An unprecedented rain of Western sanctions has fallen on Russia’s elite. How are its billionaires fighting to get their money (and yachts) back? And how are investigators following the money?
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In late 2020, Russian opposition figure Alexei Navalny was still recovering from the nerve agent poisoning that nearly killed him when he beamed into the European Parliament with an urgent message. Navalny himself would soon unmask the Russian secret service agents who allegedly poisoned him – duping one into confessing how it was done (Novichok sprinkled on his underpants) by impersonating a senior Kremlin official over the phone. But, when Navalny addressed EU leaders, he was already urging them to chase bigger fish.
If you want to disrupt Vladimir Putin’s regime, he said via videolink, follow the money. Sanction the oligarchs who surround Putin, not just his hitmen. For Russia – a country with an economy smaller than Italy’s but a secret web of money stashed around the world – this inner circle is both essential to how the regime operates and its greatest weakness.
Today, Navalny is in a Russian prison, having returned to his homeland to fight corruption just as he vowed. Putin has ordered an all-out invasion of Ukraine, just as he denied he would for months. And many of the tycoons named as oligarchs on “Navalny’s list” really have been hit with a deluge of unprecedented personal sanctions by the West.
Credit:Artwork: Stephen Kiprillis
Bank accounts have been frozen, and mansions seized. Penthouses in New York, villas in France and mansions in “Londongrad” are shuttered. Superyachts too, save for those hiding out in less scrupulous ports or “going dark” to avoid trackers. Tens of millions of dollars have been frozen in Australia alone. As of March 8, the federal government said it had sanctioned 968 people over the Russian invasion, along with 107 entities.
Two Russian billionaires are now fighting those sanctions in our courts, claiming they do not have the power to influence Putin. One of them – the metals tycoon Oleg Deripaska who was once believed to be Russia’s richest man – has a stake in Australia’s mining sector and will be represented by Australia’s former attorney general Christian Porter.
So, how are “oligarchs” fighting sanctions, what chance do they have of getting their yachts back – and could all that money be sent to help Ukraine?
Who are the “oligarchs” and why sanction them?
Bloomberg’s Billionaire’s Index has been a sobering read for Russia’s tycoons over the past year. The day before Russia’s invasion, the 23 at the top of the list had a combined net worth of $US339 billion ($513.5 billion).
A year on, they’ve lost $US67 billion from their collective fortunes. Roman Abramovich, the former high-profile owner of the Chelsea Football Club, was one of the biggest losers in 2022 – his fortune has more than halved to $US7.6 billion. Deripaska is now sitting at just under $US3 billion.
Another man’s accounts have shrunk considerably too, though he won’t appear on any official list: Vladimir Putin.
When Russia invaded Ukraine outright in late February 2022, the Russian President’s name was first among those sanctioned, along with senior Kremlin leadership.
“Putin’s the richest man in the world,” says US financier and human rights campaigner Bill Browder. In 2017, he estimated Putin had accumulated up to $US200 billion in assets over his two decades in power. “But he doesn’t keep any money in his own name.” The funds are spread through a secret web of shell companies and trustees, as investigations such as the Panama Papers have revealed. “Other people acting as proxies for him,” explains Browder.
‘If you see an oligarch worth 20 billion, chances are 10 billion of that belongs to Putin.’
When “Putin’s Palace”, a sprawling billion-dollar estate overlooking the Black Sea, was exposed by Navalny’s drones, for example, the official line was that it belonged to Putin’s childhood friend and judo partner, oligarch Arkady Rotenberg. (Putin himself lists only a tiny 77-square-metre apartment and a modest $US140,000 annual salary on disclosures, while another close friend of his, the cellist Sergei Roldugin, has been found to have millions stashed offshore.)
“If you see an oligarch worth 20 billion, chances are, 10 billion of that belongs to Putin,” says Browder, who has spent years campaigning for sanctions against the Kremlin after the death of his former lawyer, the corruption whistleblower Sergei Magnitsky, in a Russian jail. “If you want to punish Putin, you have to punish his oligarchs.”
