Despite the restrictions, the elite became wealthy. Will this time be different?
Arkady Rotenberg waited nearly eight weeks, investigators say, before buying a $7.5 million painting in New York City, the first time the United States government slapped his family with sanctions and kicked them out of the American financial system. .
That was in 2014, when Russia annexed Crimea, and sanctions since then have hardly helped Mr. Rotenberg, a lifelong friend, and Russian President Vladimir V. Putin’s former judo partner has slowed down. He has an estimated net worth of around $3 billion, and his brother, Boris, became a billionaire after he was banned. Investigators have unearthed at least $91 million in the US economy from accounts linked to the Rotenberg family.
Today, as Mr Putin’s troops lay siege to neighboring Ukraine, world leaders have responded by strangling the Russian economy. Major Russian banks have been cut off from the global financial system, the government is facing default, and many multinationals are closing their Russian operations.
And a new raft of European and US sanctions have been announced, against Mr Putin, as well as against those considered close to him, including Boris Rotenberg and Arkady Rotenberg’s son, Igor. The logic is now the same as it was in 2014: squeeze Mr Putin’s allies to put pressure on him.
“We are coming to your wrongful advantage,” President Biden said in his State of the Union address.
But despite such claims, what some analysts call a watershed moment, the question remains whether the West can cut its sanctions after failing to do so in the past. Arkady Rotenberg is just one example of the past ineffectiveness of what he describes as the “financial death penalty”.
A New York Times analysis of global corporate filings identified nearly 200 companies linked to the Rotenbergs, spread across three continents and a dozen countries. Many firms are now dormant, but even after Mr Rotenberg was placed on the sanctions list in 2014, he was able to take a stake in at least seven companies in the European offshore tax haven.
As recently as 2020, Mr Rotenberg became the beneficial owner of two companies – Robben Investments and Lucasnell SA – in Luxembourg, a small EU country known as a tax haven for shell companies. Corporate records show that Mr. Rotenberg still owns those companies.
Mr Rotenberg remains wealthy and spends a lot as governments rarely investigate or try to solve the fate of those they target. Since oligarchs hired high-value accountants, lawyers, and other middlemen to hide their wealth, governments largely left it to banks and companies to decide whether they were doing business with people on the blacklist. .
Government investigators ignored reports of suspicious banking activity. European leaders have promised to bring transparency to the financial system, but have dragged their feet in doing so. Congress voted to give the Treasury Department the right to crack down on open shell companies, but relinquished that power for years. And Britain looked the other way as it became a playground and safe haven for Russia’s rich and powerful.
Phil Mason, who served as the British government’s senior adviser on international corruption for nearly 20 years, said, “The general view of illicit finance has a deeper meaning to be less concerned.” He said lawmakers saw Russian money as a source of jobs and investment.
“There was a complete blind spot to see this as a problem,” Mr Mason said. “In the absence of the Ukraine crisis, this is still the prevailing attitude inside the government.”
But just as 9/11 forced world leaders to get serious about terrorist funding, current and former government officials in the United States and Europe say the recent invasion of Ukraine marks a turning point in tackling illicit Russian money. It is possible. The sweeping moves have already been without precedent – freezing the assets of Russia’s central bank and imposing sanctions on Russian oil imports into the United States. A government spokesman said Britain was taking strong action and was “fully engaged with our allies and partners.”
And efforts towards the elite have also been more comprehensive and coordinated. The European Union and the United States led the charge, but followed by Britain, which had been more reluctant in the past. Australia, Japan, Canada and others joined, shrinking the world market for Russian money. Switzerland even secretly said that it would freeze Russian assets.
For example, both the United States Department of Justice and Britain’s National Crime Agency recently announced task forces to trace Russian assets and enforce sanctions.
“The oligarchs are important because they are the ones who will trigger the coup in the palace,” said Tom Keating, a financial crime expert at the British research organization Royal United Services Institute. “And we know that Putin relies on people close to him to hide his money.”
How to Hide a Russian Fortune
How Russian oligarchs like Mr. Rotenberg hide their money is no secret. A US Senate investigation report, released in 2020, found money pinballing around the world: a company in Belize was doing business in London with a majority shareholder living in Cyprus and a bank account in Estonia, citing an example from the report. Giving.
Investigators say this is a pattern that is common.
First, a trusted attorney or other agent sets up a shell company in an offshore jurisdiction with little transparency. On paper, the company has its own director. But really, someone else calls the shots.
This company may own other shell companies, making it even more difficult to identify what investigators refer to as the “ultimate beneficial owner.” These companies may have bank accounts under jurisdictions that are known to be confidential.
This way, the shell company can transfer money or make purchases without the real owner knowing. This is usually legal.
