27 - Getting the Oligarchs, Saving Ukraine
Grabbing yachts and jet aircraft, mansions, and bank accounts owned by Russian oligarchs close to, or dependent on Putin for their wealth and respectability certainly has significant symbolic value. Doing so takes away their impunity. Doing so may leave Putin with fewer fat-cat friends and admirers. But cutting into their lavish life-styles unfortunately is unlikely to persuade Putin to stay his murderous hand in Ukraine or to turn his army around. Innocent children huddling in darkened rail stations will still be targeted and their elders killed vindictively. So will Putin’s army and air force continue to spray cluster bombs into civilian areas in eastern Ukraine. Putin presides over a revanchist Murder Inc.
Finding some ingenious way to threaten or directly to harass persons much closer than oligarchs to Putin in his bunker would be efficacious. So would giving Putin’s generals reason to distrust their futures. But neither the U. S. nor Europe appear to have useful ties to the siloviki – the securocrats of today’s Russia. As far as is known, Putin is surrounded only by his own hand-picked loyalists. Fear and the lack of viable alternative options will keep many of those who carry out Putin’s war design and orders in line for so long as they believe his disinformation and lies, and his chances of victory. The Russian people, even in the cities, are so far largely accepting Putin’s propaganda, too.
Nevertheless, one never exactly knows what will trigger defections in Russia from Putin’s destructive war. That is why a bill introduced last week by four American senators may help to maintain pressure on the oligarchic millionaires and billionaires who have long paid fealty to Putin. The Kleptocrat Liability for Excessive Property Transactions and Ownership Act (KLEPTO) would unveil the real ownership of property holdings now obscured by layers of disguised and anonymous ownership; shell companies in distant tax havens purposely obscure who owns what and thus prevent the holdings of oligarchs and their ilk from being known (and seized).
The Act, which still needs to be passed by both houses of Congress, further requires the Federal Aviation Administration to do exactly the same for all aircraft registered in the United States. The Department of Treasury will be tasked, under the Act, with preventing purchases of real estate, sea-going vessels, aircraft, art, and automobiles from being used to launder illicit monies. There are other provisions in the proposed Act that will further make it easier to trace beneficial ownership, to make washing of dark money that much more difficult, and to make it easier for Treasury sleuths to prevent oligarchs and other shady persons and polities from hiding and utilizing their ill-gotten wealth. The larger global battle against grand corruption generally will greatly be assisted by the passage of the new act.
Senators Bill Cassidy (R –LA), Elizabeth Warren (D – MA), Sheldon Whitehouse (D –RI), and Roger Wicker (R –MS), who introduced the bi-partisan bill, presumably hope that passage of the Act will somehow bring the oligarchs to their senses, make it much easier to sequester their (hidden) assets, and – symbolically – show that American legislators are doing what they can to cripple Russia’s war effort. Fortunately, the bill also serves significant purposes beyond the war and beyond Russia. It closes a series of loopholes that kleptocrats from around the world have long used to deny ownership of assets held in the U. S. It enables the Treasury to follow trails of illicit proceeds now blurred by straw names. Ultimately, the Treasury will be able to frustrate the transfer of kleptocratic proceeds into safe harbors in the U. S. or abroad. Theft from public and private coffers will be more easily uncovered. According to one very knowledgeable commentator: “The KLEPTO Act's due diligence requirements for those involved in real estate transactions offers a path forward for the U.S. real estate market to finally close its doors to dirty money from oligarchs, kleptocrats, and other criminals.”
Senator Whitehouse said that “Putin and his corrupt oligarchs pillage their own people, then use all manner of financial schemes to stash that stolen money in high-end real estate, mega-yachts, and private jets. Step one in neutralizing those oligarchs and their schemes is pinpointing their crooked assets. This bipartisan legislation will shine the light of transparency on these shady transactions and help to crack down on kleptocracy and international corruption.”
The senatorial sponsors of the proposed Act, drawing on leaks publicized by the Panama, Paradise, and Pandora Papers (and Treasury’s own files) assert that Putin, his oligarchs, and other Russian elites have hidden the equivalent of $1 trillion across the globe, much of it in the U. S., the UK, Switzerland, and several other holding arenas, including two American states.
