Their wealth is almost beyond comprehension. Their protection, although not fool-proof, is in itself also beyond comprehension.
Photo: Russian President Vladimir Putin toasts with attendees after a state awards ceremony for military personnel who served in Syria, at the Kremlin in Moscow Thomson Reuters
27 February 2022 | James Porteous | Clipper Media | Various sources as noted
Oligarchy is a form of power structure in which power rests with a small number of people. Russian oligarchs are business oligarchs of the former Soviet republics who rapidly accumulated wealth during the era of Russian privatization in the aftermath of the dissolution of the Soviet Union in the 1990sWikipedia
25 February 2022 |. Alicia Victoria Lozano | CNBC
A former KGB leader, a diamond mine executive and a deputy prime minister — these are just some of the roles held by Russian oligarchs targeted by the Biden administration in a round of “unprecedented” sanctions against members of President Vladimir Putin’s inner circle.
The U.S., working closely with European allies, has been steadily waging sanctions against Moscow with the goal of deterring Putin from escalating actions in Ukraine. The efforts, which do not appear to have thwarted Putin yet, could have lasting effects on Russian business and government leaders with international dealings.
The White House said Friday it would also take the rare step of directly sanctioning Putin, a largely symbolic act given that the Russian leader has hidden his wealth and made it difficult to freeze his assets.
“Elites close to Putin continue to leverage their proximity to the Russian President to pillage the Russian state, enrich themselves, and elevate their family members into some of the highest positions of power in the country at the expense of the Russian people,” the U.S. Department of the Treasury said in a statement.
“Sanctioned oligarchs and powerful Russian elites have used family members to move assets and to conceal their immense wealth.”
Secretary of the Treasury Janet L. Yellen said the sanctions were meant to “degrade Russia’s ability to project power and threaten the peace and stability of Europe” by cutting off access to the broader international economy.
Members of the ruling class singled out by the Treasury Department comprise Russia’s financial elite who benefit from the regime’s “kleptocracy” and are closest to Putin, it said.
The list that was released this week goes beyond “the normal business tycoons” sanctioned in the past, said William Courtney, adjunct senior fellow at the nonpartisan Rand Corp., who served as ambassador to Kazakhstan, Georgia, and on the U.S.-Soviet Bilateral Consultative Commission to Implement the Threshold Test Ban Treaty.
“These people are KGB cronies,” Courtney said. “They have more influence on policy, the kind of policy that led to invading Ukraine.”
Sanctions could prove effective by constraining the ability of these players to conduct business abroad, keep assets in secure banks and open accounts in reputable Western institutions, he said.
Putin’s inner circle includes several people with military and secret service backgrounds who might be less inclined to spread their wealth internationally and instead choose to stay close to Putin in Russia.
“Sanctions are kind of like a middle ground between diplomacy and war,” Courtney said, adding that the Kremlin has “18th or 19th century views of using force to promote imperial objectives.”
“But they live, and their economies live, in an age of prosperity and people’s expectations of honesty and transparency,” he said. “It becomes a burden to Russian international economic activities.”
Here are the Russians sanctioned this week:
Sergei Sergeevich Ivanov, son of Sergei Borisovich Ivanov
Sergei Borisovich Ivanov is one of Putin’s closest allies who previously served as the chief of staff of the presidential executive office and deputy prime minister and defense minister of Russia before becoming special presidential representative for environmental protection, ecology and transport. He served alongside Putin in the KGB and later became a permanent member of the Security Council of the Russian Federation.
His son, Sergei Sergeevich Ivanov, is the CEO of the Russian state-owned diamond mining company Alrosa and a board member of Gazprombank, Russia’s third-largest financial institution.
Andrey Patrushev, son of Nikolai Platonovich Patrushev
Nikolai Platonovich Patrushev also served in the KGB with Putin, later became head of the Federal Security Service, the main successor agency to the Soviet Union’s KGB. Patrushev is now secretary of the Russian Federation Security Council and was previously sanctioned in 2018. He was also implicated in the fatal radiation poisoning of Alexander Litvinenko, a former Russian intelligence official who defected to the West.
