Russia’s Sanctions: Are the Oligarchs Feeling the Brunt?

By Stephen Levy

The United States began its sanctions program to discourage the conflict in Ukraine by targeting individuals. In March 2014, the President issued a stream of Executive Orders targeting first individuals directly violating the territorial integrity of Ukraine, then moving onto those who “undermine[d] democratic processes and institutions in Ukraine”. In the State Department’s own words, the United States is directly targeting “individuals in Putin’s inner circle” to “send a strong message to the Russian government that there are consequences for their actions”.

To emphasize this strategy, the U.S. government has gone in search of both the financial assets and the playthings of the implicated Russians. The Department of Homeland Security announced it was on the hunt for “shiny toys” owned by the implicated individuals in the United States. Homeland Security’s Foreign Corruption Investigations Group was tasked with investigating the sanctioned persons, with the Treasury Department to freeze the assets.  Similar efforts have propped up through the European Union as well.

Has that actually taken place? The answer, perhaps unsurprisingly, is a resounding “kind of.”

On September 23rd, Italy seized $36 million in assets from Arkady Rotenberg, a confidant and close friend of President Vladimir Putin.  These included a luxury hotel in Rome, as well as villas elsewhere in Italy. Rotenberg’s response was to claim he had no accounts and assets in Italy, despite convincing evidence to the contrary. However, as the article notes, Rotenberg has other assets in Europe that remain in his hands, including a stadium in Finland.

One limit on organizations pursuing the luxury boats and fancy cars is the fact that Russia last year banned executives of state-owned companies and government officials, a group covering many of the oligarchs, from holding bank accounts or financial statements abroad, and required them to declare property held abroad as well as how they paid for it.

The Department of Homeland Security has not said whether any actual property has been or could be seized in the United States. The only major publicized seized assets of individuals so far have occurred in Europe.

The seeming lack of action in the United States has not prevented Russians from already taking actions to protect themselves. Perhaps the single most famous asset “owned” by a Russian in the United States is the National Basketball Association’s Brooklyn Nets. Despite prominent advertising of Jay-Z as their owner, the Nets are primarily owned by Mikail Prokhorov. Prokhorov is a prominent Russian oligarch and “frenemy” of President Putin, having worked with him in the past as well as running against him for President in 2012, in what may have served as a gambit to siphon competition from Putin’s competitors. Prokhorov, who has not been specifically targeted by sanctions yet, currently owns the Nets via a U.S.-held company, but talks emerged that he hoped to transfer ownership to one of his Russian-held companies. Rumors have also begun that he is seeking to cash out his investment, while maintaining his leadership role in the team.

Other Russian oligarchs have done much the same thing. They use offshore corporations and other such inventions to protect their assets due to their significant wealth and ties to Russian leadership. They are likely also motivated by Putin’s willingness to jail and punish oligarchs that do not cooperate with his plans, as Putin’s treatment of former oligarch Mikhail Khodorkovsky indicated. They have also acted preemptively at hints of sanctions from western leaders.

Thus, U.S. sanctions personnel might be frustrated in their search. Russian billionaires have extensive ties to the United States, as opposed to other subjects of U.S. sanctions. However, they also have likely used lawyers and other professionals to protect and shield their assets. Many Russians have already claimed they owned no assets in Europe or the United States, as Mr. Rotenberg said when his assets were seized in Italy.

One notable success was in Switzerland- not part of the E.U., but increasingly under pressure from other countries and regions for sheltering money in its banks. Switzerland froze the bank accounts of Victor Yanukovich, the deposed President of Ukraine, now sheltering in Russia. However, Yanukovich is not Russian, despite what western Ukranians might say, and nations might be less afraid of upsetting an overthrown leader than billionaires with powerful companies and bank accounts.

In a both fitting and sad conclusion for the state of sanctions against individual oligarchs, Russia’s legislature has begun debating a law to fully compensate oligarchs whose assets are seized.