Western countries struggle to curtail Russian economic activity
EVAN AND VLADIMIR
Tobin Auber, a friend of mine who lived in Saint Petersburg for decades (but who’s now stuck in Turkey in a complex, immigration-related “bureaucratic limbo,” which the British government should sort out), has been writing a memoir about his times in the Russian film industry. It’s in Russian but — if you speak the language — it takes you back to the chaotic but marvelous country that I moved to in 1999, before Vladimir Putin became president.
Of course, it’s possible to romanticize things, and of course, 1990s Russia was very, very far from perfect, but it’s heartbreaking to contrast the hope so many people felt back then with the hateful reality of what Putin is currently inflicting on Ukrainians and on anyone else who he finds inconvenient. So I send boundless respect and solidarity to Evan Gershkovich, the journalist accused of espionage for writing the truth, and to Vladimir Kara-Murza, the opposition activist jailed (“de facto for life”) for speaking the truth.
- “I am not losing hope,” Gershkovich wrote to his parents in a brief letter. “I read. I exercise. And I am trying to write.”
- “The day will come when the darkness over our country will evaporate,” said Kara-Murza in a speech at his show trial. “When black will be called black and white will be called white; when it will be officially recognized that two times two is still four; when a war will be called a war, and a usurper a usurper; and when those who fostered and unleashed this war will be recognized as criminals, rather than those who tried to stop it.”
We must not become inured to such barbarity. Everyone involved in either process should have assets in every Western country frozen and should be barred from travel to the West until the two men are released. Although that won’t make much difference to the judge who jailed Kara-Murza, who previously was part of the persecution of Sergei Magnitsky and was sanctioned as a result.
But, to end on a more hopeful note, here’s a shout-out to one Russian who’s still living like it’s a free country and whose protest at least one academic is linking to growing anger against conscription among ordinary Russians. Let’s hope this is the beginning of a movement in Russia to stop this war, and let’s hope Westerners retain their focus and resolve to do so, too.
Talking of sanctions, the U.S. and the U.K. have expanded their lists to try to prevent oligarchs from slipping assets out of their reach. Two Cypriot gentlemen — Demetris Ioannides and Christodoulos Vassiliades — will find their business activities catastrophically curtailed from now on, thanks to their alleged role in crafting the offshore structures used by Roman Abramovich and Alisher Usmanov, although they deny doing anything wrong.
The British government has also designated several close family members of oligarchs, including Gulnara Kerimova, the daughter of Suleyman Kerimov, who must under no circumstances be confused with Gulnara Karimova, the daughter of the former president of Uzbekistan. Although such confusion is not unjustified, because, as if the world was specifically trying to make things difficult, Karimova is spelled Kerimova in Turkish.
I am happy to see Washington and London coordinating their actions and maintaining their determination to undermine the business interests of the Russian elite. On that note, it is good that Britain has reversed its ludicrous decision to give oligarchs automatic access to frozen money if they want to sue journalists (although the situation remains suboptimal) and changed the rules about how permission will be granted in future.
However, I wish there was an equal urgency in efforts to close the loopholes that allowed suspicious wealth to flow into our economies in the first place because the best time to solve a problem is before it’s even happened. If we keep kleptocratic wealth out of our financial systems, that will help prevent new Putins from coming to power, will prevent them or their allies from enriching themselves at the expense of the rest of us and thus prevent suffering.
So I sincerely hope that the U.S. administration is listening to the concerns being expressed about the Corporate Transparency Act. This piece of legislation has the potential to radically improve the battle against financial crime worldwide, but only if implemented properly, which is looking increasingly doubtful. The regulations being put in place would force law enforcement agencies to obtain a court order to access company ownership information but would also make the reporting of that information essentially optional, which would severely limit its utility.
- “These aren’t flashy issues. The technical details of a draft Treasury rulemaking rarely make the front page. But these mistakes risk undermining the most important anti-money laundering law of the past 20 years,” noted U.S. Senator Sheldon Whitehouse.
- “Not getting this right undermines anti-corruption efforts not just in the U.S. but has far-reaching impacts on the global fight against corruption,” Lakshmi Kumar, the policy director of Global Financial Integrity, told the International Consortium of International Journalists.
The British government meanwhile has published its new economic crime strategy, which is full of ideas to tackle the deadly triumvirate of money laundering, fraud and kleptocracy, and promises new personnel, new resources, new IT, as well as new regulations. It’s a good strategy, written by serious people, and I sincerely hope it does help turn the tide.
- “The Plan’s outcomes-focused approach reflects a shared focus on directing public-private resource towards agreed priorities, to maximize collective, ‘whole-system’ impact against the threat,” said the Home Secretary and Chancellor of the Exchequer — who are respectively responsible for policing and finance — in a jargon-heavy introduction.