His son, Andrey Patrushev, served in leadership roles at Gazprom Neft, the third-largest oil producer in Russia.
Ivan Igorevich Sechin, son of Igor Ivanovich Sechin
Igor Ivanovich Sechin is CEO, chairman of the management board and deputy chairman of the board of directors of Rosneft, one of the world’s largest publicly traded oil companies. He also served as deputy prime minister of the Russian Federation from 2008 until 2012. The former Soviet military interpreter helped secure a $16 billion deal with BP, which gave the Russian company a 5 percent stake in the British oil company, Reuters reported in 2011.
His son is reportedly a deputy head of a department at Rosneft.
Alexander Aleksandrovich Vedyakhin
Vedyakhin currently serves as first deputy chairman of the executive board of Sberbank, Russia’s largest financial institution that was also sanctioned this week.
Andrey Sergeyevich Puchkov
A high-ranking executive at VTB Bank, Russia’s second-largest financial institution that was sanctioned this week, Puchkov was previously chairman of the FC Dynamo Moscow football club, according to The Wall Street Journal, and several other companies, including multiple real estate endeavors.
VTB was dropped by a U.S. lobbying firm after sanctions were announced. Its website no longer appears to be functional.
Yuriy Alekseyevich Soloviev
Soloviev is also a VTB Bank executive, having previously worked at Lehman Brothers and Deutsch Bank in London. He is currently the chairman of the board of directors of FC Dynamo Moscow football club.
Galina Olegovna Ulyutina, Soloviev’s wife, was previously implicated in a golden passport scheme, according to the U.S. Treasury Department. Such an arrangement allows wealthy foreigners to gain citizenship in exchange for a minimum amount of investment in certain countries.
After American misadventures in Iraq and Afghanistan, many are rightly hesitant to respond militarily to Russia’s invasion of Ukraine. They don’t want to get involved in another faraway “forever war.”
Nor are broad-reaching sanctions, which typically affect the lower rungs of society most, the best solution. However, there is a viable nonmilitary option that has the potential to curb Russian aggression and simultaneously address several pressing challenges facing Western governments: targeting the Western assets and lifestyles of the Russian elite.
Vladimir Putin and his inner circle profess to hate the West, but they are in fact cosmopolitans who live and invest across borders. They shop in Monte Carlo and park ultra-luxury yachts in Barcelona’s harbors. Their children live in European villas and attend Ivy League universities.
They hide their assets in offshore accounts and launder their money through blind trusts or real estate in London, New York, and Miami. A recent study by several economists estimated that more than half of Russian oligarchs’ wealth is held offshore. The Bank for International Settlements estimates that Russian individuals and companies store about $11 billion in Swiss banks, nearly one-third of Russian banking assets worldwide.
Personal sanctions announced yesterday on Russian President Vladimir Putin and Foreign Minister Sergei Lavrov are a move in the right direction. But the most effective strategy would center on making the Western luxury lifestyle impossible for oligarchs and on seizing the considerable wealth that they have stashed abroad.
London Mayor Sadiq Khan has already called for the expropriation of oligarchs’ real estate there, which Transparency International estimates is worth about £1.1 billion. This might be followed by the revocation of visa privileges for Kremlin-aligned Russian businesspeople, politicians, and their immediate families.
Over the long term, Western governments could follow up with financial regulation limiting oligarchs’ ability to stash their assets in offshore accounts and blind trusts, as well as money-laundering investigations that would identify and liquidate additional assets.
Governments should pair these assaults on oligarchic offshoring with heavy sanctions on Russia’s energy and commodity sector, which analysts have identified as a key leverage point.
Javier Blas of Bloomberg notes that in the 24 hours following Russia’s invasion of Ukraine, the United States, the United Kingdom, and the European Union bought about $700 million of Russian gas and mineral commodities. The pain of Russia’s exclusion from the global commodities sector at a time when the price of gas is rising rapidly would compound quickly.
