Safe havens for Russian oligarchs
Nick St Clair and Preetam Kaushik discover that while sanctions are making it hard for Russian oligarchs to find safe havens for their assets, it would appear that greed has no bounds, nor boundaries for that matter

While Putin’s autocratic, iron-fisted rule has pushed the lives of the average Russians to deprivation and stagnancy, a cohort of his allies (who are also his financiers and enablers) have prospered, amassing vast pools of unaccounted-for wealth.

This Russian elite has been allowed to keep their riches as long as they refrain from meddling in domestic politics. Boris Berezovsky the billionaire oligarch who fell out with his one-time protégé Putin and fled to London before being found dead with a ligature around his neck, is a stark reminder of what happens to oligarchs who refuse to toe Putin’s line.

Tracking the oligarch’s hidden billions

For years, Russian billionaire oligarchs have been stashing wealth in countries around the world, including Cyprus, Switzerland, France, Germany, Italy, Spain, the Cayman Islands, Monaco, Israel, Maldives, the US, the UAE, and the UK.

This has been achieved via a myriad of assets such as sprawling real estate, colossal mansions, priceless private jets, and exotic yachts. All held via clandestine and cumbersome corporate structures, LLPs, and trusts that help to conceal the identities of their true owners.

According to the Atlantic Council, Putin and his elite cronies have stashed dark money worth USD 250 billion in foreign locations, while a National Bureau of Economic Research paper estimates that around 60% of Russia’s wealth is parked in offshore havens.

Most of the foreign countries, especially those in the Europe and Asia, have allowed the Russian elite to park funds on their soil in a bid to enhance inbound money flow and maintain a balancing act with Putin’s rather unpredictable policy postures.

The world takes a long hard look at their relationship with the oligarchs

As countries around the world join the West in condemning Putin’s first large-scale armed aggression in Europe since the Second World War, it has greatly diminished the ability of Russian oligarchs to keep their riches hidden.

Many countries have sought to identify, freeze, and even seize assets thought to belong to the oligarchs. But it’s no easy task as politics, economics, and a lack of transparency have resulted in a somewhat muddled and divisive approach.

Below is a summary of just some of the countries that have been in the spotlight in recent weeks, all with widely different responses to the handling of sanctions with respect to Russia’s oligarchs. 

Europe 

Both the UK and EU have frozen the assets of scores of oligarchs, most notably those belonging to Roman Abramovich, the (soon to be former) owner of Chelsea FC. A USD 580 million yacht owned by Russian billionaire entrepreneur Andrey Melnichenko was captured in Italy, while another USD 600 million yacht belonging to business magnate Alisher Usmanov was seized by French police. Also, a USD 140 million yacht owned by former KGB agent and high-ranking general Sergei Chemezov was seized in Spain. The Cayman Islands, Monaco, and Switzerland have also started impounding properties and freezing bank accounts belonging to oligarchs close to Putin. 

Israel 

For years the preferred destination for the Russian elite, though it has not joined in invoking sanctions Israel has stated that it will not be a route to bypass sanctions imposed on Russia. Over the last three decades, more than one million Jews from Russia and neighbouring countries have relocated to Israel. Among the Russian oligarchs who have taken Israeli citizenship are Alfa-Group co-founder Mikhail Fridman, Renova Group’s owner and president Viktor Vekselberg, and none other than Roman Abramovich. 

The UAE 

The UAE, especially the emirates of Dubai and Abu Dhabi, has always welcomed the Russian oligarchs, allowing them to stash their wealth without questioning how they amassed their riches. Despite pressure from western countries, the UAE did not endorse United Nations Security Council’s call to condemn Russia’s invasion and remained muted on the call to impose sanctions. The signs are that the UAE is fast becoming an even more attractive destination for oligarchs with its crypto firms being deluged with requests to liquidate billions of virtual currencies to invest in real estate or turn their virtual money into hard currency. 

Maldives 

Maldives is another country that has shunned the call for sanctions and continues to provide a safe haven for oligarchs. Recently, a luxury yacht belonging to Oleg Deripaska the founder of the world’s second largest aluminium producer RUSAL, was seen harboured off Mala, the capital of the Maldives. At least two other superyachts owned by Russians are reported to have set sail for the Maldives shortly after Western nations threatened to seize assets from sanctioned oligarchs, which doesn’t have an extradition treaty with the US.

