New York, United Statesâ€“Over the past week at least half a dozen oligarch mega yachts have been seized or disabled in European ports, offshore havens like Isle of Mann have begun delisting private aircraft and McMansions in London have been occupied by activists â€“ scenes straight out of a Hollywood script. Behind the inevitable memes and ancillary Twitter bots like the one following oligarch planes (@RUOligarchJets) is a concerted, yet faltering, global sanctions effort attempting to steer Vladimir Putin off his war against Ukraine.
â€œWe cannot think that this is a silver bullet or panacea,â€ says journalist Casey Michel who has written extensively on kleptocratic systems. â€œBecause we have some mansions or yachts does not mean we can move on, that is not the end of all of their financial investments.â€
Despite the cries of billionaires like Russian-Israeli Mikhail Fridman who amassed his billions via conglomerate Alfa Group and now claims to be â€œbroke,â€ oligarch wealth is mostly protected, say experts. After years of nurturing financial systems that assigned assets anonymity, â€œthese assets can be sitting right up front of us and we would not know it,â€ says Jodi Vittori, Co-founder of Anti-Corruption Advocacy Network and professor at Georgetown University. And it is no small sum â€“ one Atlantic Council report states â€œRussia has the worldâ€™s largest volume of dark money hidden abroad, about $1 trillion, both in absolute terms and as a percentage of its national GDP.â€
According to advocacy group Tax Justice Network, â€œcurrent efforts to identify, track down, and freeze the assets of sanctioned Russian companies and oligarchs are severely hampered by loopholes, secrecy laws and shortcomings in the global financial system.â€ Because offshore jurisdictions trade on secrecy, there is little information on what type of vehicles oligarchs are using to keep their money safe or whether in fact they are even moving money as there is little data on capital outflows from one country to a given jurisdiction. â€œIt also might be that they are laying low and assuming it will all blow over,â€ says Michel.
Easy to park cash
Anecdotally, however, there are places that seem to be booming. Take the United Arab Emirates where it is easy to park cash in real estate, set up bank accounts, launder gold and remain safe from extradition. â€œDubai is not only a transit point [for money flow] but also a destination,â€ says Vittori who has written about Dubaiâ€™s financial flows and adds that the entire Dubai system is set up to accommodate illicit money. â€œThis is a feature of the system, not a bug.â€
Indeed, prior to Russiaâ€™s war on Ukraine, Russia-UAE ties were booming. Travel to the UAE grew exponentially with Russia becoming the second largest source market for Dubai travel and tourism in 2021. Now oligarch planes are making tracks to Dubai and Instagram hashtags from young Russians tagging Dubai are trending.
Experts are also watching China, which has been inching closer to Russia and plays a large role in global trade-based money laundering into which Russia can tap. This trade-based system allows businesses to disguise illicit proceeds by either over or under invoicing goods, multiple invoicing or falsifying trade documents. In fact more than 60 percent of Chinaâ€™s trade in the Middle East transits through the UAE, says Vittori, and if China keeps trade open with Russia, this would allow Russia the opportunity to smuggle or mismark and sell products through the UAE. That, in turn, will help the country bypass sanctions and earn much-needed dollars and euros.
Rachel Ziemba who assesses country risk at the Center for a New American Security also notes that there have been interesting moves into US-linked cryptocurrency and other liquid assets. Earlier in March, the US Financial Crimes Enforcement Network issued an alert that cited cryptocurreny transactions as having the potential for sanctions evasion. This was followed by new legislation from US Senator Elizabeth Warren that, if passed, would authorize President Biden to sanction foreign crypto firms that are conducting business with sanctioned Russian entities. Though it is unclear how much of this is linked to Russian oligarchs, there have been reports of Russian tourists, for example those stuck in Indonesia, converting their Russian roubles to cryptocurrencies and then back into Indonesian rupiahs.
In the meantime, Vittori is concerned about the move to seize versus freeze assets, which President Biden articulated in his State of the Union speech and followed up with an interagency Task Force KleptoCapture and a Kleptocracy Asset Recovery Rewards Program, which offers â€œup to $5 million for information leading to seizure, restraint, or forfeiture of assets linked to foreign government corruption in Russia and elsewhereâ€. So far the US Treasury has named 28 of the 50 Russian oligarchs and political figures who are US â€œprioritiesâ€ for asset seizure and enforcement.
But Vittori says such seizures in the US and abroad may be tied up in years of litigation and may serve to undermine the rule of law and private property that they are purported to extol. That is after actually identifying that in fact certain oligarchs own the specific assets being seized. â€œWe have to be careful to focus and not paint every Russian who has moved to Dubai as a bad person. There is an entrepreneurial class who has moved money overseas who are not oligarchs,â€ says Vittori.
Time to strengthen laws
In fact, there are many ways to focus on the oligarchs who are up to no good â€“Â the first is strengthening laws that aim to flag suspicious transactions and the second is ramping up enforcement of existing laws. â€œThe world of offshoring and financial secrecy is not as rarified as five years ago,â€ says Michel. The Pandora Papers illuminated the murky world of the global offshore financial system and have spurred various jurisdictions into action. In fact, in the US State of South Dakota, home to $400bn in trusts for the (unnamed) rich, residents are finally calling for an end to the secrecy in an industry that has buoyed the state but now seems shameful in light of Russiaâ€™s war on Ukraine.
Another way to get ahead of the oligarch cat and mouse game is for law enforcement and intelligence communities to publish lists of things they believe may be owned by sanctioned individuals. Otherwise you could have a real estate agent in New York sell a property not knowing that it is tied to someone on the sanctions list. â€œYou canâ€™t know what you donâ€™t know,â€ adds Vittori.