomash.
So, in re-examining Energomash under Putin’s re-organization of Russia’s space enterprise, we are no longer talking about a Russian joint-stock company in which the Russian government or companies associated with it have an equity interest. Energomash will be a subsidiary of a Russian state corporation. And, like all Russian state corporations, Roscosmos will be governed by a board appointed by Putin from a pool of his closest associates and other government apparatchiks—some of whom the U.S. and the European Union have individually sanctioned.
With this in mind, at the recent hearing, Secretary James reaffirmed the Air Force’s commitment to maintaining full compliance with U.S. sanctions against Russia and stated that she asked the undersecretary for policy and the DOD general counsel to work with the U.S. Departments of State, Commerce and Treasury to update a previous ruling on the matter of Energomash.
Against this backdrop, please respond to the following requests by February 22, 2016.
- Given the changes in the management of the Russian space sector, including the involvement of Dmitry Rogozin, Sergey Chemezov, and Igor Komarov in the company or parent companies that are involved in the sale of the RD-180, will the Department of Defense, in consultation with the aforementioned agencies, obtain an update to the federal court’s previous ruling (and the Treasury and Justice Department’s conclusions) regarding Energomash and U.S. sanctions? Please explain why or why not.
- Please provide the Committee with the definitive legal opinion letter(s) and decision memoranda addressing this question.
- If the Air Force does not obtain such an update, explain why the Air Force should continue to use Russian rocket engines procured by ULA from Energomash when individuals sanctioned by the United States, including but not limited to Rogozin and Chemezov, either individually or in the aggregate, exercise control over Energomash.
- Also, if the Air Force decides not to do so, explain why, as a policy matter, the Air Force should continue to use Russian rocket engines procured by ULA from Energomash after Russia’s invasion of Crimea where the Russian government exercises control over Energomash through Roscosmos.
- If the Air Force decides not to do so, explain why, as a policy matter, the Air Force should continue to use Russian rocket engines procured by ULA from Energomash when, on December 31, 2015, Russia rolled-out a new national security strategy that, for the first time since the Cold War, named the United States as a threat to its security and, as part of this strategy, Russia expressed particular concern about American intelligence capabilities and the United States’ placement of weaponry and military infrastructure in space.
- And, are you aware of any assessments by the DOD or Intelligence Community evaluating the reorganization of the Russian space industry or the influence of the Russian government over Roscosmos? If so, please provide separately though appropriate channels.
- Thank you again for your willingness to testify and ask that you provide all of the information requested above promptly in order to inform our ongoing consideration of the Fiscal Year 2017 National Defense Authorization Act.
Sincerely,
John McCain
Chairman
