Filenews 14 April 2023
By Giacomo Tognini
On February 24, 2022, bombs began hitting Kyiv as part of the Russian invasion of Ukraine. On the same day, one of Russia's most prominent billionaire oligarchs, Roman Abramovich transferred his majority stake in 10 offshore trusts in Cyprus and Jersey to his six children.
These trusts included assets of at least EUR 4 billion. dollars, according to leaked documents from a Cyprus business service provider shared with the Organized Crime and Corruption Reporting Program (OCCRP) and its affiliates, including Forbes and The Guardian. Nineteen days later, the European Union imposed sanctions on Abramovich – but all his valuable assets had already been transferred to his children, thus avoiding freezing or confiscation. Abramovich continued to make similar moves in the following weeks, sending his superyachts moored in European marinas to more "friendly" shores. Four of them - including 533 feet and worth $429 million Eclipse, and the 458-foot and valued at $507 million Solaris - arrived in Turkey, where they are protected from Western sanctions (Turkey has remained neutral regarding Russia's war in Ukraine).
However, Abramovich was forced to part with his favourite football club, London-based Premier League member Chelsea, following pressure from the British government. His fortune fell from around €14.3 billion on February 23, at $6.9 billion two weeks later, after the collapse of the ruble and the suspension of the operation of the Russian stock exchange. Today, his fortune has recovered to €9.2 billion, according to Forbes estimates.
Abramovich is not alone, however, in transferring his assets to members of his family. Many Russian billionaires evaded Western sanctions by transferring the trusts and offshore companies that own their assets to their wives or associates. Others, in order to keep their yachts or private jets, planned to park them in friendlier destinations, such as Turkey and the United Arab Emirates, which never imposed sanctions on Russia.
In other words, Russian billionaires were only temporarily hit by Western sanctions, as they subsequently regained much of their wealth. Some took the opportunity to seize assets that others wanted to get rid of. In April last year, nickel and banking magnate Vladimir Potanin bought back Russian banking group Rosbank from France's Société Générale, which had bought it from Potanin as part of a series of deals between 2006 and 2014.
Two weeks later, Potanin acquired Tinkoff Bank, one of Russia's largest private banks, from former billionaire Oleg Tinkov for an undisclosed price. The acquisitions were made before Potanin was sanctioned by the UK in June" and by the US in December. Beyond timing, the deals proved highly beneficial: Potanin's fortune increased by €6.4 billion. dollars from March 2022 to March 2023 thanks to banks, securing him the title of the second richest person in Russia.
"This was a very lucrative development for Potanin, and most importantly the deal was reached before sanctions were imposed on him," says Anders Aslund, a Swedish economist and expert on Russian oligarchs who explains how some Russians were hit. "What is essentially happening is that some are either emigrating or focusing only on Russia. Potanin's case is a prime example."
Meanwhile, high prices of commodities such as oil, metals and minerals in 2022 also helped boost the profits of Russian businesses and filled Vladimir Putin's coffers with billions of dollars. As well as the recovery of the stock market of Russia and the ruble. Russia's MOEX index, made up of the 50 largest listed companies on the Moscow Stock Exchange, is up 31 percent from its low on Sept. 26 and is just 18 percent below its value before Russia's invasion of Ukraine. The ruble has returned to pre-war levels against the dollar, recovering 65% from its nadir on March 10, 2022.
All this has helped make 2022 a particularly good year for Russia's cronies. This year's Forbes Billionaires List includes 105 Russians, with a combined net worth of $474 billion, up from $83 in March last year, with a net worth of $320 billion. (By contrast, America's 735 billionaires lost $200 billion between March 2022 and March 2023, while China's cronies became $300 billion poorer; the fortunes of the Forbes billionaires were calculated based on stock prices and exchange rates as of March 10, 2023.)