“We are talking about people with unlimited resources to move money and evade scrutiny,” said David H., Wiggins and Dana’s attorney. Loffman, who ran the Justice Department’s counterintelligence section.
To establish this network, investigators found, the Rotenbergs turned to Mark Omelnitsky, a Briton who was born in Moscow and specialized in setting up opaque networks of shell companies. Senate investigators found a company handbook showing how Mr. Omelnitsky’s company, the Marcom Group, would set up offshore companies for its clients for less than a thousand dollars.
“The companies held by Omelnitsky and his group suggest that Markom potentially created several companies for Russian oligarchs and close acquaintances of Russian President Vladimir Putin,” concluded an internal investigation by British bank Barclays.
Barclays closed 198 bank accounts linked to Mr. Omelnitsky’s Marcom Group in August 2017. But he still runs a network of British and offshore companies. He is not known to face sanctions or criminal charges. Letters requesting comment went unanswered by Mr. Omelnitsky, who deactivated his LinkedIn profile after being contacted by a Times reporter.
Russo-Ukraine war: the main things to know
A show of support for the European Union. The leaders of Poland, the Czech Republic and Slovenia headed to Kyiv to express “clear support” of the European Union and offer financial help to Ukraine. The visit was kept secret until the last minute as fighting continued around the Ukrainian capital.
So far, neither the United States nor the British governments have preferred to go after the oligarchs, partly because opening up their networks takes time, manpower, and international cooperation. Banks are required to alert officials when suspicious activity occurs, but even when it happens, government officials can be slow to act. A senior Senate aide said Rotenberg investigators found countless instances of banks filing reports with the Treasury Department, to no avail.
For years, governments resisted efforts to require more financial transparency, even as leaked documents such as the Panama Papers illustrate how secrecy allowed illicit funds to move.
For example, the European Union passed a regulation in 2018, stipulating that the public must have information about who owns European companies, even those vested in shell companies. Four years later, after a delay of 17 countries, no such registry exists.
Congress passed a similar transparency law in 2021. But until this week, lawmakers had not provided $63 million to implement it. Treasury officials are now working on rules that will help expose the secrecy surrounding shell companies.
A new approach?
Governments may need to change laws to deal with the problem.
In the United States, officers have extensive powers to seize property if they suspect a crime has been committed. However, investigators caution that they do not expect to find multiple oligarchs in US bank accounts, or Russian superyachts in US ports. The tough task, he said, will be to identify transactions in real time when buyers hide themselves behind shell companies and foreign banks, as Rotenberg did for years.
In France, the government is considering laws that would allow it to confiscate, not just freeze, the assets of blacklisted people. For now, the government can only confiscate things with evidence of crime. (In a twist, however, France did seize the boat That of Igor Sechin, the head of Russian state oil giant Rosneft, before he could leave port earlier this month. Running away from sanctions, the government said, would be a crime in itself.)
Similarly, the British government announced last week that it had seized a private jet suspected to be linked to Russian oligarch Roman Abramovich. But the government’s argument – that it could confiscate the jet as part of a ban on entry into the UK of Russian-linked planes – has yet to be tested. And the aircraft in question is not registered in the UK or Russia, but in Luxembourg.
Anti-corruption organization Transparency International estimates that around $2 billion in British assets are owned by Russians accused of financial crime or linked to the Kremlin.
Britain has been slow for years to ban those oligarchs. Some, like the Rotenbergs, have long been blacklisted by other countries and now only the British are making the list.
But London is moving forward with a new determination. More than five years after it was proposed, parliament recently passed a law prohibiting people from hiding behind offshore companies when buying property. And last week, the British government finally sanctioned Abramovich, more than a decade after allegations of corruption and ties to the Kremlin first surfaced. His football team, Chelsea, was already for sale when his assets were frozen; MPs said he was also seeking to sell his London real estate, including a mansion in Kensington.
Court records of the divorce dispute show that Arkady Rotenberg owns a $35 million mansion in a village in Surrey, south of London, which was purchased through a British Virgin Islands entity with the help of law firm Hogan Lovells . His nephew, Roman Rotenberg, who is also subject to US sanctions, listed his address as a $4.3 million London townhouse owned by a Cypriot entity.
“Susequent governments have chosen not to grapple with the issue,” said Mr. Keating, a financial crime expert.
But even after all the changes, the flaws remain. After a Senate report showed how Arkady Rotenberg bought fine art in the United States, lawmakers such as Senator Rob Portman, a Republican from Ohio, tried to force art dealers to comply with the same anti-privacy requirements as banks.
Under heavy lobbying from auction houses, lawmakers scrapped the idea and allowed the art sale to remain anonymous.
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