Targeting Russian and other oligarchs’ shady funds: an uphill battle
March 14th, 2023
March 14th, 2023
A year ago, Russia’s invasion of Ukraine was seen as a historic opportunity to uncover hidden assets from Russian oligarch and other sanctioned entities and individuals.The United States set up the Task Force KleptoCapture in March 2022 to enforce sanctions of Russian oligarchs, while the European Union created the Freeze and Seize Task Force and other countries joined the Russian Elites, Proxies and Oligarchs (REPO) task force to coordinate efforts.
These efforts have mostly failed.
The US has seized an estimated US$1 billion in hidden assets including taking planes in Switzerland and the Middle East belonging to oligarchs, and capturing a superyacht belonging to a prominent Russian oligarch. The EU on the other hand has frozen upwards of €20.3 billion (US$20.3 billion) worth of assets mainly near the start of the conflict, while the UK has frozen £18 billion (US$22.6 billion) worth of shady assets.
However all this is a small fraction of the some US$1 trillion in wealth held abroad by Russian oligarchs, and a drop in the ocean compared with the US$7 trillion to US$32 trillion of wealth held in tax havens by the wealthy around the world. Many of them are not Russian, but from global South countries suffering from growing austerity measures which are leading to cuts in healthcare, education and other key social protection measures.
A key stumbling block towards meaningful progress has been the continued lack of beneficial ownership transparency which would allow to reveal the wealthy individuals who ultimately own hidden funds and assets.
This problem has been recognised by some countries. In the UK, for instance, Parliament fast-tracked the so-called Economic Crime (Transparency and Enforcement) Act 2022, establishing a registry of foreign owners of real estate, leading to 92 properties being added to a list of sanctioned properties since February 2022. But it is still possible to list a foreign company or trust as the beneficial owner, and it is hard for the authorities to verify who is actually behind them.
The US, on the other hand, has expedited the passing of the Corporate Transparency Act, setting up a centralised beneficial ownership registry from 1 January 2024. But campaigners consider this is largely ineffective without removing hurdles and loopholes when registering beneficial owners. One such loophole would allow a reporting entity to simply claim not to be able to determine statutorily required information for every beneficial owner. If left unamended, this could make the declaration of beneficial owners a voluntary one.
Making matters worse, sanctioned oligarchs – not just Russian – have even been able to turn the tide in recent months by successfully challenging measures taken against them, whilst shifting their hidden wealth to places such as Dubai with few controls, fuelling a property boom. Also an European Court of Justice (ECJ) ruling last November invalidated public access to beneficial ownership registries on privacy and data protection grounds, making the job of tracking these assets much harder, now requiring official requests with the usual delays even for legitimate access.
Some countries, including France, will still allow general public access to beneficial ownership information. However, after the ECJ ruling there are questions whether access will be restricted to an on-request request by journalists and NGOs, as opposed to the general public, which will make the process slower and reduce the number of people able to access this information.
Interestingly, Africa and Latin America are leading the way towards targeting hidden assets. Malawi legislated that all ownership above 5% of share ownership, voting rights or management role needs to be included in a public registry. In Ghana, the beneficial ownership registry is being set up with a 25% threshold of ownership or control, but with lower threshold for extractive industry companies at 5% and no threshold for so-called Politically Exposed Persons (PEPs).
Argentina has gone even further and has no threshold for its beneficial ownership registry, making it the hardest place to hide money in the world. In other parts of Latin America, the thresholds are also lower than in Europe, including Uruguay and Costa Rica (15%), Peru (10%) and Colombia (5%). However, the only registry with publicly available beneficial ownership data is in Paraguay.
Meanwhile in Africa, the African Union High-level Panel on Illicit Financial Flows (Mbeki Panel) recommended an overhaul of asset recovery legislation to improve transparency even before the Ukraine war broke out. This has been followed up by the African Union’s Common African Position on Asset Recovery (CAPAR) adopted in November 2022 which outlined specific proposed measures to achieve this goal regionally. But many still feel all these measures are still insufficient.
Disappointingly, over the past year, the focus when targeting sanctioned Russian and other oligarchs’ hidden funds and assets has been on law enforcement measures, instead of pushing for systematic financial transparency, asset recovery and asset transparency reforms. Nothing indicates that this flawed approach will change anytime soon. Unless this is done, oligarchs everywhere will continue to freely enjoy their trillions of dollars in illicit riches, under our noses.
Read the original French Op-Ed here.