The superyacht ‘Scheherazade’, which has been linked to Russian President Vladimir Putin, was seized by Italian authorities in May 2022.Credit:Getty
More than 2000 years ago, Aristotle coined the term oligarchy to mean rule by a few – in contrast to democracy, rule by the people. In a Russian context, oligarchs are the wealthy few who got rich snapping up state-owned assets after the break-up of the Soviet Union.
They held enormous political influence until Putin rose to power and brought Russia’s institutions, from its courts to its television stations, under his own “vertical of power” – and the oligarchs under his heel. Russia’s wealthiest oligarch of the day, Mikhail Khodorkovsky, defied Putin by speaking out against corruption. And he was quickly made an example of: jailed after a televised trial on trumped-up fraud charges.
Oligarchs today argue they hold less political influence. Putin’s Russia is often called a mafia state, says Kyle Wilson, a former Australian diplomat to both Moscow and Beijing based at ANU. The “Don” – Putin – hands out favours and expects loyalty in return. “You cross him at your peril.”
Wilson sees oligarchs more as stewards than true owners of the state’s assets. “They are servants of Putin, supporting the Kremlin with their profits. They may not have the formal status of minister, but they’re still part of the regime. They’re beholden to Putin for their wealth.”
Russia expert Stephen Fortescue says Putin has elevated new oligarchs, often cronies from his FSB days, who hold large swathes of real estate. But those who made their money in Russia’s industry – the original oligarchs like Deripaska and Abramovich – have more standing in Russia, he says, and their relationship to the state is more complicated. For example, they have been the ones more likely to speak out against the invasion (publicly or privately within the halls of power).
Roman Abramovich was allowed to sell the Chelsea Football Club after being hit with sanctions in 2022, but vowed to set up a charity to donate the profits to Ukrainian victims of the invasion.Credit:AP
Deripaska and billionaire banker Mikhail Friedman have openly called for peace talks. Abramovich even played a role in early negotiations (which failed). For these efforts, Ukraine reportedly asked the US to hold off on sanctioning Abramovich, and the oligarch suffered a suspected poisoning at the time along with two Ukrainian negotiators, but recovered. (Abramovich has since been sanctioned by the UK, Australia and other countries, though not the US.)
Still, “it would be lunacy to think any of these people can pressure Putin to change his mind,” says Fortescue. “The sanctions story has shifted now to punishing those who’ve been making money in and for the regime.”
And, Browder adds, it’s about starving the corrupt Russian economy of wartime funds.
Amid wider sanctions on Russia, Deripaska told a recent investment forum in Siberia that the country could run out of money by 2024. According to Bloomberg, he added, “that’s why they’ve [the Kremlin] already begun to shake us down.”
Putin (left) and Oleg Deripaska, at a business summit in Vietnam in 2017.Credit:MIKHAIL KLIMENTYEV
How are they fighting sanctions?
Many big-name Russians have been keeping a low profile of late. More than a thousand have been sanctioned globally, hit with travel bans and asset lock-ups. As of March 9, $US58 billion had been frozen by the West’s joint REPO (Russian Elites, Proxies, and Oligarchs) taskforce, which Australia is part of.
Some have tried to sneak around sanctions, moving yachts into international waters or emptying accounts not yet discovered by banks. The US has already charged a number with sanctions evasion – and this may offer a means of seizing those assets outright and sending the money to Ukraine, according to financial crime expert Anton Moiseienko at the ANU College of Law. (More below.)
And then there are those going to court. In Australia, two Russians have filed suits to overturn the foreign minister’s decision to sanction them over the war in 2022 – Oleg Deripaska and Alexander Abramov, who made his fortune via Evraz, Russia’s steel giant. Their cases will be the first real test of sanctions law in Australia, says Moiseienko.