As I read the careful way that the strategy lays out how the government, the financial sector, lawyers, accountants, investigators, regulators and others will coordinate their efforts against a problem that spreads throughout society and the economy, I couldn’t help being reminded of something. Where else was it, I wondered, where I had learned about the need for a joined-up, whole-of-system approach to this urgent threat? Ah yes, it was in the proceedings of a conference on financial crime held all the way back in 1994, addressed by leading figures in U.S. and U.K. law enforcement, which I read last week as part of the research for a new book I’m writing.
- “There is no simple, easy answer to what is, in fact, a very complex problem. The worst thing, it would seem to me, is to view this as something cops do. ‘We’re going to solve this. We’re to put two FBI agents in Moscow and that will fix that. We’ll give FinCEN a new computer. That will solve it.’ It will not even barely address it. What has to really be done is that we as a matter of fundamental national policy have to address this across the board. That we need to engage the people who really know something about money, and that is the financial community, as allies,” said Stanley Morris, the then-director of FinCEN, the U.S. financial intelligence unit.
If you changed “FBI” and “FinCEN” for their British equivalents, that could have slotted pretty seamlessly into a launch event for the new U.K. strategy, which is a depressing thought. We’ve known what to do about economic crime for at least three decades, and yet we have consistently failed to actually do it. The strategy we really need is one that helps us to implement an economic crime strategy, but that I fear is still beyond us.
- “Organized crime is entirely motivated by profit. It follows that unfettered or easier mobility of persons and property will always be exploited by criminals to gain access to profit wherever it may be found. Untraceable, untaxable income in the hands of criminals is the new lingua franca of organized crime. The link between Medellin and Moscow is the $100 bill,” said David Veness, the assistant commissioner of London’s Metropolitan Police, at that same conference back in 1994.
I think that’s a good quote and just wanted to share it. It’s even more true now than it was then.
Anonymous accounts on Twitter get a bad press. But I am enormously grateful to whoever is behind @baasKlass for sharing a remarkable story from Lloyd’s List about how “flags of convenience” are being used to disguise the trade in Russian and Venezuelan oil.
In case you haven’t come across the term “flags of convenience” before, they refer to the practice of ship owners registering their vessels in a country other than their own to take advantage of more lenient regulations. According to one origin story, they first came about when floating saloons chose to fly the Panamanian flag so Americans could buy booze during the Prohibition, and they have since become a huge business for Panama, Liberia, the Marshall Islands, the U.K.’s tax havens and various other places. These registries allow ship owners to underpay their crews, and avoid environmental regulations, and disguise their ownership, and that’s just the start of it.
Beneath the larger registries is a layer of smaller ones, which are even more completely opaque. Previously, countries like Palau, Comoros and Saint Kitts and Nevis have provided flags for ships about to be broken up, so workers in the shipbreaking yards of Bangladesh and India can be treated badly and paid almost nothing, and now they’ve diversified into helping the Russians fund the murder of Ukrainians.
- “The nexus between the St Kitts & Nevis flag and the mysterious Dubai-based shipowner’s billion-dollar fleet that has been built from scratch in just 14 months remains opaque and obscure. This relationship is one of many that exist within the largely unregulated underbelly of privatized flags that often lack resources to provide proper regulatory or government scrutiny. Such traits are to the detriment of safety and technical oversight in international shipping,” notes the article, which is by Michelle Wiese Bockmann.
Sometimes, I think I’ve got the hang of things, and then I open a link like this one and realize there are labyrinths within labyrinths, which lead to more labyrinths. Funnily enough, I once visited the St. Kitts and Nevis ship registry, which was not in the Caribbean at all, but in a drab office building in the English town of Romford, though it appears to have since moved half an hour up the road to Grays.
St. Kitts is not alone in this regard: the Marshall Islands registry is headquartered just outside Washington, D.C., the Liberian registry is in Dulles, Virginia. The Panamanian registry, the world’s biggest, has an address in Panama, but was for most of its history run from an office in New York. Palau’s registry is headquartered in Greece and Comoros’ is in Dubai. It all serves as yet another reminder that the offshore world is completely artificial and only exists because we tolerate it.
If we want to stop tankers shipping Russian crude in defiance of sanctions, we should at the very least stop these registries from operating in our countries.
WHAT I’VE BEEN READING
I’ve been on holiday for two weeks and read a lot of thrillers, because that’s what I do on holiday, of which I think the best were “The Alice Network” by Kate Quinn and “Restless” by William Boyd. If anyone’s got any recommendations for more books of this nature, please send them my way! If you don’t listen to the Freakonomics podcast, then I highly recommend this episode on Delaware, which was fun, in the sense that it’s fun to have your pocket picked by a thief who really knows what he’s doing.