Russian Oligarchs are on everyone’s minds in the wake of Putin’s invasion of Ukraine. You’ve probably heard about the insane amounts of hidden wealth they have. And you might have heard that the American government is taking action. But if America is really going to rein in the power of Russian oligarchy we need to reckon with the fact that we created the system that allows them to hide their stolen wealth.
That’s right. America let Russian billionaires exploit our financial system through lax rules and hidden loopholes. And they’re not the only ones doing it –– American and European billionaires stash their riches the same way.
We have an opportunity right now to shut down this shadowy world of offshore finance. It’s not just a way to pressure Putin’s Russia – it’s also a way to make sure oligarchs from around the world have less control of our economy and politics.
On our latest episode of The Class Room, Ben Judah explains how we curtail the power of oligarchy worldwide.
The rise of the Russian oligarchs and Putin
What is an “oligarch” anyway?
An oligarchy is basically a small group of wealthy elites who exert influence over the politics and laws of a nation’s government.
The word is almost always used by Western media to refer to Russian oligarchy. These are a small set of ultra wealthy business magnates who have had tremendous power in Russia over the last few decades.
After the fall of the Berlin Wall and the end of the Soviet Union, most of the Russian economy was transferred from government control to private ownership in a process referred to as “shock therapy.” Encouraged by Western economists like Larry Summers, industries that had previously been state- run were handed over at bargain prices to the Kremlin’s cronies. In the absence of any government oversight or competition, these new capitalists quickly became billionaire elites with vast control of the economy and government – otherwise known as an “oligarchy. “
When Russia entered the world of global capitalism in 1991, the oligarchs were pleased to discover a shadow financial system, flush with dark money and shielded from the law. It’s a complicated and secretive network of tax havens and shell companies.
We’ve seen in recent leaks like the Panama Papers that this Shadow System has enabled the global financial elite to shield trillions of dollars from taxation or law enforcement. This system allows rich people, criminals and crooked public officials around the world to hide money for tax evasion and avoidance, money laundering, and corruption of all kinds.
But here’s the thing — it was European and American bankers, lawyers and lobbyists that built this corrupt system in the first place. Russian Oligarchs hide their wealth in the shadows and we were the ones that turned off the lights in the first place.
Here are some of the ways they exploited our rules.
Russian billionaires use shell companies to hide their ownership and avoid a tax bill. Oligarchs set up shell companies in places like Delaware and Bermuda, notorious tax havens. They take advantage of American and European laws which allow corporate owners to set up companies with virtually no disclosure requirements.
In fact, more than half of Russian billionaires’ wealth is stored abroad.
Oligarchs purchase high rise apartments in Manhattan and London to launder their money. In most cases, they don’t even live in the property, but the influx of wealth still contributes to the increasing cost of living for working people.
In New York alone, Oleg Deripaska owns 11 E. 64th St, an apartment worth $42.5 million, Roman Abromovich owns East 75th St. which is worth $74 million plus a three-story bedroom worth $15.5 million. Alexei Kuzmichev paid $42 million for the first four floors of a 7 story mansion at 33 E. 74 St.. And those are just a few of the properties we know about.
Billions of dollars of dirty money pouring into places like London and New York has contributed to making homes unaffordable for working people and turned housing, which should be a human right, into an accounting unit for Kremlin money launderers.
That’s why you may have noticed in the news that the megayachts being seized in the last few weeks were located in places like Barcelona, the French Riviera, and the Maldives. These yachts are grotesque displays of the Oligarchs’ wealth. Alisher Usmanov’s $600 million yacht Dilbar was recently stopped by officials in Hamburg, Germany. It weighs 15,917 tonnes, and is typically staffed by a crew of 96 people, with space for 24 passengers in 12 suites. It has the largest pool ever installed on a yacht as well as two helicopter pads, a sauna, a beauty salon and a gym.
The oligarchs also use Swiss bank accounts to hide their money – up to $150 billion dollars worth according to an estimate from a leading Swiss paper produced this week.
After Russian oligarchy had taken hold in the early 1990s, a strongman emerged – Vladimir Putin. Putin came to power with the support of Russia’s oligarchs. Putin himself has amassed vast wealth and by some accounts is the wealthiest man in the world. Putin has reportedly spent $1 billion to build himself a 123,785 square feet palace – which is nearly double the size of Buckingham Palace.
Once in office, Putin crushed Russia’s independent minded oligarchs. Then, with the support of those that remained, he gradually moved Russia from a failing democracy with freedom of speech to a dictatorship governed with fear and violence.
Once, Putin worked for the oligarchy; now the oligarchy works for Putin.
Global war on kleptocrats
So after decades of fueling Russian oligarchs wealth…why are we suddenly going after them?
Well, Western leaders believe that putting pressure on Russian oligarchs right now could force them to pressure Putin to withdraw from his invasion of Ukraine.
But many analysts believe that Russian oligarchs now almost all work for Putin. If we want to end Putin’s invasion of Ukraine, we need to get rid of the oil and gas payments he depends upon to fund his military machine.
Still, the fact remains that defeating the Russian oligarchy is crucial for our national security because it will remove Russian billionaires’ influence from our own politics in America and Europe.
Putin and his oligarch allies have been funding a network of right-wing parties and movements that incite racism, oppose democracy, and spread climate change denial. They leverage cultural power by sponsoring iconic American institutions like the Metropolitan Opera and Carnegie Hall to legitimize Putin’s regime. And they hire teams of lobbyists and lawyers to influence our lawmakers. Removing their corrupting influence from our politics helps make decisions about Russia – and oligarchy – in our own best interests.
And crucially, closing down loopholes in the shadow financial system could be used to expose corrupt elites -not just the Russian ones.
So how do we do it?
First off, we can create a global wealth registry to track oligarchs’ assets across the world. This would include an automatic exchange of financial information on extremely wealthy individuals between democracies around the world. Instead of competing against each other to attract the wealth of oligarchs with increasingly flimsy rules, countries like the US, UK and the European Union should work together to make sure the wealthy pay their fair share.
Second, we can close financial loopholes which are frequently used by oligarchs to hide their wealth. Instead of allowing the ultrarich to use shell companies and opaque ownership structures, we could require “beneficial ownership requirements” for all forms of assets. Essentially, that would require all companies, trusts and foundations to publicly disclose who benefits from them.
Finally, we can increase funding and support for enforcing the rules we already have on the books. The US can put anti-corruption and money laundering measures at the top of the international agenda. And we can provide many more resources to the domestic and international regulatory agencies whose job it is to track oligarch’s wealth and enforce when they break the law.
Today, Russia’s billionaires control roughly 30 percent of the nation’s wealth. For comparison, German and American billionaires control about 15% of the wealth in their respective countries. compared with roughly 15 percent in Germany and the United States.
Defeating the Kremlin’s oligarchy would be a huge turning point for both national security and financial transparency.
So, if our leaders truly are serious about tackling Putin’s Oligarchy then we have to start looking at our own role in creating these loopholes and close them down once and for all.