These measures would admittedly bring pain to the West as well—which is why they have not materialized. Indeed, the Western response to the invasion has been characterized by a reluctance to affect daily life in Europe and the U.S.
The U.S. sanctions implemented on February 24 explicitly exclude the Russian energy sector, likely because President Joe Biden wants to avoid an energy crisis. Germany’s response to Russian aggression has been muted by its dependence on Nord Stream. According to the journalist Joe Barnes, Italian Prime Minister Mario Draghi lobbied for a carve-out for Italian luxury goods from the EU’s economic-sanctions package.
Another roadblock is that the global ultrarich are sure to oppose measures that would hurt members of their class. The requisition of Russian properties would puncture the luxury-real-estate market of major cities. And of course, regulating offshored wealth and blind trusts would affect the bottom line of our homegrown plutocrats no less than Russians.
In the long term, however, the economic shocks caused by this response may be worthwhile. One argument in favor is ethical: Paying more for gas is a small sacrifice to make if it can halt a bloody war or limit the necessity for a military response.
On a practical level, any pain resulting from this policy may eventually yield substantial paybacks. Khan suggested that the seizure of oligarchs’ real estate could raise £370 million a year, to be reinvested into London public housing. Funds from the requisitioning of other property could also be redirected to pay reparations to Ukraine and support its rebuilding.
A crackdown on the oligarchs could also offer solutions to broader social problems. Increased regulation of hidden assets and blind trusts would address the growing plague of political corruption that is evident in the U.S. and elsewhere. However painful, an energy shock might result in solutions to climate change, finally providing the incentives needed to speed up the transition from fossil fuels to more sustainable sources.
The situation in Ukraine is catastrophic, but it is not hopeless. This moment of crisis is also a moment of serious opportunity—if only we can muster the imagination and political will to respond appropriately.
26 February 2022 |Sergei Karpukhin | AP via NPR
WASHINGTON — The term Russian oligarch conjures images of posh London mansions, gold-plated Bentleys and sleek superyachts in the Mediterranean, their decks draped with partiers dripping in jewels.
But the raft of sanctions on oligarchs announced by President Joe Biden this week in response to the invasion of Ukraine may do little to dim the jet-setting lifestyles of Russia’s ultra-rich and infamous – much less force a withdrawal of tanks and troops.
U.S. sanctions target Russian President Vladmir Putin and a handful of individuals believed to be among his closest security advisers, including Foreign Minister Sergey Lavrov. But the list is just as notable for who isn’t on it — most of the top names from Forbes’ list of the richest Russians whose multi-billion-dollar fortunes are now largely intertwined with the West, from investments in Silicon Valley start-ups to British Premier League soccer teams.
Citing the concerns of European allies, the U.S. also didn’t impose what was seen as the harshest punishment at its disposal, banning Russia from SWIFT, the international financial system that banks use to move money around the world.
Biden said Thursday the new U.S. sanctions would nonetheless cripple Russia’s financial system and stymie its economic growth by targeting Russia’s biggest banks, which the Treasury Department said holds nearly 80% of all the country’s banking assets.
“Putin is the aggressor. Putin chose this war. And now he and his country will bear the consequences,” Biden said, laying out measures that will “impose severe cost on the Russian economy, both immediately and over time.”
Russia’s wealth is hidden away
But much of the wealth of Russia’s richest isn’t held in the sanctioned Russian banks. Putin and the oligarchs aligned with him have had decades to stash assets overseas, much of it hidden in ways specifically designed to avoid sanctions.
Though the Kremlin officially reports Putin’s income at $131,900 annually, the Russian president is believed to benefit from many billions in cash and overseas assets held by trusted friends and relatives, many of whom are from his home city of St. Petersburg.
A 2017 study of Russian oligarchs published by the U.S.-based National Economic Bureau estimated that as much as $800 billion is held by wealthy Russians in the United Kingdom, Switzerland, Cyprus, and similar offshore banking centers. That vast fortune, held by a few hundred ultra-rich individuals, is roughly equal to the wealth of the entire rest of the Russian population of 144 million people.
