America needs to stop being a haven for Russian oligarchs to stash their sketchy cash

America needs to stop being a haven for Russian oligarchs to stash their sketchy cash
Russian oligarch Oleg Deripaska, left, and Roman Abramovich, attend a meeting between Russian president Vladimir Putin and Russian businessmen in the Kremlin on Wednesday, March 29, 2006. Shutterstock

Russian oligarchs are in the news lately. They are the chief targets of global sanctions imposed in the wake of Russia’s invasion of Ukraine.

Squeezing them will do two things, the thinking goes (as far as I can tell). It will drain Russia’s resources, thus hastening the war’s end. It will put greater pressure on Vladimir Putin, who controls the oligarchs.

That assumes a lot.

First, it assumes the Russian oligarchs are independent. Second, it assumes Putin is receptive to pressure. Would sanctions “be enough for the oligarchs surrounding Putin simply to disavow him,” asked Businessweek’s Nick Wadhams, “or would they have to go further?”

Don’t count on it.

Though they are very obscenely rich, they don’t have the political influence of their counterparts in the US, who can push and pull democratically elected officials. Putin wields state security. He can cancel any time. While money talks in Washington, police power talks in Moscow. And it’s always a good idea to stay away from windows.

Maybe we should clarify what “Russian oligarch” means.

It does not mean “Russian billionaire.” Nor does it mean “billionaire businessman.” The meaning is closer to caporegime, or mafia captain. There’s little they can do without the approval of the boss, ie, Putin.

As such, their money isn’t normal money.

It’s the product of a vast, unspoken, and cancerous criminal syndicate that has enriched Putin and his inner circle in ways most only imagine.

The cost of Russia's culture of corruption is hard to pin down. According to the Russian government, it accounts for as much as 7 percent of Gross Domestic Product. Another study, this one independent, pegs it at 25 percent of GDP. The World Bank said it costs nearly 50 percent.

It’s so corrupt that the billions intended to upgrade Russia’s military were stolen. No one told Putin. His goons lied to him. The outcome is an invasion force so decrepit it “looks like the ultimate paper tiger.” It hasn’t moved, so it’s resorted to indiscriminate shelling of civilians. (The US and allies are already gathering evidence of war crimes.)

So whenever we talk about “Russian oligarchs,” let’s be clear: We’re talking about crooks. Whenever we talk about their vast fortunes, we’re talking about the filthiest of exceedingly filthy lucre. And most of that money isn’t in Russia. It’s in the West, because these capos are confident the laws of western nations will keep their cash safe.

And the best place for that is America.

Uh-huh.

All the attention so far has gone to governments searching for and confiscating superyachts. Indeed, some of these capos, like Roman Abramovich, are scrambling to off-load some of their assets. (Abramovich is reportedly seeking a buyer of his London soccer club, Chelsea FC, but last heard, he was not fully committed to selling.)

But all things considered, they don’t have as much to worry about as we are being told they do. It might take a while, but eventually, these very obscenely rich men will find additional ways of exploiting the most secretive and least transparent financial system in the world.

As the Hudson Institute’s Casey Michel told NBC News, the secrecy built into the system is by design “a black box.” “There’s this misunderstanding that you can just go out and seize these mansions, seize these yachts. For so many of them, it’s a complete black box.”

To truly hurt Putin and his goons, and thus hasten the end of the war in Ukraine, we should do two things, according to Erica Hanichak, director of government affairs at the FACT Coalition. One is to make the tax code more transparent. The other is fully fund enforcement.

At stake isn’t just peace. It’s preventing foreign interference in the US. “The anonymity of crucial financial sectors in the US,” Erica told me, “certainly undermines the security of American election processes.”

Bloomberg reported the US isn't doing as much as its European counterpart to sanction Russia. Can you explain the foot-dragging?

The United States has actually implemented a fairly strong initial response to Russia's unlawful invasion of Ukraine, whether by cutting off Russia's access to SWIFT messaging system or by targeting for sanctions the oligarchs who are backing Putin's military assault.

The multilateral nature of these sanctions is critical.

The administration's newly announced 'KleptoCapture' unit at the US Department of Justice will be an important initiative to squeeze oligarchs in Putin's inner circle while he pursues the war.

The important question, however, lies in enforcement.

