Evading Sanctions: A How-To Guide For Russian Billionaires – Forbes

Alisher Usmanov.
Russian oligarchs have for years enjoyed lifestyles so lavish that most people can’t even comprehend. They don’t just live in mansions, they stroll through elaborately landscaped compounds reminiscent of Versailles. They don’t merely sail the water in giant ships, they cruise the oceans in yachts as long as Yankee Stadium.
The fairy-tale life came under threat two weeks ago, when Russian President Vladimir Putin sent troops into Ukraine. Short of retaliating with arms and possibly triggering a third world war, countries in Europe and North America decided to freeze the assets, ban the travel and generally make life miserable for Russia’s richest in the hope that would slow the Putin war machine.
The oligarchs, however, have been through this before. Since the Russian annexation of Crimea in 2014, 20 billionaires have been sanctioned by the EU, U.S., U.K., Switzerland or Canada. Nine of them have been hit since the February 24 Ukraine invasion.
So they’ve learned to sign over ownership of their mansions, condos and fine art to relatives. They discovered that using a series of shell companies resembling Matryoshka dolls rendered it impossible for hostile governments to seize their jets and yachts. They made sure their stakes in companies were less than 50%, keeping them beyond the reach of U.S. sanctions. They registered assets in the British Virgin Islands, the Isle of Man, Cyprus, or in the two Russian tax havens, Oktyabrsky Island and Russky Island, where nations opposed to the shelling of Ukraine can never lay a finger on them. Most importantly, they’ve enlisted lawyers and accountants to create an entire new field of practice: the sanctions-evasion industry.
The lawyers set up trusts and act as nominee shareholders, said Alexi Fehlman, an analyst at data intelligence firm Sayari Labs who specializes in Eurasia and Russia. The lawyers make it easier to move money and hide assets. Representatives for all the billionaires mentioned in this article did not immediately respond to a request for comment.
The results have been largely a success. Last week, German authorities didn’t know what to do with the 512-foot Dilbar, a yacht they thought was owned by sanctioned Russian billionaire Alisher Usmanov. They discovered it’s really owned by a Malta-based firm named Navis Marine Ltd and registered in the Cayman Islands. They couldn’t seize it, so they merely prevented it from leaving.
Usmanov also owns two homes in the U.K. through offshore companies based in the Isle of Man and Cyprus, where ownership rules make things fuzzy. Several of his properties, including a villa in northern Sardinia that was frozen by the Italian government on Friday, have been frozen by British and European authorities, meaning he can’t use them. But they couldn’t take them away.
Laws in democratic countries tend to favor individual property rights, which oligarchs can use in their favor. Arkady Rotenberg, Putin’s erstwhile judo partner, owns several properties in Italy, including three villas in Sardinia and a luxury hotel in central Rome. After being hit by EU sanctions and a travel ban in 2014, Rotenberg’s assets were frozen by Italian authorities. He appealed to the EU’s General Court, which upheld the sanctions in 2016 but annulled the “freezing of funds » from July 30, 2014, to March 14, 2015. Forbes found that Rotenberg and his brother Boris, also a Russian billionaire under sanctions, still own at least one of those properties through two companies registered in Cyprus. One of them, Olpon Investments Ltd, is the same firm that owned the properties on Arkady’s behalf in September 2014.
The Rotenbergs were savvy enough to use offshore structures as hard to sort as Matryoshka dolls to get around any punishment for their connection to the Kremlin. A July 2020 report by a U.S. Senate subcommittee detailed an elaborate scheme in which the Rotenberg brothers spent more than $18 million on art purchases in the months after they were sanctioned by the U.S. in March 2014. They acquired several artworks, including a $7.5 million René Magritte, through a web of offshore companies based in Cyprus and the British Virgin Islands. One of the firms, Cyprus-based Milasi Engineering, was transferred from Arkady’s ownership to his son Igor in July 2014, in a move the report describes as “solely to evade sanctions” with the ownership “intentionally structured to be opaque in order to hide the identities of true beneficiaries.” Igor Rotenberg is also a billionaire. In April 2018, he became the third Rotenberg to be sanctioned by the U.S.
Industrialist Oleg Deripaska was sanctioned by the U.S. Treasury Department in April 2018, but he still owns at least three properties in the U.S., including two homes in Manhattan and a mansion in Washington, D.C., thanks to three LLCs based in Delaware. Two of the homes were raided by the FBI in October 2021, but a spokesperson for Deripaska has repeatedly said the properties are owned by Deripaska’s relatives. Another Russian billionaire sanctioned by the U.S. in 2018, Viktor Vekselberg, still owns a home in suburban Connecticut and a luxury condo in Manhattan through his wife, Marina Dobrynina.
By now, making sure to own only as much as a half-stake in the companies in their portfolios is a well-known chapter in the oligarchs’ playbook. The Treasury Department’s Office of Foreign Assets Control has a “50% rule” which says that only assets where a sanctioned individual has a 50% stake or more, directly or indirectly, will be blocked.
