Opinion | Sanctioning Russian Oligarchs May Not Stop Putin, But It’s Still a Huge Deal

Seizing Russian tycoons’ yachts and mansions probably won’t change Putin's mind. But the impact in the U.S. and Europe could be huge.

The European Union, long seen as a laggard when it came to targeted sanctions against Russian oligarchs, announced last month a series of unprecedented sanctions against a number of Russian billionaires with ties to Vladimir Putin. Figures such as Mikhail Fridman and Petr Aven would have their assets frozen and their ability to travel through the EU annulled. Within days, the U.S. joined the Europeans, announcing its own expanded list of sanctioned Russian oligarchs and a “KleptoCapture” task force to enforce the measures.

The moves came amid the raft of extraordinary economic measures intended to influence Putin to pull back from his bloody military adventure in Ukraine. But that doesn’t appear to be the primary reason for sanctioning oligarchs like Fridman and Aven. In fact, most reporting indicates Putin has effectively excised these oligarchs from the Kremlin’s decision-making process, though they remain close to the Russian leader.

But even if the sanctions don’t change Putin’s mind, they are the culmination of a years-long push to get Western capitals to take the problem of Russian oligarchs — and the transnational flow of ill-gotten wealth — seriously. Sanctioning these figures helps block Russian billionaires’ funds from pouring into and distorting Western markets from real estate to artwork to private equity, and even things like donations to political parties and non-profits.

This is especially true regarding the EU’s long overdue sanctions. The move is a further indication of the bloc’s surge as a geopolitical actor on its own, coming as it does amidst things like expanded arms shipments to Ukraine. It’s also a sign that the West may finally get serious about ejecting illicit or ill-gotten Russian wealth from financial markets and closing the loopholes oligarchs around the world have used and abused for years.

Getting caught in the fallout between Russia and the West might come as a surprise to these newly sanctioned oligarchs, who’ve long claimed they were interested in only building businesses. Fridman, for instance, recently testified that in “the context of [my] position as a businessman, the idea of doing Mr. Putin’s political bidding makes no sense.” Over the past 20 years, while other oligarchs and pro-Putin figures lauded the Russian leader’s turn toward dictatorship, these newly sanctioned figures have generally kept their head down.

Yet these claims always rang hollow, not least because much of their initial wealth came during the scramble for assets in the 1990s, and came thanks to connections to the Russian government. And as Brussels stated in its sanctions announcement, all of these oligarchs played key roles in Russia’s misadventures in Ukraine. Aven “does not operate independently of [Putin’s] demands,” the EU statement reads, alleging that Aven meets regularly with Putin and worked for years to try to lift sanctions on Russian entities. Fridman likewise is described as “a top Russian financier and enabler of Putin’s inner circle,” also working to lift Western sanctions. And Alisher Usmanov is “one of Russia’s businessmen-officials, who were entrusted with servicing financial flows, but their positions depend on the will of the President.” He has reportedly “solved [Putin’s] business problems” — and in so doing became “one of Vladimir Putin’s favorite oligarchs.”

The EU document extensively outlines how the oligarchs prop up Putin’s regime financially, and are then rewarded for their loyalty. One sentence is repeated over and over, highlighting this relationship: “Therefore he actively supported materially or financially Russian decision-makers responsible for the annexation of Crimea and the destabilisation of Ukraine.” (Aven and Fridman have both disputed the EU’s characterization as pro-Kremlin oligarchs, while Usmanov has remained silent.)

Unfortunately, it seems unlikely that the West will be able to use the oligarchs as a pressure point on the Kremlin. Putin appears to have closeted himself with hardline, nationalistic figures out of the military and intelligence services, rather than the oligarchs with significant Western investments — a clear change from how the Kremlin operated a decade ago. As such, the sanctions are targeting the revolving door between business elites and the Russian regime —freezing and seizing the wealth of any and all who’ve profited from proximity to the Kremlin.

For years, this wealth has bought access to policymaking circles in places like Brussels, London, and Washington, opening doors otherwise shut to Moscow. From Aven working as a trustee at the U.K.’s Royal Academy in London to Fridman giving high-profile talks at Yale University last year, these oligarchs have been feted at the highest levels of Western political and cultural society. And until now, they seemed untouchable, paying no price for their links with the Kremlin.

Fridman has long exemplified the idea that money made in Russia can be freely spent in the West. Fridman is the founder and primary shareholder of Alfa Group, overseeing the Russian Alfa Bank, which, according to the EU, received help from the Russian government in exchange for political loyalty. Fridman is worth an estimated $12.5 billion. And he hasn’t been afraid to spend it.

His most conspicuous asset is an estate dubbed Athlone House in the tony Highgate enclave outside London, a hive of Russian money — dubbed “billionaires’ row” — that is suddenly in the crosshairs. Sprawling over five acres, the mansion, as The Telegraphdescribed it, is a “monument to the power of Russian oligarchs.” (Fridman’s Highgate neighbors include Jude Law and Kate Moss.) Worth nearly $90 million and stretching nearly 26,000 square feet, Fridman — who has said he’s “good at making money but not at spending it” — announced in 2016 he’d be refitting the mansion with a cigar room, new cottages, and an underground swimming pool.

