Russian oligarchs are more connected to the Kremlin than previously thought
STOP OR MY MOM WILL SHOP
FinCEN, the U.S. Department of Treasury’s financial intelligence unit, was either giving us a Christmas present, or else waiting till no one was paying attention, when it chose December 22 as the date on which to slip out this interesting report on Russian oligarchs. It’s based on analyses of the filings made by U.S. financial institutions to regulators, as required by the Bank Secrecy Act (which is a weird misnomer, since the act actually made bank accounts significantly less secret than they had been when it was passed in 1970 and became the cornerstone of global anti-money laundering policy), between March and October 2022.
The report’s conclusions are based on 454 transactions totaling tens of billions of dollars, and I think they tell us interesting things about oligarchs’ position in the Kremlin hierarchy. As you may remember (though it seems a lifetime ago), when Vladimir Putin launched his all-out assault on Ukraine, there was much debate about what to do about the oligarchs, with people divided as to whether they were independent businesspeople who had gotten rich in Russia but had no influence over the Kremlin, or whether they were essentially shareholders in Kremlin Inc. who could be induced to lean on Putin and stop him from being a vicious, murderous tyrant.
Opinion largely coalesced around the second option, and dozens of oligarchs found their Western-based assets frozen as a result.
Several oligarchs — such as, in this interview from March last year, Mikhail Fridman — complained bitterly, arguing that they in fact had no influence over Putin and that sanctioning them in this way was unfair. But the FinCEN analysis suggests that some oligarchs, at least, were better connected than they were letting on (though perhaps not Fridman, who knows?), had advance knowledge of the assault in Ukraine and took financial evasive action before sanctions were imposed.
- “Several oligarchs moved funds from accounts in Russia to accounts in other countries, including the United States, usually right before or around the time of the Russian invasion, and used the funds for property-related expenses. In some cases, these oligarchs had been transferring funds between their Russia-based accounts and their U.S.-based accounts for years, but the frequency and value of the transactions increased around the time of the invasion,” the report noted.
- “One Russian oligarch sent monthly credit card payments originating from his Switzerland-based account, but those payments increased in January and February 2022, suggesting substantially increased credit card spending from December 2021 through February 2022. BSA reports indicate that this oligarch purchased a larger number of goods than usual, which may have included luxury or high-value goods including art or jewelry, ahead of the Russian invasion and imposition of sanctions.”
The claims are anonymized, so we don’t know which individuals were engaged in this hasty financial engineering, but there is an interesting overlap with a Guardian article reporting that some 10 trusts established to benefit Roman Abramovich were rapidly reorganized in the weeks before the outbreak of full-scale war.
Back in February 2022, there was still much debating about whether Putin would indeed launch a military assault on Kyiv: London and Washington insisted that he would (but their credibility had not been helped by the Iraq debacle), but most other Western countries and Ukraine itself were skeptical, while officials in Moscow itself were derisive. When the invasion did come, it therefore came to a lot of observers as quite a surprise.
It has since been widely reported that the Kremlin kept the invasion plans within a tiny circle, which is why outsiders found it so hard to tell what was happening. If some of the oligarchs indeed had sufficiently advance knowledge of the military plans to extract their money in time, it suggests they are not the unfortunate bystanders they have presented themselves to be, but bona fide members of the Kremlin inner circle. And that means that their assets are fair game.
So, yay for the U.S. Senate and its late amendment to the omnibus spending bill that passed at the end of last year, which makes it easier to confiscate oligarchs’ assets for the benefit of the Ukrainians.
- “My amendment with Senator Graham gives the Biden administration authority to transfer the proceeds from recovered Russian oligarch assets back to the victims in Ukraine. It unlocks billions of dollars for the Ukrainian people to rebuild their schools, hospitals, homes, and critical infrastructure that Putin’s military has destroyed,” said Senator Sheldon Whitehouse (who, nominative determinism suggests, will be in the executive branch one day).
Western countries have battalions of ferocious lawyers, many of whom spend too much of their time defending oligarchs against the rest of us. If we want to undermine the oligarchs we need to find a way to turn those lawyers around, so they use their legal skills in the interest of Ukraine and other victims of kleptocracy, rather than in the interest of the kind of well-healed and well-informed insiders detailed in FinCEN’s report.
Back in the glory days of the Royal Navy, the crews of warships shared the value of any ships captured from the enemy, and the prospect of this “prize money” was a major factor in recruiting sailors and keeping them motivated during the long, miserable months at sea (as documented in Patrick O’Brian’s magnificent series of novels, which everyone should read). The genius of the idea of course is that it came at no cost to the British government.
I would like to see the Graham-Whitehouse amendment built on and turned into an equivalent approach to oligarchs’ assets, in which governments turn lawyers into privateers, with a promise that they can keep a decent chunk of anything they can find and confiscate. The European Union has been looking into this via its “freeze and seize task force” since the spring. At the end of November, the European Commission presented options to member states for how to go about turning that vision into reality.
