The U.S. devised sanctions to influence ordinary Russians
If you haven’t yet read Politico’s oral history of the Western response to Vladimir Putin’s aggression against Ukraine, then you should do so ASAP. It is a remarkable piece of work that gives extraordinary insights into U.S. decision-making in the run-up to an unprecedented crisis. I think it works very well in conjunction with the BBC Series “Putin vs the West,” which has a longer x-axis but similarly excellent access. A key theme was an awareness that the Kremlin won the information war in 2014 and a determination to prevent that happening again. That informed far more of the West’s response than anybody (by which I mean, in the Trumpian sense, “me”) realized — up to, and including, who got sanctioned.
- “Look, in 2014, we didn’t win the narrative within Russia — so this time, let’s seize the physical assets of the kleptocracy, the yachts, the fancy cars and luxury apartments — not so much because we thought the owners of those assets would influence Putin, but it was intended to be a demonstration to the Russian people that they’d been getting ripped off for a very long time,” said Daleep Singh, the U.S. National Security Council’s deputy national security adviser for international economics.
A year ago, when I was talking about sanctions, it didn’t occur to me that policymakers were using them not just to influence the Kremlin or to degrade Russia’s abilities — which were the two dominant explanations at the time — but also as a tool in the global influence campaign aiming to paint Russia as a kleptocracy, not as a rival civilization. It’s clever. Although, having said that, it is perhaps cleverer for a country like the U.S., where courts don’t oversee sanctions, than it is for the European nations, where sanctioned individuals can challenge their designation. Certainly, if I was an oligarch’s lawyer, I’d now be arguing that my client had been targeted unfairly in a propaganda battle, rather than because of anything he’d done. And I do wonder if, perhaps, officials in the U.K. or EU aren’t now slightly cursing Singh for saying the silent bit out loud.
These days, however, the buzzword is “circumvention” and how to stop Russia from rerouting its trade and finances via countries like Turkey, the United Arab Emirates, Georgia and Kazakhstan, opposition to which is coordinated by the multilateral Russian Elites, Proxies and Oligarchs Task Force. Before I move on, and I appreciate they were in a hurry this time last year and perhaps couldn’t get quite as creative as they might have liked, but surely they could have come up with a better acronym than REPO? Not least because “repo” is already a thing in financial markets. It’s taken me about 90 seconds to come up with CORRUPT — Countering Oligarchs’ and Russian Rulers’ Unearned Property Taskforce — and I don’t have any experience at this. Considering the depth of acronym talent in U.S. institutions alone, REPO shows a disappointing lack of ambition, IMO.
Anyway, last week REPO (shudder) produced a report detailing various techniques being used by wealthy Russians, which is an interesting insight into the ingenuity of their various enablers, as well as a tribute to the work being put in to stymie them. Some of it is pretty unremarkable, in that it looks just like a continuation of the previous methods used by oligarchs to hide their financial transactions, only more so, but other bits are new because they are about the smuggling of physical objects rather than just about money.
- “One method Russian end-users use is to list a freight forwarding business, often located in third party jurisdictions, as the final destination of a good, when in fact those goods will be further shipped to their intended final destination in Russia. The entities facilitating these transactions may often appear to have no affiliation with the transaction and may be utilizing a known trans-shipment point,” the document notes.
For “a known trans-shipment point,” we can read “Dubai.” And for an insight into why Dubai is allowing Russians to use its services even though its key Western allies are asking it not to, I found this Financial Times article on Swiss banks interesting. Switzerland has been inching away from its traditional policy of neutrality for a while, but having values can be expensive.
- “We were not just surprised but shocked that Switzerland abandoned its neutral status,” said one board director who oversees Asian operations at a Swiss bank. “I have statistical evidence that literally hundreds of clients that were looking to open accounts are now not.”
Dubai has spent decades building an economy on its willingness to accept money from literally anyone, just like the Swiss used to do, and won’t want to give that up unless forced to. Lawyers are getting concerned though that this could get messy, not least because — unlike with previous rounds of sanctions against Russia — Western countries do not yet seem to be losing interest in the Ukraine crisis.
- “Last year demonstrated the EU’s and our partners’ resolve to stand up for what is right, notwithstanding the cost. But it also showed that, in some regards, we need to structurally adjust,” said David O’Sullivan, the newly-appointed EU special envoy on sanctions. “The swift adoption of the 10 packages of sanctions has been a huge achievement. My role now is to ensure that they are effectively implemented and not circumvented via third countries.”
He is attempting to make sure all EU countries work together, though it is not yet clear whether European states as a whole will back the Dutch proposal of having a centralized EU sanctions enforcement headquarters.