Some oligarchs have also obtained dual citizenship in Britain and other Western countries, adding legal complications to attempts to unilaterally seize their assets.
An example is Roman Abramovich, a former Russian provincial governor and Putin ally who became a steel and metals magnate. Now a dual Israeli citizen with a net worth estimated at more than $13 billion, Abramovich has used his fortune to buy the British soccer club Chelsea and homes in London and New York. He and his now ex-wife frequently socialized with Ivanka Trump and Jared Kushner, the daughter and son-in-law of former President Donald Trump.
Abramovich also owns what is purported to be the world’s most expensive superyacht, the 455-foot-long Solaris, which features a helicopter hanger, tennis court, pool and berths for about 100 guests and crew.
Also not on the sanctions list is Alisher Usmanov, another Russian metals tycoon who was an early investor in Facebook. His fortune is estimated at more than $14 billion.
Usmanov recently sold his stake in the British soccer club Arsenal for a reported $700 million and, according to Forbes, owns two sprawling estates in London – the Beechwood House and Sutton Place –worth a combined $300 million. Usmanov’s superyacht, Dilbar, measures 512 feet from bow to stern, even longer than Abramovich’s.
Putin’s power over the oligarchs should not be underestimated
Daniel Fried, a former U.S. official under both Democratic and Republican administrations who helped craft U.S. sanctions against Moscow in the wake of Putin’s 2014 invasion of the Crimean Peninsula, said he was surprised Abramovich and Usmanov weren’t on the sanctions list announced Thursday, given their long ties to Putin and visible assets in the West.
But, Fried warned, sanctioning Russian oligarchs would likely have limited impact on persuading Putin to change course in Ukraine.
“He owns them absolutely. He crushed them and they exist only by his sufferance,” said Fried. “He can jail them, or kill them, and the notion that the oligarchs can assert influence over Putin is foolish.”
Still, he said the opinion of wealthy, educated elites carries some intangible weight that Putin defies at his own risk. While sanctions are unlikely to drive the oligarchs away from Putin, they do raise for them the cost of their continued support.
“They can’t stop or vote him out of office. But he’s only in total control until he isn’t,” said Fried, who is now a fellow at the Washington-based Atlantic Council.
The end of the Cold War fueled the rise of the oligarchs
The family fortunes of many in Russia’s billionaires date back to the 1990s, the turbulent decade after the fall of the Soviet Union. Under the notoriously corrupt presidency of Boris Yeltsin, such key state-controlled assets as oil refineries, steel mills, aluminum smelters and tractor factories were gobbled up by the politically influential, often purchased with the aid of government-backed loans.
Then in 1999 Yeltsin unexpectedly resigned and the then-relatively unknown Putin was appointed as acting president. A former KGB agent, Putin had earlier been appointed by Yeltsin as the head of Russia’s FSB, among the country’s most powerful spying and security agencies.
Putin has ruled Russia for the last 22 years, crushing those who have dared challenge him.
Mikhail Khodorkovsky, an oil baron once believed to be the wealthiest man in Russia, ran afoul of Putin when he more fully embraced the free market and began criticizing the vestiges of Soviet central planning. Khodorkovsky was arrested by Russian authorities in 2003 and charged with fraud, money laundering and embezzlement. After spending a decade in jail, he was released in 2013 and fled to London, where he now leads a foundation, the Dossier Center, dedicated to exposing criminal activity by Kremlin insiders.
Boris Berezovsky, a mathematician turned Mercedes dealer who amassed a fortune by acquiring the country’s main television channel at the end of the Soviet era, was tried in absentia on charged of fraud and embezzlement after fleeing to London in 2000.
He was found dead on the bathroom floor of his home in southern England in 2013. His daughter said he feared he had been poisoned after losing a major court battle against Abramovich, his former business partner. Originally believed to be a suicide, a coroner recorded the cause of death as inconclusive.
