WASHINGTON: For the purpose of stopping the Kremlin’s invasion of Ukraine, the United States has started a new, aggressive campaign to hurt the Russian economy and its oligarchs in particular.
The US Treasury and Justice Departments will work together to close legal loopholes that allow Russian oligarchs to use shell companies to transact business in the US financial system, legally liquidate the oligarchs’ assets, and increase financial penalties for those who aid in the evasion of sanctions.
As the head of the US government’s KleptoCapture task force, Andrew Adams told The Associated Press that the group is focusing its efforts on identifying those who help Russians evade sanctions and violate export controls.
“These illicit procurement networks will continue to take up an ever-increasing amount of our bandwidth,” said Adams, who is also serving as acting deputy assistant attorney general.
According to a report released by the Treasury Department last week, sanctions have resulted in the blocking or freezing of over $58 billion in assets belonging to sanctioned Russians around the world. The sanctioned oligarch Viktor Vekselberg owns six properties in New York and Florida, together worth $75 million, as well as two luxury yachts in San Diego and Fiji, each worth $300 million.
As an example of the United States’ efforts to punish oligarchs’ associates and wealth managers, Vladimir Voronchenko, who worked to maintain Vekselberg’s properties, was indicted by a federal court in New York. On February, he was charged with conspiring to break US sanctions and avoid prosecution.
The KleptoCapture network coordinated the case.
According to Adams, who referred to them as “professional sanctions evasion brokers,” “sanctions facilitation” can be “quite effective.”
Targeting a small number of high-profile wealth managers would be much more damaging to Russia than singly sanctioning oligarchs, according to a study published in February and led by researchers at Dartmouth University.
Liquidating yachts and other property owned by Russian oligarchs and the Kremlin in order to benefit Ukraine is another attempt to inflict pain on the Russian economy.
Former Biden administration official Daleep Singh testified before the Senate Banking Committee on February 28 that forfeiting Russia’s billions in assets held by the US is “something we ought to pursue” in response to calls from Ukrainian President Volodymyr Zelensky.
It was suggested by Singh that the United States “use the reserves that we have immobilized at the New York Fed, transfer them to Ukraine, and allow them to put them up as collateral to raise money.” While serving as national security adviser for international economics, he oversaw the administration’s sanctions against Russia.
Despite the legal challenges of converting property to which the owners’ access has been blocked into forfeited assets that the government can take and sell for the benefit of Ukraine, Adams said that the KleptoCapture task force is pursuing efforts to sell Russians’ yachts and other property.
He reaffirmed that the United States will abide by international law. That includes, according to Adams, not confiscating property without a legal basis if it has not been fully forfeited through judicial procedures.
He continued, saying that the task force “successfully worked with Congress and worked with folks around the executive branch in obtaining authorization to transfer certain forfeited funds to the State Department.”
On Thursday, the Treasury Department announced that it is “paving the way” for $5.4 million in forfeited funds to be transferred to Ukraine as foreign aid.
Officials have also stated that closing legal loopholes used by those seeking to circumvent sanctions will be a top priority across government agencies.
The US Treasury’s Financial Crimes Enforcement Network plans to issue regulations mandating the disclosure of beneficial ownership in order to combat money laundering through the country’s real estate market.
The new real estate rule is long overdue, according to Steven Tian, director of research at the Yale Chief Executive Leadership Institute, who studies companies’ withdrawal from Russia.
Not only do Russian oligarchs engage in this, but so do many other wealthy people around the world. You’re well aware that shell companies are routinely used in the U.S. real estate industry, as Tian pointed out.
Government affairs director of a corporate transparency nonprofit, Erica Hanichak, urged the administration to propose the rule by the end of March, when the United States will co-host the second Summit for Democracy with the governments of Costa Rica, the Netherlands, South Korea, and Zambia.
She explained that the United States sees this as a chance to “demonstrate leadership” by closing “loopholes in our system that facilitate corruption internationally” as well as combating “corrupt practices” in other countries.