So, in January 2019, Deripaska reduced his stake in metals giant En+ Group from 70% to 44.95% and the Treasury Department agreed to lift sanctions on the firm. Usmanov, who was sanctioned by the U.S. on March 3, is also off the hook for his largest asset: his 49% stake in holding company USM, which owns part of metals firm Metalloinvest, telecoms firm MegaFon and others. In Usmanov’s case, the sanctions imposed by the U.S. only target his yacht and an Airbus A340-300 jet registered in the Isle of Man. The press release announcing the sanctions against Usmanov said that for some reason, the 50% rule didn’t apply to him when it came to investments other than the jet and the yacht.
The playbook has been used when it comes to stakes in private companies, too. On the same day he was hit by EU sanctions last week, steel baron Alexey Mordashov transferred his majority stake in U.K.-based gold-mining firm Nordgold to his wife, Marina.
“When you’re sanctioned, what you’re trying to do is avoid any contacts with your assets,” said Ari Redbord, a former advisor to the U.S. Treasury’s Terrorism and Financial Intelligence unit and head of compliance at TRM Labs, a blockchain tracking service that works with governments. “The problem is once law enforcement or regulators are able to identify one of those shell companies, they pull that one down and spin up another one.”
Even before they’re sanctioned, but suspect they might be, they can take precautionary measures, such as offloading assets before they’re no longer able to. Roman Abramovich, for example, put up for sale his soccer club Chelsea FC and several U.K. mansions shortly after the U.K. and EU began slapping sanctions on other Russian oligarchs, but before Abramovich’s name came up. It still hasn’t.
The billionaires or their attorneys can also create tangled webs of corporate structures that are nearly impossible for authorities to unravel. One example is called circular ownership, which helps you evade sanctions by masking your ownership through a loop of companies that own stakes in each other, hiding how much you actually own of a specific asset.
Another plus for targeted oligarchs: U.S. authorities live in fear that sanctions could come back to harm Americans, according to a former sanctions official who asked to remain anonymous due to the sensitivity of the topic. “There’s a concern that some sanctions come with derivative sanctions, because of an oligarch’s ownership structures in core assets,” the person said. “It’s important to think about the knock-on effects of sanctions on very wealthy people who have very concentrated holdings, sometimes in very core assets, that are relevant not just to Russia, but to global trading partners. »
When all else fails, Russia has taken steps to save its wealthiest. The Russian government has begun restricting corporate ownership data, making it more difficult for sanctioning authorities to identify assets owned by sanctioned companies or individuals. In June 2019, Russia’s Federal Tax Registry decreed that firms that are either under risk of sanctions, registered in Crimea, or involved in the defense industry can stop publicly disclosing ownership data.
And in August 2018, Russia created two offshore zones known as special administrative regions (SARs), designed to entice Russia’s largest firms to redomicile in the country by offering tax incentives and a safe haven from U.S. sanctions. By Forbes’ count, Deripaska and Vekselberg both transferred at least 14 companies, including En+ Group and aluminum giant Rusal, from offshore jurisdictions such as Jersey and Cyprus to Russian SARs.
There are pitfalls out there that haven’t been tested by oligarchs. All bets are off if China, Middle Eastern kingdoms and other key trading partners decide to dip a toe into the sanctions pool. “You have a better chance of evading sanctions if you have another commercial counterpart that has a different view on foreign policy” than the sanctioning countries, said James Reardon, senior associate at the Swiss law firm MLL. That lesson was learned, Reardon said, from U.S. sanctions on Iran, which haven’t been completely effective thanks to Iran’s economic ties with Europe.
Another hitch are the new task forces announced by the U.S. and its European allies. The “KleptoCapture” team created last week by U.S. Attorney General Merrick Garland, for example, will use civil and criminal forfeiture to seize assets owned by sanctioned individuals.
The task forces, however, need funding and close coordination between governments, especially when it comes to sharing beneficial ownership data. It’s one thing for Switzerland, Monaco and the Cayman Islands, long known for their neutrality and for welcoming Russian money, to implement sanctions. It’s another thing to reverse decades of secrecy.
More enforcement could be on the way: Italian Prime Minister Mario Draghi has proposed an international public register for any Russian oligarch with a fortune above $11 million, while the U.K. appears to be moving forward with a registry of properties owned by offshore companies. In the U.S., the Corporate Transparency Act, originally passed in January 2021, will require companies to disclose their beneficial owners to the Treasury’s Financial Crimes Enforcement Network by late 2022 or early 2023. It may also require the same of trusts—a vehicle commonly used in states such as South Dakota and Wyoming by billionaires seeking to mask their ownership of assets and keep them out of reach from creditors or ex-spouses.
“If you increasingly remove the safe places and ways to hide, then you make it more risky and more difficult, and that means people will be less inclined to hide offshore,” said Rasmus Corlin Christensen, a postdoctoral researcher on international political economy and taxation at Copenhagen Business School. “There’s now a strong appetite for the most powerful states in the world to use their political, financial and economic muscle to force change.”
But for now, thanks to their lawyers, to lax rules, to sanctions havens and to other enablers around the world, Russian oligarchs can save themselves from some of the worst aspects of economic sanctions and kick back on their floating, and flying, zip codes.

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