“Every oligarch owes the preservation of their wealth to the Kremlin,” said Max Bergmann, a senior fellow at the Center for American Progress who also served at the State Department during the Obama administration. “The oligarch class is an important pillar of the Putin regime and is heavily exposed because their assets are held in the West – in villas in the South of France, condos in Trump properties, and in sports teams.”
The sanctions could force the Kremlin to make changes that would weaken Russia’s economy
Maria Shagina, a sanctions expert at the Helsinki-based Finnish Institute of International Affairs, said European countries are seeking to insulate their own economic interests from the effects of sanctions, whether that’s natural gas piped to Germany, diamonds imported from Siberian mines or Italian luxury cars and designer handbags sold in Moscow or St. Petersburg.
“We see that Europeans don’t want to bear any sanctions cost,” Shagina said. “It is painful for everyone.”
But, the experts said, the sanctions announced this week will cause pain and eventually force the Kremlin to make hard budgetary choices by weakening the Russian economy.
Most Russians are significantly poorer than their Western counterparts. The Russian Federation ranks 83rd in per capita gross domestic product, at a little under $11,000 per person, according to 2020 data compiled by The World Bank. That’s less than a third of the average for the European Union and about one-sixth of per-capita GDP for the United States.
“Putin will have to choose between putting money into his military or paying pensioners,” Bergmann said. “So sanctions serve to degrade Putin’s power and strength over the long term.”
In the meantime, wealthy Russians are investing in cryptocurrencies and using other emerging strategies to protect their fortunes, much like they adapted to an earlier round of U.S. sanctions following Putin’s 2014 Crimean invasion.
“Sanctions enforcement is inherently a cat-and-mouse game,” said Marhsall Billingslea, who helped set sanctions policy for the Trump administration, “and they’ve had eight years, ever since Crimea, to set up alternative mechanisms to keep hard currency flowing to the regime.”
Edward Fishman, a former State Department official during the Obama administration, said the move to sanction Putin sends a strong signal of support to the Ukrainians who are under fire. But the economic penalties with have no real effect on the Russian leader.
“No sanctions can dramatically decrease Putin’s quality of life … Putin treats the Russian economy as his own personal piggy bank,” Fishman said. “President Putin’s wealth is derived from the hard-earned wages of Russian taxpayers, as well as Russia’s oil exports.”
24 December 2017 Roman Dobrokhotov
On December 21, Russian President Vladimir Putin met with Russian oligarchs at the Kremlin. Тhe men in attendance had a combined wealth of $213bn, almost as much as the Russian federal budget. So it was no wonder Putin wanted to meet them and assure their loyalty, especially before the presidential elections next year (even if they will be just a formality).
Until recently, such meetings used to happen once a year, but this one was the third in 2017. So why all this enthusiasm for meetings at the Kremlin? For those who have been following closely the dealings of the Russian oligarchs, it is not that difficult to guess.
On November 22, Russian oligarch and senator Suleiman Kerimov (net worth of $6.3bn) was arrested in Nice and now stands accused of money laundering.
On December 13, the premises of the Dutch subsidiary of Russian Alfa Bank were searched and its assets frozen; the bank is owned by Michael Fridman, Pyotr Aven, Alexey Kuzmichev and German Kahn (combined net worth of $35.6bn).
On December 13, as well, a Daily Beast investigation revealed that Mikhail Prokhorov (net worth of $8.9bn) had 23 accounts in the Cyprus branch of the now closed FBME bank. The bank lost its license and the accounts of its clients were frozen after the US accused it of facilitating money laundering.
Gennady Timchenko (net worth of $16bn), a close friend of Putin’s, and his company, Novatek, are still under US sanctions. Russia’s richest man, Leonid Mikhelson (net worth of $18.4bn), who is also Timchenko’s partner and co-owner of Novatek, is threatened with sanctions.