Even those hit by Western sanctions have emerged almost unscathed. According to Forbes calculations, at least 48 Russian or Russian-born billionaires have been sanctioned by the United States, European Union, United Kingdom, Canada, Switzerland and Australia since 2014. Most were targeted after Putin's invasion of Ukraine in February last year. But only 39 of them were included in Forbes' lists of the world's billionaires for 2022 and 2023. Compared to February 23, 2022 – the day before the Russian invasion – these 39 cronies have become poorer by €45 billion, or about 13%.
However, if you look at their course since last March, when the ruble was in free fall and the Moscow stock exchange rolled down, to date, the picture has changed radically. From March 2022 to March 2023, these 39 billionaires have recovered a staggering $104 billion. Of those, only three saw their fortunes shrink during that period. Another seven billionaires who walked through the exit door in March last year, despite being sanctioned, have increased their fortunes enough to return to the club of the world's richest this year.
"Their assets have managed to survive in a remarkable way," says sanctions lawyer Victor Winkler, who previously headed global sanctions at German bank Commerzbank. "[Before 2022] a very significant part of their wealth was already stored in countries that [don't] adopt Western sanctions. Many were able to pre-empt sanctions imposed after February 23 since they were targeted long after Putin's invasion."
The biggest gainer of the Russian oligarchs was fertilizer tycoon Andrei Melnichenko, who is now the country's richest man. Melnichenko saw his fortune rise by $14.1 billion over the last year, reaching $25.2 billion, thanks to soaring fertilizer and coal prices, cornerstones of his two private companies, fertilizer producer Eurochem and lignite company SUEK. Melnichenko transferred his shares in Eurochem and SUEK to a trust in 2006, while he ceased to be a beneficiary of the trust on March 8, 2022, giving way to his wife Alexandra (who was sanctioned in June).
His representatives have argued that he should not be included in the list of billionaires, but Forbes estimates that he has given virtual control of those assets to his relatives or associates. In fact, Forbes calculated the fortunes of all Russian billionaires for the 2023 list, based on ownership structures as of February 2022, i.e. before Russia's invasion of Ukraine, and therefore still counts Eurochem and SUEK in Melnichenko's estimated fortune.
According to Anders Aslund, it is also important to make a distinction regarding the impact that sanctions have had on oligarchs with significant assets abroad and those based primarily in Russia. "My feeling is that they have suffered immensely. Those in the middle (in the West and Russia) are losers," he says, pointing to the declining valuation of sanctioned firms such as Luxembourg-based banking group Alfa Bank, which owns billionaires Mikhail Friedman, Pyotr Aven, German Khan and Alexei Kuzmitsev. (The fifth co-owner of the banking group, Andrei Kosogov, has not been targeted.) This separates them from those who own assets in Russia and have much closer ties to Putin, such as Arkady and Boris Rothenberg.
In fact, Forbes estimates that Arkady Rothenberg, his brother Boris and his son Igor are all richer today than they were before the start of the war, totalling $500 million up to €6.2 billion dollars. They, who have very few known assets outside Russia, have not been hit as hard by Western sanctions, since they mainly target holdings in foreign firms or investments.
However, the outlook for the Russian economy is more complex than the fortunes of the country's cronies suggest. The Russian economy shrank by about 2.5 percent last year, according to Russian government statistics, far short of forecasts of a more than 12 percent plunge. Still, this is a significant contraction compared to GDP growth of 3.5% recorded in the European Union and 2.1% in the US. Moreover, there are signs that Western sanctions – notably the price cap imposed on Russian oil since December and the EU ban on Russian oil products that came into effect two months ago – have finally begun to hit the Russian economy: Russia's Ministry of Finance has announced a budget deficit of €29.5 billion for the first quarter of 2023, mainly due to lower oil and gas revenues.
In terms of their impact on Russian billionaires, only one of those sanctioned has seen the door to exit the billionaires' club in the last year: Oleg Tinkov. That's because he was reportedly forced to sell his assets cheaply after criticizing Putin's war.
The sanctions haven't even targeted the right people, according to Tinkov. "If I were in the position of Western governments, I would target more specifically," he told Forbes in May last year. "There are people who have not been included in the sanctions and they are Putin's wallets, while I am on the list."
Source: Forbes