A Treasury unit known as Russian Elites, Proxies, and Oligarchs (REPO) enforces US sanctions on Russia and Russians, and yanks yachts whenever it can. The Department of Justice has its own Klepto Capture task force. Deputy Attorney General Lisa Monaco warned oligarchs that “We will use every tool to freeze and seize your criminal proceeds.” On Wednesday that task force indicted Konstanin Malofeev for sanctions breaking and financing separatism in Crimea. It seized millions of his dollars in U.S. banks. But he remains at large.
Justice also added further sanctions on Russian banks, making their capital flows and transactions more difficult. It sanctioned Putin’s daughters. It also closed down a Russian-language darknet online market that specialized in forged passports, drug sales, and purloined financial data. Justice said that transactions via the so-called Hydra Market accounted for 80 percent of cryptocurrency darkweb exchanges. The department managed to seize $5.2 billion worth of bitcoin and other cyber cash.
The long arm of the US Treasury also took control of a 254-foot long yacht in Mallorca owned by Viktor Vekselberg, valued at $120 million. Vekselberg, supposedly very close to Putin, owns Russia’s largest aluminum producer. He once owned homes in Connecticut and New York.
Alexander Mikheev, another rich Russian plutocrat and the head of Russia’s state arms exporting firm, almost had his 157-foot long yacht scuttled by a sailor, also in Mallorca; the sailor was outraged by attacks on Ukraine.
Oleg Deripaska owns homes through a company in Delaware. Leonid Mikhelson, according to Forbes the wealthiest of the Russian oligarchs, financed aircraft purchases in Utah. Roman Abramovitch, worth $13.5 billion and sanctioned in Europe but surprisingly not in the U.S., has many American investments as well as huge holdings in Russian oil, nickel, and steel. (See #11 of this Newsletter, March 18.) He owned the Chelsea Football Club until last month. Two of his superyachts were moored in Istanbul last week, along with vessels belonging to Andrey Molchanov and Maxim Shubarev, additional friends of Putin and wealthy oligarchs. Washington should be calling Istanbul, urgently.
Gennady Timchenko and Igor and Boris Rotenberg have all had their British assets frozen. Yuri Milner is another, with large holdings in Silicon Valley. Kirill Shalamov is Putin’s ex-son-in-law and acquired a stake worth billons of dollars in one of Russia’s more profitable petrochemical enterprises.
Alisher Usmanov, a Uzbek-Russian billionaire, invested heavily in Facebook and Russian mining prospects. Germany recently detained his massive yacht after tracing its ownership to his sister via a paper company in the Cayman Islands that was in turn owned by a cover company in Cyprus owned by a Swiss holding company controlled by a trust!
A further twenty-five or so named oligarchs are on European and American watch lists, many since 2014. Now the issue is how to bring all of the thirty-seven or so of the wealthiest billionaire oligarchs (there are others) to book or, if possible, to have them turn state’s evidence via plea bargains.
They each own a part of the puzzle of Putin’s personal wealth and personal connections and, if they are not too apprehensive of Putin’s wrath and the long reach of his poisoners, perhaps one or two might be turned. They each know how the British Virgin Islands, Switzerland, Cyprus, Delaware, South Dakota, and other global tax havens have successfully been employed to shield their and his massive profiteering. They know how much has been parked in London, and whose money is behind the mansions and soccer clubs that Russians own. One or more doubtless know where Putin has stashed his own proceeds, and how he paid and pays for his mistress’ dacha in Monaco.
Most of all, if Washington or London can only gain the cooperation or one or more oligarchs we can learn in detail how they made their fortunes. When Boris Yeltsin was the first post-Soviet leader of Russia he sold off state assets very cheaply to most of the entrepreneurs whom we now call oligarchs. Abramovitch purchased an aluminum monopoly for millions of dollars and later sold it to the state for billions of dollars. All of the men now being sanctioned by Europe and the U. S. gained their mega-monies in much the same manner.
Putin’s hold on them is strong, for he knows how they were advantaged by Yeltsin and then by him, and they know that he can break them just as he imprisoned Mikhail Khordokovsky, once the czar of oil, on trumped up charges. None of the others wants to spend time, as Khordokovsky did, in a Siberian gulag.
Will the revelation of Russian-perpetrated atrocities near Kyiv and in eastern Ukraine loosen oligarchic tongues? Will their potential complicity as war criminals urge them to turn on him to save themselves? And could we induce any generals to abandon war for safer havens? Probably not, is the short answer, but the underlying basis for taking luxury items away from oligarchs is to make them all, and others necessary to Putin’s war effort, concentrate his and their thinking as each looks for an escape route.