ANATOLII STEPANOV/AFP via Getty Images

Oligarchy and corruption spur Russia’s invasion of Ukraine

Oligarchy is a weekly newsletter tracking how the super rich are changing the world for the rest of us.

So much for the cautiously optimistic tone of last week’s newsletter regarding Vladimir Putin’s intentions. I have in fact so consistently got Putin wrong that, for most of my years, I could have been quite a good contra-indicator. This is odd. I saw what he did to Chechnya at the start of my career. I was in Georgia in 2008, and in Crimea in 2014. I sat through the inquiry into the 2006 murder of Alexander Litvinenko in London with polonium-210, perhaps the most deadly substance anywhere on earth, and wrote about the attempted murder of Sergei Skripal. Putin was responsible for all those terrible things.

In short, you’d have thought I’d have learned to expect the worse from him but somehow, I struggle to anticipate the actions of someone who, for the last decade and a half at least, has consistently meant harm to other people. Putin may be the closest thing real life has to a Bond villain, and Monday’s unhinged meeting of the Russian Security Council would barely have been more sinister if it had featured a shark tank and a white cat. It turns out that, although the long table looked weird, taking the table away looked even weirder.

I spent much of Monday evening chatting to three journalists whose opinion on the Kremlin I respect enormously, and the best analysis any of us could come up was that Putin had lost his mind. So, if you’ve come for anything more substantive than that, you’ll need to turn to Mikhail Zygar.

Zygar’s point is that Putin’s approach now isn’t too different to that of 2014, and I agree that this is a matter more of degree than substance. As such our response to it doesn’t need to change — it is ever more important that we stop him and his friends hiding their stolen wealth in the loopholes of our banking system. We do not want the equivalent of financial sleeper cells popping up to undermine our economies in the way he has undermined Ukraine.

If Western governments want to support democracy, as they say they do, it’s time for them to put their money where their mouths are and help ordinary voters wrest control of events from the oligarchs. That is true of Russia, of Ukraine, and of most other places too.

SANCTIONS

Apparently, Kingsley Amis once suggested that a new post-1991 edition of The Great Terror, Robert Conquest’s ground-breaking history of the Soviet government’s crimes, which was long criticized by people who refused to accept the true nature of the Stalinist tyranny, be re-named “I told you so, you fucking fools”

Anyway, I suspect a lot of security experts are biting their tongues to avoid a similar response to news that Berlin has finally pulled the plug on Nordstream 2. It’s great that this has happened, and congratulations to Chancellor Olaf Scholz for taking the difficult decision. However, considering the disastrous nature of this pipeline — both geopolitically and environmentally — it should never have come this close.

However, if this crisis is the impetus Europe needs to move away from fossil fuels and to stop shipping money to the autocracies and oligarchs that produce them, then some good will come of it.

  • “This crisis shows that Europe is still too dependent on Russian gas. We have to diversify our suppliers and massively invest in renewables. This is a strategic investment in our energy independence,” said Ursula van der Leyen, president of the European Commission, in a speech which also announced sanctions on banks, and all the members of the Russian parliament.

The U.S. has hit banks hard too, as well as Russian sovereign debt, and will sanction individual oligarchs tomorrow. London meanwhile sanctioned banks and two of Putin’s oldest friends, and another one’s son, all of whom mysteriously, with uncanny good luck, became multi-billionaires after he entered the Kremlin, and particularly after the Sochi Olympics. Boris Johnson should be congratulated on doing something worthwhile, but well, I imagine I’m not the only one channeling Mr Amis in wondering how it took him quite so long to get with the program, and why he has done so much less than other Western leaders.

If you think Russian oligarchs are rich, however, you need to check out 23-year-old Aflak Ahmad who leaves them all behind (thanks to the great Graham Barrow for introducing me to him), owing to his personal fortune of 146.46 trillion pounds (that’s around $200 trillion, and thus a fortune almost a thousand times greater than that of Elon Musk) as the sole shareholder of Aflak Travelling Abroad Ltd. 

Hmmm, you’re thinking, how come you haven’t heard of this guy? Well, there are two possible explanations for that. One of them is that Aflak Ahmad has kept himself to himself, and thus avoided publicity, even from an oligarch watcher such as yourself. The other – and, I admit this is the one I’m going with — is that Britain’s corporate registry publishes whatever someone throws at it, and Mr. Ahmad isn’t really worth that much at all. 

If Boris Johnson really wanted to do something about money laundering through London, rather than just winning some cheap headlines, he would do something about the disastrous mess that is the British record on fighting financial crime, including its failure to kick its shell company habit. More news on the U.K. government’s passion for cheap headlines is coming up shortly, by the way.

GOLDEN VISAS

In the 1980s, after Britain and China agreed that Hong Kong would revert to Chinese control, a lot of residents of the British colony decided they wanted to leave. London had no intention of admitting several million people, but some other – more entrepreneurial – nations spotted an opportunity. 

St Kitts and Nevis had an eye on selling passports to Hong Kong residents when it created its pioneering citizenship-by-investment law in 1984, shortly after independence. Of equal significance, Canada spotted profits in selling visas to these nervous and wealthy foreigners, and created its Immigrant Investor Program in 1986, in the hope of luring money from Hong Kong into its economy. This proved so successful that it unleashed a series of imitations: the United States created its own EB-5 visa in 1990; and the United Kingdom followed in 1994, with what eventually became known as the Tier One (Investor) visa.

