While the Russian military is inflicting a terrible toll on Ukraine, the West is imposing ever harsher sanctions on Putin’s backers.
These are busy and worrying times for the oligarchs and their private armies of accountants and lawyers. Beset by a series of unprecedented Western sanctions collectively amounting to a formidable economic counterattack, it is far from certain that they will survive this onslaught with their vast assets intact.
It is difficult to keep abreast of the measures of the United States, the EU, the United Kingdom and other allies which are now raining on the heads of people who until a few days ago were among the beings most privileged humans on Earth. Hundreds of Russian super-rich have been targeted, with new proposals surfacing every day. The answer is perhaps best illustrated by research showing that at least four multi-million dollar yachts are heading to Montenegro and the Maldives, presumably in the hope that they will be safe from seizure. Yachts can be tracked; other assets are less visible, but we can be sure they are also on the move.
Yet this is no unforeseen crisis for the oligarchs and their professional aides (many of whom come from big Western companies, especially based in London), who have been preparing for this escalation for years. And while they can lose a few hundred million here and there, shrewd steps taken well in advance can head off the penalties.
Examples such as Aleksandr Bortnikov, director of Russia’s Federal Security Service; Sergei Kiriyenko, the first deputy chief of staff in Putin’s office; Petr Fradkov, CEO of a nationalized “defense” bank, and hundreds of others are now subject to asset freezes and travel bans that seek to limit their access to resources. Many, if not all, will have already abandoned dollar assets and Western locations in favor of offshore havens or more transaction-friendly countries like China or India. There, assets are buried in shell corporations whose ownership structures change regularly with the ultimate goal of falling unseen back into Western economies. The Russian budget also contributes mitigate the losses of the oligarchs through indirect support such as bailouts or purchases, or even through direct compensation.
Historically, such tactics have proven relatively effective, and the losses are far from crippling. Consider metal tycoon Oleg Deripaska grasped A $40 million mansion on New York’s Upper East Side, a small change from a valued A net worth of $5 billion, and miniscule compared to the (possibly terminal) cost of Putin’s crossing. With the oligarchs’ way of life dependent on Putin’s patronage, there is no choice but to follow orders; former Russian press minister Mikhail Lesin, for example, was found dead after allegedly cooperation with the US government.
In 2014, after Russia invaded and annexed Crimea, many penalties were time limited and together expire a few years later. If Putin takes this as a guide for the future, he can anticipate that the loss of foreign capital is temporary and that the short-term pain is worth enduring for the price of Ukraine. Targeted actions against individuals with Kremlin ties must continue to gain in scope and depth, must have no end date, and must carefully anticipate likely evasion techniques.
Developments this week have been positive: “unprecedented“measures have targeted senior Russian leaders, including Putin himself, Switzerland broke longstanding traditions and joined the EU in freezing Russian assets, and the UK promised to act against the hidden wealth of the oligarchs. Deripaska as well as banker Mikhail Fridman, both sanctioned, this week called for an end to the bloodshed. But as Fridman has done since softened his tone and the vast majority of oligarchs remain silent, it is unclear what effect the current pressure on Putin’s inner circle may have.
It will be revealing to see what happens to billionaires like Roman Abramovich – the owner of Chelsea Football Club – and 34 other oligarchs named on a list created by Alexey Navalny and read aloud by a British MP using parliamentary privilege to avoid possible legal action. Another MP told the House of Commons that Abramovich is “widely regarded as Putin’s Cashier», what the Russian denies.
Beyond well-prepared oligarchs, sanctions must target the wider community of officials who run Putin’s government through the Presidential Council, his security services and even media propagandists — and be backed by escalating government freezes. assets in asset seizures. (Edward Lucas of CEPA has suggested US or EU travel bans for Western nationals working for Russian propaganda outlets.) Finally, sanctioning countries must ensure anti-money laundering systems able to prevent the operation of the lawful money system.
It is becoming clear that a prolonged invasion of Ukraine will become increasingly costly for Putin and the Russian oligarchs, whose power derives from access to money. The West must remain vigilant to ensure the sustainability of these costs.
Eriks Selga is a non-resident researcher of the Digital Innovation Initiative and Transatlantic Leadership program at the Center for European Policy Analysis (CEPA) and a risk analyst at the Latvian Financial Intelligence Unit, and is pursuing a PhD at the University of Hong Kong.
Jason Israel is a non-resident member of CSIO’s Transatlantic Leadership Program. He is head of cybersecurity practices for Partners in Performance Australia and captain in the US Navy Reserve.