In the short term, the EU wants just to manage frozen assets and to use any income they generate to help Ukraine. In the long term, it wants to deduct the cost of the damage Russia has done to Ukraine from the central bank assets that have been frozen, before returning them (prediction: there won’t be anything left). It also wants to see Russia prosecuted for aggression, although that would require the creation of an ad hoc tribunal, since Russia is not a member of the International Criminal Court. Such a tribunal has not been convened since the trial of Nazi leaders in Nuremberg but would be an important way to bring Putin’s murderers to justice.
However, just as it took decades to track down scattered Nazis, it could well take as long to track down the oligarchs’ scattered assets, which are as well-hidden. The sooner we start, the sooner we’re done.
THIS IS FUN
Take a look at the interactive map on Missing Profits, which allows you to assess which countries are the winners and losers of the global tax system. Tax havens are in green, and it’s easy to see the usual suspects of small islands scattered around the world: Jersey, Guernsey, Bermuda, Malta, etc, etc. I think the most fascinating country for me though is Ireland.
One of the most striking aspects of diplomacy since Brexit is how well the Irish government has done in maintaining a united front in defense of its interests, both in Brussels and Washington, much to the howling frustration of British politicians who mentally still inhabit the 19th century (and to the secret amusement of quite a lot of Brits who think their country should have stayed in the EU). It is a diplomatic feat all the more impressive when you realize that Irish tax policy costs, according to Missing Profits, the U.S. more than $5 billion in lost taxes a year, Germany more than $4 billion a year, France more than $2 billion a year and Italy $1.5 billion a year.
Fully 59% of the Irish government’s tax revenue has been artificially shifted from somewhere else, and in the circumstances it is quite the achievement that that government is still friends with everybody. They should offer courses.
I was almost as interested in Hungary, however, which spent ages opposing a global tax deal despite losing almost a quarter of its corporation tax to tax havens (of which Ireland accounts for the biggest share). It was like a turkey voting against vegetarianism. Still, it’s positive that finally the EU managed to reach agreement on the global tax deal, in the weeks before Christmas. It will be interesting what effect, if any, that has on future versions of this map.
NEW YEAR, SAME OLD ARGUMENT
Britain’s National Crime Agency has been looking for a cryptocurrency investigator (the application process has just ended, so apologies if you’d have been up for it), which is good news since it suggests that it has the resources to invest in new people. As I said many times last year, and no doubt will say again in 2023, there is no point having a good strategy to tackle oligarchs if you don’t have any people to implement it for you.
With an annual salary of more than $45,000, this investigator will earn a sum that Britain’s striking nurses can barely dream of, but is it enough?
- “Because crypto is an emerging market, some of the best expertise and understanding of crypto in the UK sits within policing. We have been investigating cryptocurrency since 2015 or 2016,” said Andy Gould, who heads up the British police’s national cybercrime team, in evidence to parliament at the end of last year. “One of my sergeants has just been offered 200 grand to go to the private sector. We cannot compete with that. That is probably the biggest risk that we face within this area at the moment.”
It’s clearly not sustainable if police agencies exist just to train up skilled investigators so the private sector can quadruple their salary, since that means new laws won’t have any teeth, including the new Economic Crime Bill.
- “Would you agree that the Bill will not be worth the paper it is written on if the enforcement agencies are not properly resourced to do the job?” asked one MP, during the same evidence session.
- “I fully agree that we need enforcement to be properly resourced with the right capabilities to be able to deliver what it is asked to do,” replied Nigel Kirby, formerly a senior officer at the NCA and now a senior officer at Lloyds Banking Group, with no apparent irony.
The U.K.’s Office for Sanctions Implementation doubled its headcount over the course of last year to more than 100 and expects to get more serious with enforcement in 2023. However, with inflation gobbling up budgets, and a year of recession ahead, that may be a rare bright spot.
- “Agency budgets are shrinking in real terms. Below inflation pay rises for civil servants suggest that the revolving door between public and private sector will operate only one way. It is hard not to see the failure to invest as counterproductive, with increased investment being likely to pay for itself with more efficient investigations and better outcomes,” noted this harsh but fair summary of butler Britain’s overall performance, from lawyer Chris Ladusans.
WHAT I’VE BEEN READING
I’d love to tell you that I’ve spent the holidays delving deep into the furthest reaches of klepto-literature, but I’d be lying. I’ve been reading about four nonfiction books simultaneously, but none of them have particularly grabbed me, so it’s been slow going.
In the absence of enjoyable history or current affairs, I’ve mainly been indulging my guilty passion for crime fiction, and I had a terrible cold so I’ve even got an excuse for having done so. I enjoyed the “Thursday Murder Club,” swiped my son’s copy of “One of Us Is Lying,” but most of all reveled in the new Strike Novel — “The Ink Black Heart” — which has that weird J.K. Rowling quality of being utterly unputdownable, despite being about four times longer than it has any right to be.
My most recent obsession, however, was the utterly brilliant film “The Banshees of Inisherin,” which I didn’t get to watch in the cinema last year, but which has just appeared on Disney+. It’s superb, and I would highly recommend you take the time to revel in its weirdness.