Deripaska was once called Putin’s “favourite industrialist” and his point man in the US. Donald Trump’s former campaign chairman Paul Manafort was formerly on his payroll, (though Deripaska denies paying Manafort for pro-Russian lobbying) and Deripaska is named in the Mueller report into Russian interference in the 2016 US election hundreds of times. He called the report “lies” but was sanctioned by the US in 2018 and then in 2022 hit with criminal charges for allegedly attempting to evade them. (His appeal against the sanctions was also thrown out by the courts.)
According to the US government, Deripaska has been linked to Russian organised crime, and accused of running a protection racket, bribery and wiretapping of officials, even ordering a murder. Deripaska denies all these allegations. A former top FBI agent who once investigated Deripaska has since been charged in the US for working for him.
The FBI raided the mansion of Oleg Deripaska in Washington in October 2021.Credit:AP
Leaked US diplomatic cables from 2006 described Deripaska, who has travelled on a diplomatic passport, as then being “among the 2-3 oligarchs Putin turns to on a regular basis”. In 2016, he was spotted by Navalny’s investigators apparently hosting a top Kremlin minister on his yacht.
But in his suit against Australia’s sanctions this year, Deripaska says he does not wield influence over the Kremlin and that it’s “illogical” for the foreign minister to form the view he is performing any activities of economic or strategic significance to Russia. Australia’s former attorney-general Porter will now argue his case when it goes to the Federal Court in Perth.
Meanwhile, Abramov’s sanctions fight is awaiting a verdict from the Federal Court. Until the invasion, Abramov and Abramovich were both the billionaire heads of Evraz, which has been accused of supplying material to build Russian tanks. Evraz denies this. Abramov resigned from the Evraz board in March 2022, after Abramovich was sanctioned over the invasion.
Abramov was later sanctioned himself by Australia, and the UK. He has so much capital in New Zealand, meanwhile, that the government there said sanctioning him would cause more harm to locals than Abramov, and so only imposed a travel ban rather than freezing his assets (although a NZ police intelligence report said Abramov’s close ties to Abramovich were “a risk”). In 2018, Abramov was named in a US list of oligarchs with ties to the Kremlin but not sanctioned. Documents obtained by The Guardian have traced his estimated $US6 billion fortune across the globe, including a $41-million retreat in New Zealand.
In his suit to have the Australian sanctions struck down, Abramov argued he does not hold a position of power in Russia. He said Australia made a mistake when it added him to the list, including because he had already resigned from Evraz. The government argued that one does not lose their influence by simply resigning.
Alexander Abramov (left) with Putin in St Petersburg in 2017.Credit:Getty Images
Abaramov said the sanctions had caused him “severe reputational harm” and substantial business losses. They were first imposed by former foreign minister Marise Payne, then later revoked, but immediately reimposed by the current minister Penny Wong in September.
What are their chances of overturning sanctions?
It’s hard to defend against sanctions anywhere, says Moiseienko. The European Union’s regime is easier to get out of than those in the US, he says – but even then, there is a habit of relisting people. “They tweak their reasons for imposing sanctions and you’re back to square one. That might be seen as problematic for the rule of law but the EU’s Court of Justice is OK with it. In some cases you have this potentially never-ending cycle of people winning their cases and then being relisted.”
Part of the reason for sanctions, after all, is to put pressure on those seen as key members of regimes.
‘What if frozen Russian assets paid for Ukraine aid? Why should we dip into our pockets before Putin?’
Australia expanded its sanctions laws just months before Russia invaded Ukraine to target corruption and human rights abuses – Magnitsky-style legislation brought in across the West after Browder’s lobbying. There isn’t a standard of evidence here the government must meet when imposing sanctions on someone, Moiseienko says. “All that’s required is this most vague wording: ‘the minister is satisfied’.”
A clearer standard could yet be worked out in the courts, but judges are generally reluctant to overturn the decisions of elected officials. There has to be something “profoundly wrong” with that decision, Moiseienko says, such as there being no evidence to justify it or a breach of natural justice.
Putin and Foreign Minister Sergei Lavrov (back, right) have also been sanctioned but authorities say their personal funds are hard to track down.Credit:Reuters
Will they ever get their money back?
