The Washington Post

To rein in Russian oligarchs, target their wealth managers, study suggests


For more than a year, Western nations have used sanctions to target connected Russian businessme­n in the hope they would pressure President Vladimir Putin to end the war in Ukraine. From Sardinia to Fiji, authoritie­s seized superyacht­s and villas tied to the oligarchs. In Washington, the Justice Department formed a special task force, Kleptocapt­ure, to track down the hidden assets of Russia’s blackliste­d elite.

But now, a team of researcher­s at Dartmouth College says those efforts, while cathartic, were largely ineffectiv­e. Instead, the researcher­s say in a new study, Western government­s should focus on going after the experts — the lawyers, accountant­s and bankers — who manage the oligarchs’ offshore wealth.

This method is essentiall­y a “financial missile guidance system” for those countries hoping to punish business titans with ties to Putin, said Brooke Harrington, a professor of sociology at Dartmouth and one of the authors. Her point: By targeting specific wealth management profession­als with links to multiple oligarchs, they can disrupt the finances and alliances of large numbers of the elite in one fell swoop.

These managers “are the linchpins binding the global system of offshore finance, without whom the system could not function,” Harrington and her colleagues wrote in the study. The study is based on a trove of data from the Offshore Leaks Database provided by the Internatio­nal Consortium of Investigat­ive Journalist­s (ICIJ).

The removal of these profession­als, they said, would mean “cutting off the expertise pipeline . . . a more encompassi­ng punishment than losing access to a specific bank account or yacht or private jet.”

Indeed, Russia’s plutocrati­c class might be particular­ly vulnerable to this approach. About 60 percent of Russian wealth is held offshore, compared with the 10 percent global average for the ultrawealt­hy, according to a 2017 report by the National Bureau of Economic Research.

Russia’s modern oligarchs boast vast holdings across industries, including banking, petrochemi­cals, metals and technology. They first emerged amid the Soviet Union’s collapse when a run on state enterprise­s allowed them to cash in. Now, they include some of the most influentia­l names in Russian business and politics, an exclusive group of powerful men whose investment­s span the globe.

But while the United States and its allies have embarked on an extraordin­ary effort to isolate Putin and his wealthy associates — adding around 1,500 new individual­s and entities to sanctions lists in Britain, the United States and the European Union over the past year — few of Russia’s most prominent tycoons have publicly turned against their leader. And the researcher­s say there is growing evidence that some of them have been able to evade Western sanctions.

In recent years, the United States has increasing­ly relied on sanctions to achieve its foreign policy objectives. The measures — including trade embargoes or bans on financial transactio­ns — prohibit U.S. companies from doing business with targeted individual­s or entities. They also allow the U.S. government to seize assets in its jurisdicti­on, made all the wider by the role of the U.S. dollar in the global financial system.

But part of the problem, experts say, is that going after individual­s or companies that do business with blackliste­d oligarchs is time-consuming and complicate­d. In the study, the researcher­s note that traditiona­l sanctions on regimes targeting individual oligarchs or offshore jurisdicti­ons “have proved easier to bypass than policymake­rs expected.”

That’s because “they have mistakenly targeted the spokes of a wheel rather than the hub around which the whole system turns,” they write.

But by running the names of Russian sanctions targets through the database, the team was able to spot patterns they might not have found by simply reading the documents, said HoChun Herbert Chang, an incoming assistant professor of quantitati­ve social science at Dartmouth who led the data research.

One trend they noticed when mapping the system of relationsh­ips is that Russian oligarchs were often clustered around specific firms or individual­s, even when there was no formal connection. It appeared, the study said, that they were choosing wealth management experts “by word of mouth from family and friends.”

“Russian oligarchs seem to be more reliant on trust in terms of figuring out which intermedia­ries to use,” Chang said.

The Russian businessme­n also tended to rely on smaller, boutique wealth management firms, which appeared more willing to gamble on — or charge higher fees for — clients who come with legal or reputation­al risks. Chang and his team estimated that if these firms were removed from the offshore networks serving the Russian elite, it would cause more disruption than just taking out a specific financial entity linked to an oligarch.

As an example, the report highlights Markom Management Ltd., a London-based firm whose relatively small number of clients included a disproport­ionate number of Kremlin-linked businessme­n, according to the study data and a Senate staff report detailing some of the connection­s.

The Senate Subcommitt­ee on Investigat­ions published a report in 2020 that found that Markom Management’s Russian-born founder, Mark Omelnitski, assisted several members of the Rotenberg family, which has longstandi­ng ties to Putin, “in their efforts to evade U.S. sanctions.”

Chang said their analysis discovered other potential connection­s, but understand­ing the true nature of the arrangemen­ts is difficult by design. Indirect relationsh­ips are common in offshore finance, Harrington said, “in order to preserve plausible deniabilit­y about connection­s” to particular clients.

According to the research team, former Markom client Boris Rotenberg, a childhood friend of Putin, used a firm with a P.O. box address in the British Virgin Islands, a well-known tax haven, to handle the paperwork for some offshore banking. At least 20 other companies also used that P.O. box as their address, the data mapping showed, with clients whose names turned up on sanctions lists, including Alisher Usmanov, an oligarch who the Treasury Department has said is “close to Putin,” and Vladimir Kiriyenko, the son of Putin’s deputy chief of staff.

An email sent to a Markom Management address requesting comment was returned as undelivera­ble, while a person who answered a phone number associated with the firm said it had been “dissolved.” She did not give her name. A separate email sent to an address associated with Omelnitski at a Cyprus-based firm was also returned as undelivera­ble.

Western policymake­rs have already started to take aim at the intermedia­ries, the study says. In February, the Treasury Department announced more sanctions against Russia, including a number of Moscow-based firms that manage money for Russian tycoons. Britain, the United States and the European Union have all also imposed restrictio­ns on the provision of some offshore expertise to Russian oligarchs.

The ultimate aim, however, is to exert even more pressure so that Russia’s elite abandon Putin and force him to give up in Ukraine, Harrington said.

“A more targeted use of statebacke­d sanctions means a shorter war and less loss of life,” she said.

 ?? GREGORY BULL/ASSOCIATED PRESS ?? The superyacht Amadea arrives in San Diego Bay in June. The United States seized the yacht from a Russian oligarch facing sanctions. Authoritie­s in Western nations have gone after individual oligarchs, but Dartmouth College researcher­s recommend a different tack.
GREGORY BULL/ASSOCIATED PRESS The superyacht Amadea arrives in San Diego Bay in June. The United States seized the yacht from a Russian oligarch facing sanctions. Authoritie­s in Western nations have gone after individual oligarchs, but Dartmouth College researcher­s recommend a different tack.

Newspapers in English

Newspapers from United States