Filenews 19 April 2024 - by Lionel Laurent
The story of economic sanctions is one of "disappointment," since they often fail, writes Nicholas Mulder in his book The Economic Weapon. The situation may start to look like that as Russian troops step up attacks on Ukraine and after two Russian billionaires won a surprise legal victory over their inclusion on a European Union sanctions list. But it can also encourage a more pragmatic approach.
The surprising legal victories scored last week by two of the first post-Soviet billionaires, Mikhail Friedman and Petr Aven, are not exactly final – both are still hit by sanctions after the EU list was updated in March, which they have also appealed. The history of EU sanctions on Iran and Syria also suggests that policymakers can react and win in subsequent attempts to join the sanctions lists.
However, it remains a blow to the sanctions policy that serves as a barometer of Western support for Ukraine, as a source of funding for the war effort and as a hope for a brake on Russian President Vladimir Putin's action. The EU's General Court said the bloc's evidence of the inclusion of the two Russians, which is largely made up of press clippings, failed to prove their support for the invasion of Ukraine or Putin's regime. That gave Friedman additional impetus to go on the offensive elsewhere, this week calling the UK's sanctions against him a "huge injustice". Meanwhile, the Financial Times reported that investment firm LetterOne, from which shareholders Putin and Aven pulled out in 2022, is moving forward with a property deal in Mayfair.
All this highlights the frustrating game of cat and mouse of the economic weapon that is being directed against more and more parts of the Russian economy and now Iran. In the wake of Russia's invasion of Ukraine, cats seemed to have the upper hand, seizing yachts and other trophies worth €58 billion. This prompted some Yeltsin-era billionaires to denounce the war. But the mice aren't sitting idly by either: There aren't many signs of major cracks in the Russian elite as they move their wealth to friendlier places, with 115 firms moving to domestic offshore zones last year. Some European CEO advisers who left their local units in a hurry to leave Russia continue to grumble that the result was the enrichment of Putin's inner circle.
The authorities are right to think of a tougher approach. With some obvious targets for sanctions, it's understandable that they're focusing on very cautious strategies: "The big priority right now is to tighten sanctions evasion," said Edouard Gergondet, of law firm Mayer Brown. For the EU, this means harmonising its member states' approach to imposing sanctions and putting pressure on external countries and companies to get tougher. Nevertheless, the stricter the turn, the greater the risk of reactions. After a swift and unifying barrage of sanctions in 2022, the long duration of the war brings more contradictions and cracks to emerge: Russian gas is still being bought in liquefied form by some of Ukraine's supporters, for example, and the U.S. and Europe are at odds over how to leverage frozen Russian state funds to prop up Kiev.
This leads us back to the oligarchs. The confiscation of property was good for morale, but it did not bring many tangible results for the war effort. The superyacht Amadea has cost the U.S. government $600,000 a month for maintenance since it was seized in 2022, with revenues of $2.9 billion. Dollars from Roman Abramovich's sale of London football club Chelsea are still in bank accounts as legal battles continue. As court verdicts begin to roll out against the EU, perhaps what would help is some sort of tax or negotiated settlement with the oligarchs deemed most worthy of a way out of individual sanctions. Offering an alternative can better influence attitudes, free up cash for Kiev and unite the West.
This obviously does not mean that we will support a return to the free days of "Londongrad" (ed: Londongrad is a London nickname, alluding to the high presence of Russians in the UK, especially in relation to Russian money in London): It is clear that some jurisdictions still need to make up for lost time in repression and there is still room for successful asset seizures. It is also perhaps too late to change our attitude towards Russia's super-rich. But with tens of billions at stake and legal entanglement seemingly more complicated than ever, perhaps an "Abramovich tax" is a way to avoid sobering images like the one we saw in court last week.
