US Sanctions on Russian Oligarchs Miss the Richest of the Rich
WASHINGTON — The term Russian oligarch conjures up images of posh London mansions, gold-plated Bentleys and sleek superyachts in the Mediterranean, their decks draped with revelers dripping in jewels.
But the series of sanctions against the oligarchs announced by President Joe Biden this week in response to the invasion of Ukraine may do little to alleviate the jet-set lifestyle of the ultra-rich and infamous in the city. Russia – let alone force the withdrawal of tanks and troops.
The US sanctions target Russian President Vladmir Putin and a handful of people believed to be among his closest security advisers, including Foreign Minister Sergei Lavrov. But the list is just as remarkable for anyone not on it – most of the big names on Forbes’ list of the richest Russians whose multibillion-dollar fortunes are now largely tied to the West, investments in Silicon Valley start-ups to British Premier League football teams.
Citing the concerns of European allies, the United States also failed to impose what was seen as the harshest punishment available to it, barring Russia from SWIFT, the international financial system that banks use to move money. money in the world.
Biden said Thursday that the new U.S. sanctions would nonetheless cripple Russia’s financial system and hamper its economic growth by targeting Russia’s largest banks, which the Treasury Department says hold nearly 80% of all banking assets in the country.
“Putin is the aggressor. Putin chose this war. And now he and his country will bear the consequences,” Biden said, outlining measures that “will impose a significant cost on the Russian economy, both immediately and eventually”.
But much of the wealth of Russia’s wealthiest is not held in sanctioned Russian banks. Putin and the oligarchs aligned with him have had decades to hide assets overseas, much of it stashed in ways specifically designed to avoid sanctions.
Putin himself is thought to personally control several billion in cash and assets overseas, but to avoid the appearance of corruption his money is in accounts held by trusted friends and relatives, many of whom are from his hometown of St. Petersburg.
A 2017 study of Russian oligarchs published by the US-based National Economic Bureau estimated that up to $800 billion is held by wealthy Russians in the UK, Switzerland, Cyprus and banking centers similar offshore. This immense fortune, held by a few hundred ultra-rich individuals, is roughly equal to the wealth of the entire rest of Russia’s 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.
One 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 an estimated net worth of more than $13 billion, Abramovich 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 what is believed to be the most expensive superyacht in the world, the 455-foot-long Solaris, which includes a helicopter hangar, tennis court, swimming pool and rooms for more than three dozen guests.
Alisher Usmanov, another Russian metals tycoon who was an early investor in Facebook, is also not on the sanctions list. His fortune is estimated at more than 14 billion dollars.
Usmanov recently sold his stake in British soccer club Arsenal for $700 million and, according to Forbes, owns two sprawling estates in London – Beechwood House and Sutton Place – worth a combined $300 million. Usmanov’s superyacht Dilbar measures 512 feet from bow to stern, slightly longer than Abramovich’s.
Daniel Fried, a former US official in both Democratic and Republican administrations who helped craft US sanctions against Moscow following Putin’s 2014 invasion of the Crimean peninsula, said he was surprised that Abramovich and Usmanov are not on the sanctions list announced Thursday, given their long ties to Putin and visible assets in the West.
But, warned Fried, sanctioning Russian oligarchs would likely have limited impact on persuading Putin to change course in Ukraine.
“He absolutely owns them. He crushed them and they only exist through his suffering,” Fried said. “He can imprison them or kill them, and the idea that the oligarchs can exert influence on Putin is insane.”
Yet he said the opinion of wealthy and educated elites carries intangible weight which Putin defies at his peril. While the sanctions are unlikely to drive the oligarchs away from Putin, they increase the cost to them of their continued support.
“They can’t arrest him or have him removed from office. But he only has total control until he’s not,” said Fried, who is now a member of the Council of the ‘Atlantic, based in Washington.
The family fortunes of many Russian billionaires date back to the 1990s, the turbulent decade following the fall of the Soviet Union. Under Boris Yeltsin’s notoriously corrupt presidency, key state-controlled assets such as oil refineries, steel mills, aluminum smelters and tractor factories have been gobbled up by politically influential figures, often bought out. assistance from government guaranteed loans.
Then, in 1999, Yeltsin unexpectedly resigned and Putin, then relatively unknown, was named interim president. A former KGB agent, Putin had previously been appointed by Yeltsin to head Russia’s FSB, one of the country’s most powerful spy and security agencies.
Putin has ruled Russia for the past 22 years, crushing those who dared to challenge him.
Mikhail Khodorkovsky, an oil baron once considered Russia’s richest man, clashed with Putin when he embraced the free market more and began to criticize remnants 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 prison, he was released in 2013 and fled to London, where he now runs a foundation, the Dossier Center, dedicated to exposing the criminal activities of Kremlin insiders.
One of his most trusted assistants at the Yukos Oil Company, Leonid Nevzlin, was forced to flee to Israel. But even exile didn’t prevent the billionaire from being convicted in absentia on widely discredited murder charges.
Boris Berezovsky, a mathematician turned Mercedes dealer who amassed a fortune acquiring the country’s main TV station in the late Soviet era, was tried in absentia for fraud and embezzlement after fleeing to London in 2000.
He was found dead on the bathroom floor of his home in the south of England in 2013. His daughter said he feared he was poisoned after losing a major court battle against Abramovich, his former business partner. Originally ruled a suicide, a coroner recorded the cause of death as inconclusive due to conflicting forensic evidence.
“Every oligarch owes the preservation of their wealth to the Kremlin,” said Max Bergmann, senior fellow at American Progress, who also served in the State Department during the Obama administration. “The oligarch class is an important pillar of Putin’s regime and is highly exposed because its assets are held in the West – in villas in southern France, condos in Trump properties and in sports teams.”
Maria Shagina, a sanctions expert at the Helsinki-based Finnish Institute of International Affairs, said European countries were seeking to protect their own economic interests from the effects of sanctions, whether natural gas being transported to Germany, diamonds imported from Siberian mines or Italian luxury goods. designer cars and handbags exported to be sold in Moscow or St. Petersburg.
“We see that Europeans don’t want to bear the cost of sanctions,” Shagina said. “It’s painful for everyone.”
But, experts say, the sanctions announced this week will cause pain and ultimately force the Kremlin to make tough fiscal choices by weakening the Russian economy.
Most Russians are significantly poorer than their Western counterparts. The Russian Federation ranks 83rd in gross domestic product per capita, at just under $11,000 per person, according to 2020 data compiled by the World Bank. This is less than a third of the European Union average and about a sixth of the GDP per capita of the United States.
“Putin will have to choose between putting money into his army or paying pensioners,” Bergmann said. “Thus, the sanctions serve to degrade Putin’s power and strength in the long run.”
Edward Fishman, a former State Department official during the Obama administration, said the decision to sanction Putin sends a strong signal of support for Ukrainians who are under fire. But the economic sanctions have no real effect on the Russian leader.
“No amount of sanctions can significantly reduce Putin’s quality of life…Putin treats the Russian economy like his own personal piggy bank,” Fishman said. “President Putin’s wealth is not hidden in bank accounts in his name. President Putin’s wealth comes from the hard-earned salaries of Russian taxpayers, as well as Russia’s oil exports.”
Goodman reported from Miami, El Deeb from Beirut.