Estonia 

Estonia had long struggled on the money laundering front, but it was especially damaged by the Danske Bank affair, the largest such scandal ever in Europe. From 2007 to 2016, Denmark’s biggest bank failed to spot €200 billion in illicit funds being funnelled through its branch in Estonia, much of which stemmed from Russia. But the Estonian central bank chief recently told Russian oligarchs not to try money laundering in Estonia as the country attempts to up its anti-money laundering efforts. Furthermore, in a move calculated to put even more distance between itself and any potential scandal, Estonia is contemplating laws that will clamp down on the crypto sector. 

Cyprus 

Cyprus remains an enigma. Until it recently began cleaning up its act, it provided a refuge for many super-rich Russians and their ill-gotten gains. No fewer than five oligarchs on the EU sanctions list have links to the Mediterranean island. But while Cyprus maintains diplomatic and financial ties with both Russia and Ukraine, it approved a proposal to cut Russia off from SWIFT and has banned Russian naval ships from docking in Cypriot ports to refuel. The island nation’s stance is significant for two reasons. Firstly, it has previously been in the Kremlin’s good books, and secondly, it is not a member of NATO.  

Turkey 

Turkey on the other hand is an active member of NATO, yet has pursued an ambiguous policy to Russia. While it condemned the invasion and maintains ties with Ukraine, it has consistently ruled out imposing sanctions on Russia, citing the potential damage to its already shaky economy, nor has it closed its airspace to Russian aircraft. According to the country’s foreign minister, sanctioned Russian oligarchs are welcome in Turkey as tourists and investors, as long as their yachts remain outside the territorial waters of sanctioning countries. Yet western governments could still press Ankara into tightening loopholes by imposing secondary sanctions to force Turkey into taking a tougher stance and prevent it from becoming a safe haven for the oligarchs.

SARS

If you’ve never heard of SARs then it’s not surprising as until four years ago, they didn’t exist. Russia created the two special administrative regions (SARs) just months after the US Treasury Department slapped sanctions on a group of Russian oligarchs in early 2018. Russky Island lies close to the borders of North Korea and China, while Oktyabrsky Island is situated between Poland and Lithuania. These continue to be safe havens for the billionaires to park their wealth and assets. They initially offered a flurry of incentives, including zero tax on capital gains in order to lure Russian firms based outside the country to move back. Since then, these tax havens have helped the Kremlin attract more than 60 conglomerates, including metals and energy entity En+ Group, and aluminium producer RUSAL.

So, are Russia’s oligarchs finding it difficult to hide their money and seek safe havens?

It would appear not.

While the number of countries that can be counted as safe havens for Russian oligarchs has been dwindling, Putin’s billionaire cronies still have ample choices to hide their bounty and escape the heat of the sanctions slapped by the US and its NATO allies.

Ironically, one of the biggest obstacles to going after the assets of Russian oligarchs comes from the West. To really be able to enforce sanctions would require the creation of an international financial register. But this wouldn’t be in the interests of wealthy westerners as it is claimed that their interests are far too closely linked to many Russian oligarchs.

The hard truth is that there are still many countries and financial institutions that would be more than happy to welcome the oligarchs and their wealth. They say that greed holds no bounds, or it would seem boundaries for that matter.

As if to prove the point. Just days before the sanctions were imposed, Alexei Mordashov, one of Russia’s richest men transferred his 29.9% share of tourism giant TUI from his Cyprus-registered holding company to a shell company in the British Virgin Isles, in the name of none other than the mother of his children. Meanwhile his USD 500 million, 465-foot superyacht sailed for Russian waters out of the reach of any sanctioning countries.

This scenario is being played out across the world. Shares heading west to the island havens of the Caribbean, while yachts head east to the safety of the territorial waters of any country not harbouring sanctions.

Share:

More from the Blog

AML asset management

How Asset Managers can harness technology to reduce money laundering risks

The financial industry is unfortunately blemished by dirty money circulating within the system. And while asset managers have traditionally swerved the money laundering impact faced by their banking counterparts, progressive capabilities from financial criminals are forcing the sector to notice glaring flaws in their AML processes.

Any screening technology is only as good as its underlying data. That’s why work to find the best providers, ensuring you get screening matches you can trust.

Resources

The latest news, commentary and events from RiskScreen. For industry insight, visit our AML insight hub, KYC360.

Used by over 30,000 compliance professionals for AML news & analysis. Free CPD wallet.

Company

RiskScreen was founded by experts in financial crime. It’s because of this unrivalled subject matter expertise that companies choose to partner with us.