There are two issues.

One is resourcing for key agencies that track the assets of oligarchs. Two is the financial secrecy endemic to the US financial system.

Together these enable Russian oligarchs to hide their assets from US law enforcement and national security officials.

Can you spell out financial secrecy more?

In December, Treasury Secretary Janet Yellen said: “The best place to hide and launder ill-gotten gains is actually the United States.”

That’s shocking. Americans usually think illicit financial activity only happens in places like the Cayman Islands or the Virgin Islands.

But as the world’s largest economy – with one of the most opaque financial systems – the US is a leading destination for sanctions evaders and for corrupt officials hoping to park illicit funds.

The truth is that gaps in the US anti-money laundering framework allow Russian oligarchs to exploit financial secrecy for their own gain.

Take the oligarch, and client of Paul Manafort, Oleg Deripaska.

Though sanctioned, he invested $200 million in a commercial real estate property in Kentucky. He also owns a home in the shadow of the US Capitol, owned through an anonymous Delaware LLC.

A lack of due diligence in the US private investment sector allowed an alleged ally of Vladimir Putin, Vladimir Potanin, to buy a stake in ByteGrid LLC, responsible for key aspects of Maryland's elections.

According to the 2020 FinCEN files leak, sanctioned oligarch Suleiman Kerimov used Deutsche Bank’s New York branch to transfer $8 million through a Virgin Islands shell company to interfere in UK politics.

This could happen in the US as well.

The anonymity of crucial financial sectors in the US certainly undermines the security of American election processes.

Should financial reform be part of our sanctions program?

Largely, yes.

The reforms I'm talking about are structural. They would boost US sanctions programs in response to Ukraine or other crises.

Some solutions are already on their way, such as the Treasury Department's implementation of the US Corporate Transparency Act.

This effectively ends the abuse of anonymous US shell entities by requiring entities to name their true and "beneficial" owners to the Treasury's Financial Crimes Enforcement Network.

In doing so, it makes it much harder for Russian oligarchs to hide their ownership of LLCs, corporations, and certain trusts. State, local, and federal law enforcement – as well as the IRS – need uncomplicated and timely access to this database for effective enforcement.

Another solution is to counter money laundering through US real estate by finalizing rules saying that real estate professionals understand the owners of anonymous entities buying real estate.

Real estate professionals have been "temporarily exempted" from anti-money laundering rules for 20 years, but the Financial Crimes Enforcement Network just initiated a federal rule that would apply anti-money laundering obligations to the US real estate sector.

The most urgent reform, however, is funding.

Three agencies at the Treasury Department – the Financial Crimes Enforcement Network, Office of Foreign Asset Control, and the IRS – need further resources to crack down on Russian oligarchs.

Their investigative functions are imperative to effective enforcement of US sanctions and broader efforts to protect the financial system.

The anonymity of crucial financial sectors in the United States certainly undermines the security of American election systems.

Are you saying Russian money is flowing to elected officials?

Russia has clearly made attempts to influence democratic elections around the world – including in the United States – through its targeted disinformation campaigns in 2016.

While I know of no evidence of Russian attempts to contribute funding to American electoral candidates, there are financial secrecy tools in place that could make it easier for Russia or other foreign adversaries to undermine the financial integrity of American election systems.

I mentioned the US Corporate Transparency Act. It requires American LLCs, corporations, and certain trusts to name their true owners to a secure database housed at the Financial Crimes Enforcement Network.

The Federal Election Commission would have access to this database, once it has been established, to investigate and enforce any violations of federal election law, including whether there are straw donors and violations of the federal foreign contribution ban.

This database needs to be implemented with all due haste to make sure officials have the tools to protect the security of elections.

Can you comment on this bill introduced in the House that would allow the feds to seize and sell the assets of Russian oligarchs?

The Yachts for Ukraine Act marks an important effort by Congress to counter Russian oligarch corruption and to mobilize the proceeds for those victimized by Russia's current military assault of Ukraine.

Yet to find the yachts, you need to know who owns them.

As part of funding packages before Congress this week, legislators must agree to fund key agencies – including the Financial Crimes Enforcement Network – to help identify, freeze and seize the proceeds of Russian corruption, and to help the people of Ukraine overcome one of the greatest affronts to democracy in the past 80 years.

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