Four or five years ago, when I covered the St. Petersburg Economic Forum, Russian President Vladimir Putin’s answer to Davos, I snagged an invitation to a Russian oligarch’s private party at a huge nightclub. I knew one of the (non-Russian) billionaires who had been invited and begged him to take me.
The first person I ran into at the club was aluminum magnate Oleg Deripaska, one of the wealthiest oligarchs. He always hated the term “oligarch” and denied he was one, though he was certainly close to the Kremlin and was often described as “Putin’s favourite oligarch.” He was friendly, though curious how a lowly reporter had made it it to a party that was supposed to be free of media.
The second person I met – and talked to for a while – was Sergei Lavrov, the Foreign Minister and now the public face of Russia’s invasion of Ukraine. Then I ran into Viktor Vekselberg, the owner of Renova Group and collector of the rare and incredibly valuable Fabergé eggs made for the Russian czars Alexander III and Nicholas II.
At one point, the billionaire who invited me said, “Eric, I bet there’s more than hundred billion dollars of wealth in this place.”
The nightclub tables were brimming with the most expensive caviar and champagne. The dance floor was full of awkwardly gyrating oligarchs and mere multimillionaires, most of them dressed in jeans, and their glamorous wives and girlfriends. Everyone seemed happy and pleasantly soused. Life for them was good, great even.
Today, their lives could not be more different. Many of them are under punishing sanctions imposed by the European Union, Britain, the United States and Canada. Even allegedly neutral Switzerland and tiny Monaco – both favoured destinations for their legal or illicit wealth – are playing the whack-an-oligarch game.
For them, the good times have been replaced with dread. The era of the oligarch – whose dominant characteristic is obscene wealth collected after the fall of the Soviet Union in 1991 – seems close to ending.
Their wealth is disappearing at what, to them, must be an alarming rate. An analysis by Forbes magazine suggested that 116 Russian billionaires have lost US$126-billion of wealth since Feb. 16, a week before the invasion, partly owing to the stunning collapse of the ruble. It fell 30 per cent against the U.S. dollar on Monday alone, when the Russian central bank doubled interests rates to 20 per cent in an attempt to stabilize the shell-shocked currency.
The wealth destruction is no doubt intensifying by the minute, though hold your pity. Absolutely none of them will turn into paupers, thanks to the miracle of numbered offshore accounts – and no doubt warnings from their intelligence sources that sanctions were inevitable.
The Western attack on the oligarchs and other Russian billionaires is, broadly speaking, justified by their association with and support of – real or alleged – Mr. Putin and his fellow warmongers in the Kremlin. While almost everyone in the West will cheer their rapidly declining wealth, the sanctions raise some troubling questions, all the more so since it is wrong to assume that every oligarch is a lapdog of the Kremlin or a crook – though some almost certainly are.
Will the oligarchs and other Russian billionaires have any legal recourse to the seizure of their assets? That’s one question. If not, clever lawyers will argue that the rule of law apparently does not apply to everyone.
On Wednesday, the Financial Times reported that British cabinet minister Michael Gove is drawing up plans to seize the British properties of nine oligarchs who have links to Mr. Putin and are under sanctions already.
The implication is that they will have no legal recourse to any seizures even if they had not strayed on the wrong side of the law in the years, or decades, that they had invested in Britain.
Other questions include: What is the threshold to impose sanctions, or to grab assets? Can any rich Russian face punishment? Or only those who made their fortunes in the wild, lawless days of the 1990s? Or anyone who has been known to raise a glass with Mr. Putin?
And what about non-Russian oligarchs? If illicit wealth is a prime justification for sanctions, why stop with Russian oligarchs? Money laundering and other financial crimes are not exclusively a Russian threat to the West. Some Ukrainian oligarchs have been accused of money laundering too.
One was Ihor Kolomoisky, who was hit not long ago with U.S. sanctions for “significant corruption” in Ukraine and was separately accused by the Justice Department of using shell companies to move fortunes out of Ukraine and into the United States. Should his assets be seized?
As for the Russian oligarchs, they appear to be in serious trouble. Many of them will have to choose between loyalty to Mr. Putin and Russia and loyalty to their businesses outside of Russia, some of which are extensive. Mr. Deripaska, for instance, owns the Aughinish Alumina refinery in Ireland though EN+, the London-listed company in which he has a significant stake.
Any decision will be costly. The oligarchs who side with Mr. Putin risk having their non-Russian assets hit by sanctions or seized. Those who distance themselves from Mr. Putin, or criticize him for having started a war that has already killed thousands on both sides, risk his cruel retaliation.
In the meantime, wealthy Russians who are under sanction, or fear they will soon land on the sanctions list, are scrambling to shield their assets, including their massive yachts. Reportedly, at least five superyachts owned by Russian billionaires were already in the Maldives, an archipelago of islands in the Indian Ocean that does not have an extradition treaty with the United States. Other Russian-owned yachts were on their way, or already moored in, Montenegro, the small Adriatic country that is not yet an EU member and is popular as a warm-water playground for wealthy Russians.
The yacht seizures must terrify the oligarchs. The floating palaces ultimately owned by companies controlled by the Russian billionaires Alisher Usmanov and Igor Sechin were this week seized by German and French authorities, respectively, before they could set sail.
Even oligarchs who were not under sanctions were in a panic. One was Roman Abramovich, owner of the English Premier League’s Chelsea FC. Faced with the threat of sanctions, he announced this week he is selling the trophy-winning winning soccer team. The potential billions from the sale will go into a charitable foundation that “will be for the benefit of all the victims of the war in Ukraine,” he said.
Note that he said “all of the victims,” presumably meaning Russian soldiers too. A few oligarchs are trying to please both sides, which may not please either side. There is no easy – or cost free – way out. For them, the good times ended with the bangs in Ukraine.