There’s no oligarchy quite like a Russian oligarchy. While extreme wealth gives individuals political influence in any country, Russia’s oligarchs form a closed system in which the lines between state, commercial and personal interests are unclear. It is without transparency, independence and the kinds of checks on power (imperfect as they are) found in democratic systems.
The West has sanctioned wealthy private citizens with links to Vladimir Putin, in the hope that they’ll put pressure on him to stop the war in Ukraine. However, half of Russia’s 20 richest people haven’t been sanctioned, particularly those with interests in key global markets. Vladimir Potanin, Russia’s richest man (worth $25.9 billion), has not been sanctioned. He owns over a third of Nornickel, the world’s largest producer of palladium and nickel. And the second-richest oligarch, Leonid Mikhelson (worth $22.6 billion), owns part of Novatek, Russia’s largest non-state-owned producer of natural gas.
Where sanctions are being used, will they actually work? Many experts doubt that Russia’s oligarchs have enough influence to pressure the leadership. Some believe sanctions only make their position weaker. “The current isolation and decrease in oligarch wealth increases Putin’s leverage over them,” Daniel Treisman, a political-science professor at the University of California, Los Angeles, told Forbes.
Who owns what?
From gold in Swiss banks to mansions in London or superyachts sailing around the Caribbean — wealth takes many forms. The Paradise Papers, a huge financial-data leak in 2017, showed how the wealthy of all nationalities hide assets. This murky ownership structure is one of the biggest difficulties for the authorities trying to enforce sanctions.
An estimated 60 per cent of the wealth of the richest Russians is held offshore, but much of it is hidden in a web of trusts and partnerships. The Economist reports that foreign assets can be hidden “behind 20–30 layers of shell companies”, often registered not in island tax havens, but in places like the US, where there are strong legal protections for private property. Former US Secretary of Labor Robert Reich wrote in The Guardian: “American laws governing taxes, corporations, transportation and banking are wonderfully convenient for the world’s oligarchs.” After the war began, the UK sanctioned ten Russian billionaires, the EU nine, but the US only four — before adding more in August.
Where’s my yacht?
Not all sanctions can be avoided, however. The EU’s travel bans, for example, make it difficult for some to enjoy their houses in the south of France. What’s more, the speed and aggression of the sanctions took many by surprise and led to a few high-profile asset seizures. Lady M, the superyacht belonging to Russia’s richest sanctioned man, Alexsey Mordashov, was seized by Italian authorities. German police in Hamburg impounded the superyacht Dilbar, which sanctioned businessman Alisher Usmanov bought for $600 million in 2016. And French authorities seized the $120-million mansion Château de la Croë, just one of many French properties belonging to Roman Abramovich.
And then, there’s the interesting case of the Amadea, a $300-million superyacht, thought to belong to Suleiman Kerimov, which disappeared near Mexico on the day that Russia began its invasion — the ship’s automatic identification system (AIS) was disabled. But superyachts attract attention, and US authorities found the Amadea in Fiji. In court, defence lawyers claimed that the yacht didn’t belong to Kerimov at all. The Fijian judge wasn’t convinced and allowed the US to take it.
The Amadea is a sanction success story but it also shows how difficult the process is. The US Task Force KleptoCapture, created to hunt down the assets of sanctioned Russians, must first identify and, in some cases, locate the right assets. Often, local authorities must approve and carry out the seizure.
From Turkey to Dubai, plenty of places don’t comply with Western sanctions. And then, there’s the considerable cost of holding on to seized assets — superyachts, for example, typically cost ten per cent of their value in maintenance every year.
Another challenge is the merging of private assets and Russian state property. As Putin and his allies have been in power for more than 20 years, the line between their personal assets and those of the state has become less and less clear. The New York Times reported on Putin’s alleged wealth: “Many of his more obvious luxuries are embedded in state-owned enterprises and largely beyond the reach of Western sanctions.”
The 140-metre superyacht Scheherazade, for example, is said to belong to Putin himself. Opposition groups claim the presence of Russian Federal Security Service (FSB) agents shows that Putin uses the yacht, but the official owner is most likely the Russian government itself. Despite evidence that state-run companies have used public money to buy real estate, private jets and other assets used by Putin and his friends, the West is reluctant to sanction the entire Russian state as this would include Gazprom and other energy suppliers.
When wealth goes west
While it is frustrating that sanctions cannot end the war, they may at least force Western governments to see the dangers of cross-border illicit wealth. When a large amount of foreign money flows into Western economies, it distorts markets for real estate or private equity, for example, and may also influence donations to political parties and lobbyists.
There’s no better example than London — Britain’s capital isn’t called “Londongrad” for nothing. After the global financial crisis, Britain actively attracted foreign capital, for example by selling residence visas to “investors”. Transparency International UK says £1.5 billion worth of London property has been bought by Russians accused of corruption or of having close links to Putin. And The Economist reported that about 6,000 homes in Kensington and Chelsea, London’s richest borough, were owned through anonymous shell companies. How many of those belong to Russians is unknown.
On the other hand, a report by the organization Spotlight on Corruption described Britain’s financial-crime police as “under-resourced, overstretched and outgunned”. The UK’s National Crime Agency estimates that money laundering and fraud cost Britain’s consumers, businesses and government close to £300 billion (€355 billion) a year.
Britain is not alone. Too many countries still do not have public “beneficial ownership” registries, which are records that show who really owns the assets of anonymous companies. Across the West, shipbuilders, art dealers and others have been happy to accept business from oligarchs without asking where the cash came from. The sanctions may not catch any oligarchs but might finally push countries to eliminate the dirty money that’s flowing through their markets.