- “We currently have too little capacity in the EU to analyze, coordinate, and promote new sanctions — that is why I would like us to set up a sanctions headquarters in Brussels, aimed at circumvention,” Dutch Foreign Minister Wopke Hoekstra said. “This would be a place where member states can pool information and resources on effectiveness and evasion, where we do much more to fight circumvention.”
That does, of course, presuppose that all member states actually want to fight circumvention, which is not a given. Hoekstra’s idea has backing from the more hawkish EU states but, notably, not from Hungary or from other Putinophile countries, who may be rather envying Dubai right now. As the now-Dubai-based Russian pop star Daria Zoteyeva/Instasamka put it when asked by the New York Times why she hadn’t spoken out about the war in Ukraine. “It’s to avoid letting go of my audience, and to make money,” she said. “Because it’s a lot of money. It’s a lot of money.” (Incidentally, if her lyrics are any guide, Western brands are yet to lose popularity thanks to Western opposition to Russian foreign policy.)
Before I change the subject, I liked this comment piece by Timothy Ash about how to make Putin pay for his own war. Oligarchs have enjoyed the rule of law in the West for decades, which is of course why they’ve been so keen to stash their wealth here, and it’s interesting to see someone making the case for us to treat that access as a privilege, not a right.
- “The argument around the defense of private property rights and rule of law seems ridiculous. There can be no doubt at all that Russia is stealing and destroying private property in Ukraine. It is therefore liable to pay recompense. Why should Western taxpayers foot the bill for Russian actions?”
When you put it like that, it’s a good question.
My old friend Tom Mayne has produced an absolute banger of a report on Uzbekistan’s Gulnara Karimova, which — among other things — reminds us that kleptocracy is not solely a Russia problem. There was always something more than a bit absurd about Karimova, with her duets with Gerard Depardieu, etc., which obscured the sheer nastiness of her and the regime under which she made so much money. But Mayne has a history when it comes to delving beneath the surface of Central Asian power networks, and it takes more than a cosmetics label to distract him.
- “As the United Kingdom and other countries have played host to Karimova’s schemes through the provision of financial services, it is beholden on these nations to act to reduce the likelihood that such a massive corruption scheme can take place again in the future,” the report concludes.
The report details many of the usual grisly manifestations of kleptocracy — companies in the British Virgin and Cayman Islands, U.K. luxury real estate, Swiss banks, sluggish/non-existent enforcement, compliant enablers — all laid out in remarkable detail. Karimova may not have posed a strategic threat to any Western governments, but she helped to spread a colossal quantity of misery among ordinary Uzbeks as well as to enrich some truly foul people both at home and abroad. As such, we should take the time to learn from her example at least as much as we do from the Russians who claim to be challenging the West (but who at the same time like to benefit from its financial services).
What Karimova’s example teaches us is that, while we talk about sanctions and the need to limit Russian oligarchs’ access to their wealth, it’s important to remember that the world would be a far better place if they’d never been able to steal it in the first place. This report’s recommendations would make very useful reading for the world’s policymakers, though it’s depressing that some of them seem like they should be too obvious to need stating.
- “Existing laws should be implemented and enforced,” is one such example.
While writing this, I found myself idly wondering what Depardieu was up to these days, since I’d last thought about him a decade ago when he was given Russian citizenship personally by Putin. Even at a decade’s remove, that whole episode seems odd. I’m trying to imagine Emmanuel Macron personally popping up to give a French passport to a Russian has-been, but I still can’t see it. So, I googled Depardieu and, hey presto, what did I find?
- “Even if I still have French nationality and a French passport, I am now a Russian and Dubai citizen,” he said last year.
But of course he is! Is there anything Dubai won’t do for money? Answers on a postcard, but only if it’s got a picture of the Burj Khalifa on it.
I have a confession to make: I really don’t understand Moldova. It’s one of only three former republics of the USSR that I’ve not spent time in (the others are Belarus and Turkmenistan, though I did once spend an anxious five minutes in the latter after an Uzbek bus I was on wandered across the border, but that’s a story for another time), and I am nervous about trying to interpret it, lest I do so through a Russian or Ukrainian prism.
This is annoying, because turbulent things are happening: potential coups, expensive root vegetables but cheap soft fruit, clumsy signaling from the Kremlin, assertive signaling from the White House, bans for football fans and more.
So, please, can you suggest the best people to follow for Moldova analysis? Thank you!
WHAT I’VE BEEN READING
My latest book project is taking me to slightly unexpected places and recently that has been Texas. So, toward the end of last week, I read bits of “Big Wonderful Thing” by Stephen Harrigan and “Lone Star” by T. R. Fehrenbach, as well as “The Populist Moment” by Lawrence Goodwyn. I can’t wait to go and have a look for myself.