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A Year of War

How effective have sanctions on Russia been?

David Brancaccio and Erika Soderstrom Feb 23, 2023
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A new research paper on the topic suggests that sanctioning not oligarchs but their wealth managers would actually be even more effective. Sergei Supinsky/AFP via Getty Images
A Year of War

How effective have sanctions on Russia been?

David Brancaccio and Erika Soderstrom Feb 23, 2023
Heard on:
A new research paper on the topic suggests that sanctioning not oligarchs but their wealth managers would actually be even more effective. Sergei Supinsky/AFP via Getty Images
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One year ago this Friday, Russia invaded Ukraine. That invasion triggered a flurry of condemnation and sanctions around the globe. Among the many economic penalties Russia faced were sanctions on oligarchs, the uber rich with political influence. But have those efforts to limit the power of oligarchs and by extension the Kremlin been effective?

A forthcoming paper co-authored by Dartmouth sociologist Brooke Harrington highlights how sanctions on rich influential Russians could have a greater impact. She spoke with “Marketplace Morning Report” host David Brancaccio. The following is an edited transcript of their conversation.

David Brancaccio: How are these sanctions working, the ones directed against what we call oligarchs?

Brooke Harrington: Well, there is legitimate criticism of some of these sanctions, which are not even new to the most recent invasion of Ukraine a year ago. Sanctions on many of the very same Russian oligarchs were imposed back in 2014, when Russia first invaded Ukraine, and in between times for various other offenses like election interference. And part of the problem is that the oligarchs have such clever advisers, meaning attorneys and accountants and tax advisers, that sometimes they’re able to evade even the most carefully designed sanctions on their own wealth offshore.

Brancaccio: I had just heard from I think someone who’s an expert suggesting that a wealthy Russian could put money into a U.S.-based hedge fund with impunity. That’s not the same as an oligarch putting money into a Chase account or a Citibank account.

Harrington: Yes, that’s true. The rules for different kinds of assets offshore are different. And that’s what these wealth managers who serve the Russian oligarchs are so good at figuring out — all these little nooks and crannies in the law, where unexpected things are permissible, that sanctions creators didn’t know about. Or where there’s some uncertainty or gray area between obviously illegal and obviously legal. That’s where a lot of these oligarchs’ strategies exist. And that’s part of what makes them so difficult to sanction effectively.

Brancaccio: And you’ve been thinking a lot about this. You think that perhaps we should rethink the way that sanctions are targeted, maybe not just on the oligarchs, but who? The people managing the money?

Harrington: Yeah, the wealth managers who I’ve been studying since 2007, they turn out to be the hubs of this big international system. And in this most recent article, we show that if you sanction the wealth managers who serve the oligarchs, you get a much more effective sanctions result. You’re much more likely to be able to achieve the desired effect, which is cutting the oligarchs off from their offshore wealth.

Brancaccio: How would it work? “Essentially, you’re not supposed to have this as a client, we see that he is a client, if you don’t get rid of the client, you’re in trouble?”

Harrington: Well, what people don’t realize, if they’re not part of this world of the ultra-rich or if they’re not one of the few people like me who study them, is that although the oligarchs — not just from Russia, but everywhere — enjoy these flashy perks offshore, like the super yachts and the private jets and the villas, they themselves usually don’t own those things directly. And they’re not figuring out the legal codes of various offshore jurisdictions in order to make sure that those assets are difficult to sanction. All of that is outsourced to this group of professionals called wealth managers. And if you take away the wealth managers from that system, the oligarchs can’t easily access their wealth anymore. Because it’s often the oligarchs who have outsourced even ownership or control of those assets to the wealth managers. And then the oligarchs just use the villas and the yachts and the planes. They’re usually kind of nameless people who never appear in the newspaper. But they keep the whole offshore system running. And if somehow you can stop them from interacting with their clients, which is what sanctions on wealth managers would do, then the system itself, the offshore system, begins to break down. And specifically it breaks down where sanctions want it to, which is an oligarch’s ability to access their offshore assets.

Brancaccio: And how challenging would it be for authorities in the sanctioning countries to make the link between the wealth manager and the oligarchy? Seems like sometimes that’s an opaque system?

Harrington: Well, normally, it would be, but one of the benefits of having had these big leaks from offshore, starting with the Panama Papers in 2016, followed by the Paradise Papers in 2017 and then the Pandora Papers in 2021, is we now have a better picture, a much better picture of these links among oligarchies and their wealth managers offshore. All these data sets have been compiled and made public by the International Consortium of Investigative Journalists. And that’s what I am and my colleagues used in order to map out relationships among oligarchs, not just from Russia, but from other countries, and their offshore wealth managers.

Now countries like the U.S. or the U.K., organizations like the European Union, they have access to this data and more. So they can also see these offshore networks. And all of those entities have begun sanctioning offshore wealth managers with an eye to breaking those links between oligarchs and their offshore wealth more effectively than they’ve done in the past.

Brancaccio: And we should spell it out: Sanctioning oligarchs is not just about shunning for shunning’s sake. The idea would be oligarchs, these tycoons, are influential enough that they might have the ear of people making decisions in Russia, and could perhaps alter policy.

Harrington: I’m really glad that you raised that point, because I think that’s often misunderstood. People who oppose sanctions on Russian oligarchs say, “Look, none of these oligarchs have any influence whatsoever over Vladimir Putin.” I’m not a Russian expert by any means, but I would agree with that assessment, because that’s what the experts on Russia do say: that, if anything, the oligarchs take their marching orders from Putin, they don’t influence him. But that’s not actually the point of sanctions on oligarchs. It’s often misunderstood. I don’t think anyone believes that the point of sanctioning Russian oligarchs is to impose pain that will make them go running back to Vladimir Putin and say, “OK, we’ve got to withdraw from Ukraine.” That’s just not how oligarchs in Russia work. However, there’s a long history of using sanctions to split oligarchs’ loyalty, so that they no longer adhere to the strong man who depends on the appearance of an iron grip on his lieutenants in order to maintain power.

So sanctions on Pinochet’s regime [in Chile] in the ’70s and on the South African apartheid regime in the ’80s did exactly this. They didn’t get elites to whisper in the ear of the governing regime. What they did was, they made elites miserable enough by stigmatizing them and cutting them off from their offshore holdings, that they were no longer publicly loyal to the regime. And as the work of historians of fascism like Ruth Ben-Ghiat has demonstrated, strong men depend entirely on creating this kind of Wizard-of-Oz-like image of invincibility and total control. So every oligarch you can chip away, every elite who publicly expresses disgruntlement or disloyalty to the strongman regime, creates a crack in this edifice of autocracy that makes it more likely that that regime will be toppled.

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