The details of these schemes were different, but in essence they did the same thing: foreigners could jump the queue for residency if they handed over some cash. And that meant the schemes all had the same flaw. Since the governments of all three countries were essentially being given free money, they lacked any incentive to check where the money was coming from.

Inevitably, therefore, wealthy crooks took advantage of the situation. Canada, as the first mover, always had the biggest and most successful of the programs and was the first to get really alarmed about fraud. Border guards launched coordinated raids a decade ago, but flaws in the scheme’s design were apparent almost as soon as it was created.

Canada imposed a moratorium on the scheme in 2012, and cancelled it in 2014. It technically still exists in Quebec, but new applications are suspended.

So, why is this in a newsletter being published this week? Because Britain has just done the same thing, and shut down its own golden visa program.

  • “I have zero tolerance for abuse of our immigration system. Under my New Plan for Immigration, I want to ensure the British people have confidence in the system, including stopping corrupt elites who threaten our national security and push dirty money around our cities,” said Priti Patel who, as UK home secretary, is ultimately responsible for what Britain refers to as law enforcement, but which rarely involves any actual laws being enforced if they relate to people wealthy enough to hire a sufficient number of lawyers. The capital letters on “new plan”, by the way, are hers not mine.

As was the case in Canada, this is a scheme that has raised significant concerns among a large number of people for some time. Back in 2015, Transparency International pointed out that – since there was no requirement for payment to come from a U.K. bank account – there were essentially no significant checks on the origins of the funds paying for the visas.

  • “It is highly likely that substantial amounts of corrupt wealth stolen from China and Russia have been laundered into the UK through the UK’s ‘golden’ visa program,” the report said.

Again, as with Canada, the government tweaked the rules a couple of times before deciding to get out of the visa market, which meant that anyone who had purchased their residency with dodgy money had more than enough time to obtain citizenship: it takes six years to gain a passport, the tweaks happened seven years ago. As I said, this is just a cheap headline for a government keen to show it’s tackling nasty Mr. Putin but unwilling to actually do anything that might take more than half an hour to complete. 

We also need to consider the possibility that the U.K. doesn’t want to do anything that might inconvenience some of the wealthy foreign-born tycoons who have given money to Boris Johnson’s Conservative Party. Turning away this kind of money will take a lot more than a single statement on the government website, but a serious change of philosophy.

But what about the United States, that other first mover in the golden visa space? Americans have also raised serious concerns about the kind of people buying green cards, including in this report from the Government Accountability Office.

  • “Unique fraud risks identified in the program included uncertainties in verifying that the funds invested were obtained lawfully and various investment-related schemes to defraud investors,” the GAO noted.

A series of scandals related to the EB-5 program has kept it in the headlines, and a bipartisan effort has attempted to close some of the more egregious loopholes, but failed to gain much traction in the face of concerted effort by the real estate industry.

  • “It’s really unfortunate that a bipartisan bill supported by the overwhelming majority of EB-5 stakeholders was blocked at the behest of a small minority that blindly opposes much-needed accountability and transparency in the program.  Senator Grassley and I have worked together for years to develop a thoughtful, careful compromise that would both keep the program alive and curtail the worst abuses of it,” said Senator Patrick Leahy in June, after the attempt led by him and Chuck Grassley failed.

As a result of the failure, much of the structures that brought money into the program have lapsed, meaning that the EB-5 scheme is largely moribund, much to the distress of investors who were halfway through applying for residency.

It is not clear yet that the EB-5 visa will close like the British and Canadian programs (or indeed that the British one won’t be resurrected under some new formulation or that the Quebecois one will remain closed). However, I’m going to use this occasion to launch a new measurement I’m calling the Oligarchonometric Gap (OG), which is the length of time between an obviously flawed measure being launched for the benefit of oligarchs, and a government finally recognizing reality and abolishing it. And, interestingly, in all three countries, the gap was pretty similar.

In Canada (except Quebec), the OG was 28 years. In Britain, the OG was 28 years. In the US, the OG looks like 32 years.

What can we learn from this? Well, nothing obviously, except that governments take a long time before recognizing there’s no such thing as free money. However, if continental European golden visa schemes — which largely came into existence after the 2007-8 financial crisis – follow the same OG pattern, we’re going to need to wait for at least a decade and a half before countries get fed up with them. That’s good news for the oligarchs (isn’t it always?) and bad news for the rest of us.

DAFT ACRONYMS

I’ve been maintaining my watching brief on potential U.S. laws with unusually silly acronyms, and I’m pleased to bring to your attention NYET and SHAME. You’re welcome.

PLANS

On March 2, at 10am in Washington DC, I’m going to be talking about a long article I wrote for the National Endowment for Democracy, looking into whether the anti-kleptocracy movement can learn from the anti-communism movement of the Cold War. Sign up, it’ll be fun.

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Oliver Bullough

Oliver Bullough is an author and journalist from Wales, who specializes in writing about financial crime, often when it has links to the former Soviet Union. His most recent book is Moneyland, why thieves and crooks now rule the world and how to take it back, and he is currently trying to write another one despite lockdown.

@OliverBullough