Russia’s largest private oil company, Lukoil, owned by Vagit Alekperov (net worth of $14.5bn) and Leonid Fedun (net worth of $6.3bn), is also still on the sanctions list. There are other Russian oligarchs who might get slapped with sanctions, including Dmitry Rybolovlev (net worth of $7.3bn) and Viktor Vekselberg (net worth of $12.4bn).
Proximity to Putin, which used to be considered most important for capital growth in the Russian oligarchic system, is now becoming a considerable risk.
In other words, approximately half of Russia’s biggest oligarchs are having troubles abroad; the other half might start having them in February 2018, when the US expands its sanctions list.
The oligarchs most likely to get on that list, of course, are the ones closest to the Kremlin. A number of Russian opposition leaders are actively cooperating with the US authorities, who are consulting them on this issue.
Proximity to Putin, which used to be considered most important for capital growth in the Russian oligarchic system, is now becoming a considerable risk.
Reuters recently reported that, before the February 2018 announcement of new sanctions, some of Russia’s wealthy are trying to appear less often at Kremlin events. Russia’s oligarchy is quite dependent on the West, so such apprehensions about the sanctions are not surprising.
Not so long ago, Putin seemed to enjoy complete impunity for his actions on the international scene. The Kremlin was ready to fight on all fronts, send its troops to Ukraine and Syria, interfere in elections in Western countries through hackers and trolls, and even try to organise a coup in a Balkan country.
The reaction of the West was slow and weak at first, but it finally seems to be gaining momentum and going even beyond sanctions. The Joint Investigation Team, tasked with investigating the crash of Malaysia Airlines flight MH17 in Ukraine, is making progress, and, in January, is expected to indict a Russian general. The future of the Russian gas pipeline project to Europe, “Nordstream 2” (planned to be built across the Baltic Sea, from Russia to Germany), is also under question, as its European partners are pulling away.
Putin must have noticed by now that the international situation has really changed. With a stagnant economy and an upcoming World Cup, he might do well to try to fix relations with the West a bit.
And it seems that he’s ready to take a step back. He already declared the withdrawal of Russian troops from Syria (whatever this will actually mean) and started negotiations for placing UN peacekeepers in the war-torn Donbass region of Ukraine and for prisoner exchanges with Kiev. In recent months, there also haven’t been any new, known cases of Kremlin hacker attacks, and the troll factors seem to have quieted down.
At his recent public Q&A, Putin did not outline his strategy for the next presidential term. It seemed he actually avoided grand declarations which he usually makes at such events; there was not a trace of the aggressive rhetoric he used to maintain until recently.
In any case, this perceived retreat might be more tactical than strategic. Without an enemy in the West, Putin would lose a lot of his domestic legitimacy. This doesn’t mean that the Russian people want a confrontation; on the contrary – a recent survey shows that 75 percent think that relations with the US and other Western countries should be improved.
There is no contradiction here: Putin loves to talk about how he wants to improve relations, but the West is afraid of Russia’s growing strength and is trying to preclude such attempts.
The worsening of the economic situation in Russia was compensated for by the intensification of propaganda: weekly talk shows which spurn the West are already broadcast daily. TV ratings are falling but Putin doesn’t have a choice – amid low oil prices, he would find it very difficult to mobilise his base without an external “enemy”.
This means that Putin will be stepping back only as far as the West forces him to, and not a step more. He is no longer on the offensive and is now laying low and watching. How far the West is willing to go in pressuring the Kremlin remains uncertain, and the criteria by which new names will be included on the sanctions list are still unclear.
Paradoxically, it’s this atmosphere of uncertainty that makes sanctions such a powerful weapon. Putin himself loves using uncertainty to control the Russian elite, but now it’s the West playing this game. The severity of the sanctions is not as important as the anxiety that anyone could get sanctioned, especially if they show up in a photo with Putin.
Maybe that was why the oligarchs meeting Putin on December 21 were seated in alphabetic order around the table. Parhaps the seat next to the Russian president was so hot that his protocol people did what they had to to avoid awkward scenes.