Bringing Russian Oligarchs to Justice

The hard, cunning tycoons at the helm of Russian business are being squeezed as never before. Unprecedented investigations into their fortunes are being launched by Western governments.

A rare case of Russo-Western cooperation

At the same time, if they retreat from their international lifestyles back to Russia, they face increased Kremlin supervision.

In a rare case of Russo-Western de facto cooperation, the oligarchs thus have it coming from both sides.

“Oligarchs be warned: We will use every tool to freeze and seize your criminal proceeds,” declares U.S. Department of Justice Deputy Attorney-General Lisa Monaco on announcing a special Klepto Capture task force.

Veteran public prosecutor Andrew Adams, who will run that task force, states: “There will not be an escape hatch around the sanctions through money launderers and opaque financial networks.”

Do not underestimate oligarchs

Sounds like the oligarchs are finally in for some well-deserved hard times?

That would be great, but do not forget that these men – all men – are equipped with enormous resources.

These resources extend well beyond cash and investments, and especially include winding their way through the dark corridors of political power. That is how they made their money, after all.

Western eagerness? Ignorance? Complicity?

Many of these oligarchs took control of the largest corporations in Russia in the early and mid-1990s at a time when it was essential to have connections to President Yeltsin’s entourage, mafia protection and opaque ties to Russian banks.

Western governments overlooked the possible criminal activities that those Russian oligarchs had engaged in to make and secure their wealth.

According to the UK’s Tax Justice Network:

Decades of courting finance from dictators, tax evaders and organized crime with financial secrecy services and eyes wide-shut regulations have made it nearly impossible for (Western) governments to track down the billions in assets and wealth held by their sanction targets. An estimated $10 trillion is held offshore anonymously by wealthy individuals.

The game has changed

The world can only hope that change is not just in the air but will hit those Russian billionaire crooks hard.

Australia, Canada, Germany, France, Italy, Japan, the UK, and the U.S. have established the “Russian Elites, Proxies, and Oligarchs (REPO)” task force to coordinate investigations of all sanctioned oligarchs and their corporations. And, the United States is offering rewards of up to $5 million for information that helps the investigations.

The U.S. Treasury has also issued an “Alert” warning “enablers” of “Russian Elites, Oligarchs and their Family Members” to be on guard when it comes to transactions in real estate, art, and other high-value luxury goods.

Their lawyers, accountants, bankers and other consultants to these Russians are being placed under long-overdue scrutiny. They will be prosecuted if they continue to service old clients now on the sanction lists.

Freezing the loot

Under a series of presidential executive orders dating back to the Russian invasion of Crimea in 2014, the U.S. government has extensive sanction powers.

But as Tom Firestone, a partner at the law firm Stroock & Stroock & Lavan, stresses, these powers can “result in blocking, but not seizing property (such as yachts and mansions). The property need not be connected to the reasons for sanctioning an individual, there is little to no judicial oversight involved in blocking assets, and there is no need for the authorities to have proof of a crime.”

Firestone, a former U.S. prosecutor, whose career involved being based for some time in Moscow for the U.S. Department of Justice, states that it is far more difficult for the authorities to pursue full asset forfeiture.

In this case, there has to be a judicial order, proof of a crime by the sanctioned individual, and evidence that connects the assets of sanctioned individuals to a crime.

Hiding the loot

Some oligarchs claim that they are virtually destitute as a result of sanctions.

A pathetic interview given by one of the most powerful oligarchs, Mikhail Fridman, seeks to win sympathy. Do not be surprised if he, and many others who have been sanctioned, hire expensive lawyers (they can get permission to do so from governmental sanctions’ authorities), paid for perhaps by their friends and relatives, to challenge the asset freezes.

According to Drew Sullivan, head of the Organized Crime and Reporting Project (OCCRP), investigations together with other media organizations to produce the Russian Asset Tracker are proving to be very difficult.

The shell game

As some of the reports on this tracker reveal, suspected assets are often held in the names of offshore holding companies, registered, for example, in the British Virgin Islands, which are owned in turn by multiple layers of other holding companies to conceal the identity of the true owners.

Some of the companies that are controlled by oligarchs show they have less than 50% ownership, with other key shareholders being relatives or friends.  This may enable them to avoid some asset freezes.

Russian “trusts” in Switzerland and South Dakota

Then, in many cases, the oligarchs have established trusts in Switzerland or in South Dakota, or in many other locations, that control the assets.

Sullivan notes that in some cases the oligarchs claim they do not own the vast mansions that they call home, but just rent them from trusts, which could be controlled by family members or other proxies.

In addition, assets are hidden through nominal bank accounts, say in Cyprus, that have no obligations to reveal true beneficial ownership details.

And, adds Sullivan, there is evidence that oligarchs anticipating the latest sanctions, moved wealth in recent months into assorted vehicles to place them beyond the grasp of Western authorities.

Short-term challenges

The immediate challenge for Western investigators is to be able to identify assets belonging to sanctioned oligarchs. They can try and subpoena information from hedge funds and private equity firms and the wealth management departments of banks.

They can also try and locate informants. They can do painstaking research into all manner of financial records. Tom Firestone warns that this could all take a long time.

Karen Greenway, a former U.S. kleptocracy investigator at the FBI, worries about whether the current zeal of Western authorities to go after the oligarchs will decline over time.

She is right to worry. The UK may well revert to its old cozy relations with the oligarchs once the Russia-Ukraine situation allows the British government to lift sanctions.

Long-term challenges

The investigations now underway will clearly rob the oligarchs of some of their benefits and privileges, if only temporarily.

It will force some of them to demonstrate their loyalty once more to Putin – perhaps with transfers of still more cash into his pockets.

For Western governments, however, the difficulties they face in bringing the oligarchs to justice should finally convince them to urgently undertake a series of critical steps.

1. Boost budgets for their justice department

2. Very swiftly approve beneficial ownership rules and laws that block loopholes

3. End the “golden visa and passport” systems that numerous countries offer to the super-rich

4. Establish new laws that can fling the Russian oligarchs’ Western “enablers” into jail if they continue to aid and abet money launderers.