US sanctions on Russian oligarchs miss the richest of the rich
WASHINGTON: The word Russian oligarch conjures up images of London’s stately mansions, gold-plated Bentleys and sleek superyachts in the Mediterranean, their decks draped with partiers dripping in ornaments.
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 ease the jet-setting lifestyle of Russia’s ultra-rich and notorious – the withdrawal of tanks and troops. Forces very little.
The US sanctions target Russian President Vladimir Putin and a handful are believed to be his closest security advisers, including Foreign Minister Sergei Lavrov. But the list is also notable for those who aren’t on it—most of the top names on Forbes’ list of the richest Russians, whose multi-billion-dollar wealth are now largely tied with those of the West, are in Silicon Valley. Starting from investing- to British Premier League soccer teams.
Citing concerns from European allies, the US also did not ban Russia from what was seen as the harshest punishment at its disposal, SWIFT, the international financial system that banks use to transfer money around the world.
Biden said Thursday that new US sanctions will cripple Russia’s financial system and stifle its economic growth by targeting Russia’s biggest banks, which the Treasury Department said account for about 80% of all banking assets in the country. .
“Putin is the aggressor. Putin chose this war. And now he and his country will suffer the consequences,” Biden said, taking measures that would “immediately and over time impose serious costs on the Russian economy.”
But most of the wealth of Russia’s richest people is not in approved Russian banks. Putin and the oligarchs allied with him have had decades to accumulate wealth abroad, much of it hidden in ways designed specifically to evade sanctions.
Although the Kremlin officially reports Putin’s annual income of $131,900, the Russian president is believed to benefit from several billions in cash and foreign 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 US-based National Economic Bureau estimated that wealthy Russians have $800 billion in offshore banking centers in the United Kingdom, Switzerland, Cyprus and similar. That vast fortune, possessed by a few hundred ultra-rich individuals, is roughly equal to the wealth of the rest of the Russian population of 144 million people.
Some oligarchs have also acquired dual citizenship in Britain and other Western countries, adding legal complications to attempts to unilaterally confiscate their assets.
One example is Roman Abramovich, a former Russian provincial governor and Putin ally who has become a steel and metal magnate. Now a dual Israeli citizen with a net worth of over $13 billion, Abramovich has used his fortune to buy 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 the world’s most expensive superyacht, the 455-foot-tall Solaris, which has a helicopter hangar, tennis courts, pool and berths for about 100 guests and crew.
Also not on the sanctions list is another Russian metal tycoon Alisher Usmanov, who was an early investor in Facebook. His fortune is estimated at more than $ 14 billion.
Usmanov recently sold his stake in British soccer club Arsenal for $700 million and, according to Forbes, owns two huge estates in London—Beachwood House and Sutton Place—totaling $300 million. Usmanov’s superyacht, the Dilbar, is 512 feet from bow to stern, longer than Abramovich.
Daniel Fried, a former US official under both Democratic and Republican administrations who helped prepare US sanctions against Moscow in the wake of Putin’s 2014 invasion of the Crimean peninsula, said he was surprised that Abramovich and Usmanov announced Thursday Sanctions were not on the list, given his long relationship with Putin and visible wealth in the West.
But, Fried warned, sanctioning Russian oligarchs would have limited effect on persuading Putin to change course in Ukraine.
“He absolutely owns them. He crushed them and they exist only through his suffering,” Fried said. “He can jail them, or kill them, and the notion that oligarchs can exert influence on Putin is foolish.”
Still, he said the opinion of the wealthy, educated elite carries some intangible weight that Putin avoids at his own risk. While sanctions are unlikely to turn oligarchs away from Putin, they do increase the cost of his continued support for them.
“They can’t stop or vote him out of office. But until he is, he is only in absolute control,” said Fried, who is now a fellow at the Washington-based Atlantic Council.
The family fortunes of many of Russia’s billionaires date back to the 1990s, the turbulent decade following the collapse of the Soviet Union. Under Boris Yeltsin’s notoriously corrupt presidency, major state-controlled assets such as oil refineries, steel mills, aluminum smelters and tractor factories were purchased by politically influential people, often 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 was previously appointed by Yeltsin as head of Russia’s FSB, one of the country’s most powerful espionage and security agencies.
Putin has ruled Russia for the past 22 years, crushing those who challenged him.
Mikhail Khodorkovsky, an oil trader who was once considered the richest man in Russia, ran after Putin when he embraced the free market altogether and began to criticize the remnants of the Soviet central plan. Khodorkovsky was arrested by Russian authorities in 2003 and charged with fraud, money laundering and embezzlement. After spending a decade in prison, he was released in 2013 and fled to London, where he now heads a foundation, the Dossier Center, dedicated to uncovering criminal activity by Kremlin insiders.
Boris Berezovsky, a mathematician-turned-Mercedes dealer who had earned a fortune by acquiring the country’s main television channel in the late Soviet era, was tried in absentia on charges 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 she feared she was poisoned after losing a major court battle against Abramovich, her former business partner. Originally believed to be a suicide, a coroner recorded the cause of death inconclusive.
“Every oligarch owes the protection of their wealth to the Kremlin,” said Max Bergman, a senior fellow at the Center for American Progress who also worked at the State Department during the Obama administration. “The oligarchs are an important pillar of the Putin regime and are heavily exposed because their wealth is held in the west – in villas in the south of France, in Trump properties and in sports teams.”
Maria Shagina, a sanctions expert at the Helsinki-based Finnish Institute of International Affairs, said European countries are trying to protect their own economic interests from the effects of sanctions, be it natural gas pipes in Germany, diamonds imported from Siberian mines or Have Italian luxury. Cars and designer handbags sold in Moscow or St. Petersburg.
“We see that the Europeans do not want to bear the cost of any sanctions,” Shagina said. “It’s painful for everyone.”
But, experts said, the sanctions announced this week will hurt and eventually force the Kremlin to make tough budgetary choices by undermining the Russian economy.
Most Russians are significantly poorer than their Western counterparts. According to 2020 data compiled by the World Bank, the Russian Federation ranks 83rd in GDP per capita, with a per capita rate of slightly less than $11,000. This is less than a third of the EU average and about one-sixth of the GDP per capita for the United States.
“Putin will have to choose between putting money into his army or paying pensioners,” Bergman said. “So the sanctions serve to undermine Putin’s power and strength in the long run.”
Meanwhile, wealthy Russians are investing in cryptocurrencies and using other emerging strategies to protect their fortunes, just as they adapted to the first round of US sanctions following Putin’s 2014 Crimean invasion .
“Sanction enforcement is inherently a cat-and-mouse game,” said Marshall Billingsley, who helped set sanctions policy for the Trump administration, “and has asked them, since Crimea, to establish alternative mechanisms to contain the hard currency.” It’s been eight years for Governance is flowing.”
Edward Fishman, a former State Department official during the Obama administration, said the move to approve Putin sends a strong signal of support to Ukrainians who are under fire. But the economic penalty has no real effect on the Russian leader.
“No sanctions can dramatically reduce Putin’s quality of life … Putin considers the Russian economy his personal piggy bank,” Fischman said. “President Putin’s wealth comes from Russian taxpayers’ hard-earned money, as well as from Russia’s oil exports.”