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Russia and Ukraine: Going after the money

Ruth Green, IBA Multimedia Journalist Tuesday 22 March 2022

Russian President Vladimir Putin meets with Roman Abramovich. Alamy Stock Photo/ITAR-TASS News Agency

As world powers grapple to contain the Ukraine crisis, Global Insight assesses whether the conflict could be a watershed moment for international anti-corruption efforts and the fight against autocracy.

Widespread condemnation of Russia’s military invasion of Ukraine was quickly followed by unprecedented economic sanctions.

As foreign investors and businesses rushed to sell off assets, close offices and cut ties with clients in Russia, an uneasy realisation dawned. Something known in the anti-corruption community for decades: the wealth and business interests of hundreds of oligarchs closely aligned to the Putin regime is fully embedded in the world’s financial centres.

Wealthy Russians have, over the past 20 years or more, listed their companies on stock exchanges, bought lavish properties, invested in trophy-winning football clubs and so on.

It wasn’t a secret. Oligarchs had been laundering their illicit wealth in plain sight. Worse still, governments time and again had stood idly by and let it happen. ‘Sanction the oligarchs!’ was the rallying cry of Bill Browder, CEO of Hermitage Capital Management and vocal critic of Russian President Vladimir Putin, for more than a decade.

Yet despite numerous examples of Russian overreach – from allegations of foreign meddling in the US presidential election and the UK’s referendum on EU membership, to the poisoning of Russians on UK soil – the resulting sanctions were too often watered down by business interests.

As Manuel Lafont Rapnouil, Senior Policy Fellow at the European Council on Foreign Relations, told Global Insight in 2018, if sanctions risk hitting the City, more often than not, that’s where the UK government ‘draws the line’.

Some might say, it’s understandable that governments would hesitate to introduce sanctions that risk inflicting too much pain on their own financial centres. Particularly, in the wake of the 2008 global financial crisis and again in 2020 when economies were still recovering from the economic impact of the pandemic.

The link with national security cannot be underestimated now, because if we're looking at what is happening with Russia, that can very much lead to an energy as well as a security crisis

Pascale Dubois
IBA Anti-Corruption Committee Advisory Board Member

But it’s deeply regrettable that it’s taken a war in 2022 to drive home the implications of not doing so. Add to this gas dependency and defence complacency and the vulnerabilities become more than considerable. ‘The link with national security cannot be underestimated now, because if we're looking at what is happening with Russia, that can very much lead to an energy as well as a security crisis’, says Pascale Dubois, a Member of the IBA’s Anti-Corruption Committee Advisory Board. She says sanctioning oligarchs is now one of the only options left in the international community’s armoury: ‘Going after the money has become an alternative to using weapons.’

Now as the public-at-large learn of the illicit wealth swilling around their countries, she hopes this will galvanise political will for governments to step up anti-corruption efforts, including establishing – and enforcing – beneficial ownership registers.

The UK fast-tracked the passage of its previously shelved Economic Crime Bill in response to Russia’s invasion of Ukraine. The long-overdue legislation will establish a register listing the ultimate owners of property or land in the UK that has been purchased by overseas individuals or companies.

Russian crimes, British complicity

Transparency experts warn this still may not be enough to stop ‘asset flight’ before the new rules enter into force, but the move is significant given the scale of the problem in the country. Research by Transparency International UK indicates that Russians with alleged connections to the Kremlin spent around £1.5bn on UK property since 2016.

Around £830m of this is owned via offshore companies. In fact, the offshore world remains the chief conduit for dirty Russian money entering London’s financial markets. Global Witness estimates that some £68bn from Russia has been invested in British Overseas Territories over the past decade, making them the most popular destination for Russian money after Cyprus and the Netherlands.

Elsewhere, US President Biden has already announced plans to assemble a dedicated task force ‘to go after the crimes of Russian oligarchs’. The German and French authorities have seized luxury yachts owned by two high-profile oligarchs.

Sanctions will undoubtedly debilitate the Russian economy and may well have the effect of undermining the country’s military effort. On 10 March, the UK government sanctioned seven more high-profile oligarchs. Prime Minister Boris Johnson finally said there ‘can be no safe havens’ for pro-Kremlin oligarchs in the UK. However, sanctions specifically targeting those in Putin’s inner circle do not truly hold them, or him, to account for the Ukraine conflict, no matter how many of their luxury assets are seized or frozen.

Governments may no longer need convincing that kleptocracy poses a national security threat, but the question remains whether this crisis will persuade governments to invest properly in law enforcement and grant the necessary resources to investigate the origins of dirty money, and crucially, prosecute all those involved in laundering it.

In June 2021, the UN General Assembly hosted its first-ever Special Session against corruption and adopted a declaration calling on member states to allocate ‘sufficient resources for specialised anti-corruption authorities and criminal justice institutions to more effectively investigate and prosecute these crimes’.

Whatever the trajectory of this terrible conflict, efforts by the International Criminal Court, the International Court of Justice and others to bring accountability for Ukraine’s humanitarian crisis raise tentative hopes that the long arm of justice may eventually catch up with Putin and his cronies.

The Honorable Mark Wolf worked for the US Attorney-General after the Watergate Scandal and prosecuted public officials accused of corruption before becoming a judge. He believes sanctions will not deter Putin’s regime but is hopeful the conflict could finally convince global powers that an International Anti-Corruption Court is what’s needed to hold kleptocrats to account.

‘If the International Anti-Corruption Court was in existence at the time that Putin was laundering money […] and he was successfully prosecuted, then he wouldn't have been in a position to commit this international crime of aggression’, he says. ‘There hasn't really been discussion of the importance of criminal prosecution […] but these are crimes and the response [should be] to prosecute and punish the criminals.’

Financial crimes are rarely the worst violations committed by autocratic leaders, but the evidence is much harder to cover up completely. It could be Putin’s undoing, says Wolf. ‘In the United States, almost a hundred years ago, the most notorious criminal was Al Capone – the great mafioso considered to be responsible for many murders in the Chicago area. He went to federal prison, but not for murder, for tax evasion.’

For some the prospect of a supranational court to tackle kleptocracy and grand corruption is just a pipe dream. But as Sergei Magnitsky, Mikhail Khodorkovsky, Alexei Navalny and numerous other Kremlin critics have all been accused of tax evasion by the Russian authorities, there would be a certain satisfying sense of irony if such a court was capable of bringing President Putin down for financial crimes.

The governor of Ukraine’s Central Bank recently said that all frozen Russian assets should be used to rebuild Ukraine after the war. An International Anti-Corruption Court could help in these efforts by holding Putin and his inner circle to account for this terrible conflict, repatriating the laundered funds and putting them towards what is likely to be the decades-long challenge of rectifying the devastation wrought upon the cities and people of Kyiv, Mariupol, Dnipro and elsewhere.

Ruth Green is the IBA Multimedia Journalist and can be contacted at ruth.green@int-bar.org

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