Browder has been travelling the world of late to help promote an idea: what if frozen Russian assets paid for Ukraine aid? “Lawmakers love the idea,” he says, “because why should we dip into our pockets before Putin?”
But this is where it gets murky. Freezing private property is one thing. Taking it away is difficult unless it’s proven to be the proceeds of crime, Moiseienko says. And proving corruption (or involvement in the Ukraine invasion) is especially difficult without the cooperation of Russia.
So far, Canada has been the most aggressive on this front, amending its laws to allow it to liquidate assets frozen under Russian sanctions – and to send the money to Ukraine as aid. A Croatian court has also ruled that a superyacht owned by the sanctioned oligarch Viktor Medvedchuk can be sold at auction, with the proceeds going to Ukraine. Within Ukraine itself, the Zelensky government has already seized some assets owned by Russian tycoons as war reparations (including one of Deripaska’s alumina plants).
‘This isn’t a bank robbery. There must be probable cause of seize wealth.’
There’s more scope to take frozen wealth where oligarchs are charged with evading sanctions, Moiseienko says. The US is moving to confiscate $US5.4 million belonging to the oligarch Konstanin Malofeyev, for example, because prosecutors say Malofeyev tried to transfer that money to a business partner despite being sanctioned since 2014 for funding Russian separatists in Crimea (a charge Malofeyev denies). US President Joe Biden has now signed a law allowing the transfer of these kinds of forfeited assets to Ukrainian aid. And America’s “kleptocapture taskforce” says it’s stepping up efforts to liquidate assets and target sanctions evasion. Still, “this isn’t a bank robbery,” says Ryan Fayhee, a former Justice Department prosecutor. There must still be probable cause to seize wealth.
Unless a radical decision is made one way or another – taking the money or returning it (which Moiseienko notes will bring its own difficult political optics) – then it’s possible for these assets to be frozen forever, more or less.
Of course, even in all these eye-watering lists of frozen bank balances, one figure stands out as truly giant: an estimated $US300 billion worth of Russian Central Bank reserves, seized in the first week of the invasion. To Browder, this is the place to start talk of repurposing sanctioned money. “It’s clearly owned by a state that has broken international law by invading its neighbour. You can prove the damages [to Ukraine]. You can make a case for reparations owed.”
But typically, war reparations have been paid by a vanquished country after war is over, such as when Germany paid after its defeat in World War II. “And in this case, the West is not officially at war with Russia,” Browder says.
Some say international law needs updating altogether for modern times – when countries are increasing turning to economic sanctions to avoid direct conflict. Browder likens it to when the US changed laws to better prosecute mafia bosses who once hid behind low-ranking fall guys. And to Browder, the metaphor is apt.
Russian opposition figure Alexei Navalny sends a heart message to his wife Yulia while in a Russian court in early 2021. He was sentenced to more than 11 years in prison after returning to Russia. Credit:Moscow City Court
But how do you find the money?
“That’s the hardest part,” sighs Browder. EU foreign affairs chief Josep Borrell said in early 2022 that the holdings of Putin and Russian foreign minister Sergei Lavrov, for example, were likely in other names, so “a whole lot of work needs to be done” to track them down.
Compared to other Western democracies, Australia still has weak anti-money laundering laws. Right now, the task of following the money mostly falls to banks rather than law enforcement, Moiseienko says, and even then it’s often outsourced. “Banks basically look at the sanctions list [for] a match in their records. But what happens if a property is registered in the name of a driver or friend or a random person on the street who was paid? It’s not clear who’s joining the dots … and what support the government provides them.”
The Russian money trail in Australia has led to our mining sector.
Australia has yet to create a register of beneficial ownership that would reveal who really owns assets held through opaque trust and company structures – something the financial intelligence agency, Austrac, has said would make it easier to track oligarch money (and a key recommendation from a recent Senate inquiry report).
The government has created a sanctions office now though, and Austrac helps “to detect sanctions evasion and identify wealth networks and financial profiles of sanctioned entities”, according to a spokeswoman for the Attorney-General’s Department.