The sanctions will have the immediate effect of freezing Fridman’s European assets and barring the oligarch from visiting any EU country. The U.K. hasn’t followed through on directly sanctioning Fridman just yet — a result, British officials say, of the country’s “cumbersome” sanctions procedures, which take longer to roll out than out than Brussels or Washington. But that’s little comfort to the Russian oligarchs suddenly in the crosshairs. The U.K.’s Housing Secretary this month announced potential legislation not only streamline sanctions procedures, but to seize ownership of oligarchic mansions outright — which could allow the U.K. to follow the U.S.’s lead in sending proceeds from its sale to help Ukrainians.

Aven, Fridman’s oligarchic partner at Alfa Group, also ended up on the EU’s sanctions list. Rather than splurge on yachts or football clubs, Aven used his billions to bankroll an obsession with high-end artwork. Gathering works by Chagall and Kandinsky, Aven has collected, as the Financial Times wrote, an “extraordinary collection” of artwork. His collection swelled to such a scope that he has personally lent pieces to places like New York’s Museum of Modern Art and the Tate in London. (Given that the art market is considered the biggest unregulated market in the world — and has long been alleged as a destination for Russian wealth — it’s possible this particular industry is in for a notable downturn in coming months.)

Like Fridman, Aven downplays any conspicuous consumption, claiming that his hobbies include things “like arranging books on shelves.” And also like Fridman, those assets are suddenly in the spotlight — as are Aven’s links to the Kremlin.

But perhaps the most prominent symbol of oligarchic wealth in the West is the yacht. And the owner of the world’s best-known superyacht is Alisher Usmanov, who made billions in the metals and media industries and, per the EU, has “fronted for President Putin and solved his business problems,” at one point even paying $6 million to a close Putin adviser.

Usmanov’s yacht is a mansion unto itself, a $600 million floating fortress stretching some 512 feet and capable of carrying up to 120 friends and employees at any one time. As the New York Postreported, the vessel has all the accoutrements those guests may need, with an 82-foot pool, a “beach deck,” and a floating observation bay. For good measure, the superyacht even carries a gargantuan garden “with a specially developed variety of grass that tolerates the salty sea air.”

So much for all that. Earlier this month, German authorities announced the seizure of Usmanov’s yacht, joining a train of other yachts also seized. Already, Russia’s oligarchs have lost an estimated $80 billion. Expect them to lose much, much more.

The latest sanctions, especially out of the EU, are a statement that this oligarchic wealth will no longer be tolerated. And they’re not just punitive. For years, elite Russian money has been distorting Western markets such as real estate, flooding the industry with suspect or illicit wealth and driving up prices. At a minimum, blocking this oligarchic wealth will help block these largely anonymous flows and slow spiraling costs.

The penalties are also a phenomenal soft power tool, a form of justice for regular citizens in Russia (and elsewhere) who have watched oligarchs use their political connections to feast on funds that should have otherwise gone to schools or hospitals.

But the sanctions are hardly a panacea. The West still provides the kinds of financial secrecy vehicles that figures benefiting from corruption need to move and launder their finances. Shell companies in Delaware, trusts in South Dakota, offshore vehicles from Vancouver to Canberra to London — these all allow recently sanctioned figures like Usmanov or Alexei Mordashov (both of whom have been accused of moving wealth offshore in recent leaks published like the so-called “Panama Papers”) to restructure their networks. Sanctions are important but can’t stop a Russian businessman from setting up an offshore account and using anti-money laundering loopholes to keep hiding wealth in American, Canadian, or other Western assets.

Western governments need to pursue pro-transparency reforms across the board, including in real estate, private equity, hedge funds, and artwork. Along the way, they must enact basic anti-money laundering requirements forcing legal and financial professionals to identify clients’ sources of funds, and flag suspicions to regulators. Anticorruption activists have long noted the lack of regulations on the white-collar professionals who structure offshoring networks and provide legal protections for oligarchic clients. This is especially true of lawyers in the U.S., Canada, and the U.K., whose services range from setting up shell companies and real estate purchases to acting as public relations spin-men to opening up their law firm accounts to skirt anti-money laundering regulations.

For now, though, the attempts to freeze or seize Russian oligarchs’ wealth in the West are remarkable — and build on broader momentum in the counter-kleptocracy space in the last few years. This has been especially true of the U.S. Congress, which last year not only passed legislation to finally ban anonymous shell companies but formed its first “Counter-Kleptocracy Caucus.” Just a few months ago, the White House also issued a watershed anti-corruption strategy document, detailing Washington’s counter-kleptocracy playbook moving forward. Expect to see Russian money ejected from the real estate and art markets, and blocked from finding its way to political parties and non-profits. Russian oligarchs will see their influence decline, and the suspect or ill-gotten wealth sloshing around will have to search out new homes elsewhere (before it disappears completely), cleaning markets in the process.

Few expected the breadth, the speed, the unity of this response. The targeted sanctions in the past week have been an unprecedented effort — not, perhaps, to directly influence Putin’s military moves, but to kneecap a Russian mafia state for which these oligarchs served as henchmen.