In relation to Russia's invasion of Ukraine in February, the EU significantly expanded the list of persons sanctioned, banned from entering EU territory and subject to freezing of assets. It consists of already 877 people, mainly military officials, politicians, lawyers and propagandists, but also several dozen Russian oligarchs, entrepreneurs and their family members (see table). The restrictions involve, among others, banning of financial transactions with EU entities, including in cryptocurrencies, and freezing bank accounts, property and resources of related companies, for example, where a sanctioned person owns more than 50% of shares in a company or has a decisive influence on its development. Financial restrictions are implemented directly by the Member States on the basis of the regulation, and the EC monitors their implementation. Such sanctions have been adopted by, among others Switzerland and Monaco, where significant Russian assets are located.

Foreign Wealth of the Russian Elite

In Russia, the richest group of citizens (1% of the population) owns nearly half the value of Russian household goods (World Inequality Database data). The elite is made up of President Vladimir Putin's trusted associates and related individuals who obtain lucrative income from state-owned companies. It is estimated that about half to two-thirds of the assets of Russian oligarchs and entrepreneurs worth up to $800 billion are located outside Russia (in relation, for example, to the risk of expropriation of domestic property goods).

Russian billionaires invest funds abroad mainly in real estate, luxury goods (for instance yachts, planes and art) and investment funds. This allows money laundering as it is easier to hide the ownership structure through such transactions. The United States, UK and Turkey are popular geographic destinations for such investments, and in the EU, Austria, Belgium, Croatia, Cyprus, Finland, France, Greece, Spain, the Netherlands, Germany and Italy are also used. Payments are often made by family members and intermediaries such as lawyers, real estate agents and accountants. They register networks with up to several dozen shell companies in countries considered to be tax havens, such as the United Arab Emirates, the British Virgin Islands, and the Cayman Islands. For example, Sergey Chemezov's yacht, worth €140 million, was registered by his stepdaughter Anastasia Ignatova under the flag of Saint Vincent and the Grenadines, through a company registered in the British Virgin Islands. Many non-transparent transactions have been carried out by EU banks. For example, in 2018, Russian money laundering at the Latvian ABLV bank and the Estonian Danske Bank was revealed. In the case of Russian bank deposits, significant amounts worth around $213 billion are kept in Switzerland.

Implementing Sanctions

Some Member States actively block the assets of oligarchs, including those held by their proxies (mainly luxury yachts and planes, villas and apartments, and bank deposits). France and Germany have even set up special task forces for this purpose. Belgium froze assets worth €10 billion (deposits and transactions), Luxembourg - €2.5 billion, France - €850 million, Italy - approx. €800 million, the Netherlands - €392 million, Germany - €95 million, Lithuania - €13 million, and Latvia - €8 million. However, many countries (such as Austria) did not provide information on this subject, or released only partial data (Spain confirmed the arrest of three yachts and a few real estate properties, and the Czech Republic mentioned real estate worth several hundred million crowns). Outside the EU, Switzerland froze around €5.6 billion in deposits.

Many assets could not be blocked. Some oligarchs moved their yachts and planes to third countries. For example, Roman Abramovich transferred two superyachts to Turkey. Oligarchs also resigned from the boards of companies, withdrew investments or transferred the ownership of shares to other entities. Andrei Melnichenko left the boards of EuroChem Group AG and SUEK and withdrew his assets. Alexei Mordashov, the largest shareholder of the German company TUI Group, stepped down from the management board and transferred most of his contribution (€1.4 billion) to the Caribbean company Ondero Limited, controlled by the mother of his children, Marina Mordashov. The German authorities have opened an investigation into this issue.

To improve the implementation of sanctions, the EC has set up a special task force consisting of its officials and representatives of the Member States, Eurojust and Europol. It coordinates its activities and exchanges information on assets with the Russian Eites, Proxies and Oligarchs Task Force (REPO), established by the G7 countries and Australia. The EC has also launched a secure Internet platform for reporting information by whistleblowers.

Challenges

Due to economic ties with the EU and possession of European citizenship, many key people from Putin's inner circle, their family members (the Kremlin kids) and proxies are omitted by EU restrictions. This applies, for instance, to oligarchs such as Boris Rotenberg (a citizen of Finland), Wiktor Wekselberg (a citizen of Cyprus), Alexei Miller, the president of Gazprom, Oleg Deripaska, who has economic ties, among others in Austria and Cyprus, and the family members of Putin and his proxies, such as Alina Kabaeva, his cousin Igor Putin and his son Roman Putin, Kirill Shamalov (former son-in-law and son of his trusted associate). Importantly, all Member States which have so far issued “golden passports” (Cyprus, Malta and Bulgaria), ended or limited these programmes. Austria continues to enable the acquisition of citizenship through broadly defined rules for naturalisation.

The problem is to detect property and prove that it belongs to sanctioned persons. The services of the Member States can check the owners of bank accounts or EU companies, but in the case of other assets, such as real estate, the actual owners are not registered in the databases. Despite the mandatory description of the ownership structure, company registers in the EU are often not transparent. Many countries have not correctly implemented the provisions of the 5th Directive on counteracting money laundering and terrorist financing adopted in 2018. The negotiated amendment to the directive clarifies the conditions for keeping registers and extends the obligation to identify real beneficiaries of foreign companies operating in the EU. The Union is also working on the ATAD 3 directive, which aims to facilitate, among other things, detection of shell companies registered in tax havens. Despite this, many of the oligarchs' assets were revealed by leaks of classified documents, the Panama, Paradise and Pandora Papers in the years 2016 to 2020, and by investigative journalists and non-governmental organisations.

The operational capacity of the Member States is limited. Only some of them, such as France, the Netherlands and Italy, have institutional systems capable of implementing financial sanctions. Many countries face shortages in human capital in countering financial crimes. Lawsuits can last for many years. To illustrate, the investigations into the freezing of the property of former presidents Hosni Mubarak and Zin el-Abidin Ben Ali, launched in France in 2011, were not completed before their deaths (in 2020 and 2019,,respectively). Due to the respect of property rights in the EU, the assets are only frozen. Poland and Lithuania call for the confiscation of the oligarchs' assets and the allocation of funds to help Ukraine. This requires the opening of separate legal proceedings in the Member States based on specific allegations of criminal offences such as money laundering.

Conclusions

So far, the value of assets belonging to Russian oligarchs and entrepreneurs frozen in the EU is relatively low. The pace of Member States’ action will depend on public pressure to seize their goods. Poland may demand that the EC task force regularly collect data on frozen assets and inform the public. It could also seek to further extend the EU sanctions’ list to include other oligarchs, their family members and proxies (for example, Oleg Deripaska, Wiktor Wekselberg, or Boris Rotenberg). For the effective detection of assets, it will be crucial that Member States fully implement EU rules on the transparency of financial transactions. It would be beneficial to promote in the media the EC platform that allows whistle-blowers to report hidden assets. The EU countries should withdraw their golden passports and visas issued so far to Russian and Belarusian citizens. In cases of suspicion of corruption and money laundering, it would be advisable to initiate lawsuits, confiscate assets and use them to help the civilian population of Ukraine.

Table. List of Russian oligarchs, entrepreneurs and their family members subject to EU sanctions in the years 2014-2022.

Source: PISM own compilation.