So far, the Russian money trail in Australia has led to our mining sector. Two tycoons in particular – Deripaska and Viktor Vekselberg – have held on to significant stakes in Australian mining ventures, despite being sanctioned by the US since 2018.
Vekselberg is a big name in Russia’s energy sector, the world’s biggest collector of Faberge eggs, and among those said to have benefited from the Morrison government’s gas-led pandemic recovery investment boom via stakes in Falcon Oil & Gas (which fracks in the Northern Territory).
When Australia began imposing sanctions over the Ukraine invasion, the Australian Centre for Corporate Responsibility questioned why Deripaska and Vekselberg were left off the initial list (they were sanctioned about a month later).
Deripaska and Vekselberg also each have large stakes in the Russian aluminium giant Rusal, which is Rio Tinto’s junior partner in a Queensland alumina refinery. Rio says it has now “ringfenced” any potential profit flowing back to Rusal by taking over Rusal’s 20 per cent share of the venture. It had to act to comply with sanctions, Rio has said, but Rusal subsidiaries are now suing it over the move.
A Rio spokesman did not say whether Rusal’s share of benefits in the refinery was frozen in an account or had been reabsorbed back into Rio. But the company says the nature of the arrangement may change based on the outcome of Rusal’s lawsuit.
One way of finding offshore money, according to researchers at Dartmouth, is by targeting those who help hide it – a secretive group of lawyers, accountants and wealth fund managers around the world. Browder says laws should force those advising sanctioned individuals to disclose how they conceal their client’s wealth. (Australia’s current laws, for example, exclude lawyers, real estate agents and other “middle men” from having to report large or suspicious transactions the way banks and other financial institutions do.)
And Browder thinks the West should come down “like a tonne of bricks” on countries and companies helping Russia evade sanctions. “For example, the Russian yachts that were sitting in the Mediterranean are now sitting in a marina in Dubai, or Turkey. We should sanction those marinas so anyone ever considering docking a Russian yacht will think twice.”
Putin has lashed oligarchs publicly but also praised the role of private industry in keeping Russia’s economy going under punishing Western sanctions.Credit:AP
Is this the end of the oligarch?
Sanctions aren’t the worst thing to happen to Russia’s elite of late. More than 30 tycoons and officials have died mysteriously since the invasion started, falling out of windows, down sets of stairs or off the back of yachts. Browder expects this is not the sign of an impending regime change against Putin, but rather “the economic pie shrinking so much that everyone’s killing each other for a piece of what’s left”.
So what would happen to Russia without its oligarchs? Though systemic corruption is a serious drain on Russia’s economy, “it’s not a failed third-world kleptocracy either”, Fortescue says. And he sees oligarchs as a key part of its shadowy ecosystem. Often they have turned old Soviet assets into profit engines for Russia. Deripaska’s aluminium empire, for example, became the biggest in the world (until it was overtaken by China’s Hongqiao Group).
“It’s not in Putin’s interests for [oligarchs] to go under”
In his latest annual address, Putin credited Russia’s private sector with helping its economy weather sanctions, even as he lashed oligarchs for their taste for titles and yachts. The president likes to play a man of the people, Fortescue says, berating oligarchs publicly, but he has bailed them out of tough spots before. In 2009, in a televised visit to one of Deripaska’s factories hit hard by the global financial crisis, Putin lashed oligarchs for their “greed”. He even made Deripaska sign a contract promising to compensate unpaid workers (and then return Putin’s pen). “But that was pure theatre. He still bailed them out.”
He may do so again. “It’s not in Putin’s interests for [oligarchs] to go under”, Fortesecue says, if they are making money.
Wilson says that if Putin bails out an oligarch he reinforces their loyalty. But he could just as easily use the oligarchs as scapegoats, something he also has form in doing. To survive, Fortescue says oligarchs must stay useful to Putin; they must find new markets outside Western sanctions for their business.
“Or he’ll find they’re expendable.”
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