Freeze and Seize: The West's chilling reactions to Putin's War
Task Force KleptoCapture and its detrimental long-term effects on finance and freedom
“The United States Department of Justice is assembling a dedicated task force to go after the crimes of the Russian oligarchs. We’re joining with European Allies to find and seize their yachts, their luxury apartments, their private jets. We’re coming for your ill-begotten gains.”1
- President Joe Biden, 2022 State of the Union Address
The fallout from Putin’s invasion into Ukraine is intensifying. The financial screws are tightening from collective US and EU sanctions targeting Russia and its wealthiest. America and its allies are aggressively freezing and seizing assets to squeeze Vladimir Putin’s loyalists. In the end, it will be the middle and working classes in each country who end up paying.
Allow me to play perhaps the world’s smallest violin for the plight of Russian “oligarchs”—the pejorative for once corrupt ex-Soviet billionaires now connoting anyone wealthy. While it’s understood many fall under the category of shady-bordering-on-illegal business dealings, let’s not pretend political classes are just discovering their long-lost pious virtues. The 2022 Russo-Ukrainian War just offered the perfect excuse to go after these “oligarchs.”
“We’re coming for your yacht. We’re coming for your jet. We’re coming for your ledger. That’s the key message.”2
- U.S. Deputy Attorney General Lisa Monaco, March 2, 2022
A blitzkrieg of heavy-handed sanctions is being unleashed hitting Russian citizens across the world. Anyone holding Rubles observed it turn to rubble with a collapse of -30% in the past week alone. The downstream effects for the Russian consumer will be higher import prices and increased retail costs. The top imports for Russia are:
Cars ($11 billion)
Packaged medicaments ($10.2 billion)
Car parts ($8.21 billion)
Planes/helicopters/spacecraft ($4.81 billion)3
Businesses are severing ties across the board with anything-Russia. Kinross Mining closed its Kupol Mine and suspended all operations within the country.4 Exxon Mobil is recalling all US citizen staff from the country. BP is divesting ownership with Russian oil companies. These are just some of the private sector stories unfolding. The public sector sanctions are indeed having a chilling effect I believe long term will be to the detriment of European and American citizens.
This week French Customs agents seized a superyacht belonging to Rosneft’s Igor Sechin.5 The argument was it violated EU sanctions by leaving the port of La Ciotat. The U.S., EU, and Japan froze roughly 40% of Russia’s total bank reserves. These were on deposit in foreign countries to handle foreign transactions in global trade.6 Even Switzerland, renowned for its reputation of neutrality and financial secrecy, adopted the broader EU sanctions targeting Russia and Russians.7
“To those bolstering the Russian regime through corruption and sanctions evasion: we will deprive you of safe haven and hold you accountable. Oligarchs be warned: we will use every tool to freeze and seize your criminal proceeds.”8
- U.S. Deputy Attorney General Lisa Monaco, March 2, 2022
The Russia-Ukraine War offered a unique opportunity for Western powers to frustrate Putin’s regime. The problem is it will backfire longer term. Going after Russian oligarchs is the low-hanging fruit. The financial dragnet to freeze and seize their assets will inevitably be turned onto domestic populations. The concern I have is the blending of corruption/criminality with “sanction evasion.”
The rules already existed to prosecute, detain, and seize oligarchs and their contraband. It appears the sanctions evasion addendum is the key element in going after their wealth even with no criminal predicate in place for authorities. While I have no interest in any particular oligarch, I do have an interest for the rule of law. The expansiveness of these sanctions going after individuals based simply on their citizenship is indeed troubling. To seize assets without court order is even more concerning.
What’s worse is this will serve as a lesson learned for global investment. The West is sending a clear signal: if you park money here, it can be taken on a whim if your country’s leadership steps out of line. Granted, Putin’s invasion into Ukraine is more than “stepping over the line,” but the outpouring of sanctions don’t simply sweep up billionaire oligarchs, but any Russian citizen with assets abroad in western hands.
This will deter investment into European and American markets going forward. Saudi Arabia on the heels of these developments is now “considering options” in reducing investment in the United States. Saudi Arabia isn’t exactly the beacon of liberty and western values. They also have notoriously unsavory leadership, to say the least. If these conversations are occurring publicly, rest assured appetite for investment in the West may be drying up at an accelerated pace. Why put your money with custodians who have proven unreliable?
I’m not saying to intentionally do business with corrupt individuals. We all know politicians are too eager to do that anyway while conveniently looking the other way. The problem is the laws already exist to handle illegal behavior. Sanctioning works to discriminate based on nationality, not individual criminality. Guilt by association is the game and that’s not a cornerstone of western civilization. While it’s easy for emotions to get the best of us, rational cooler heads must prevail. Our biggest asset is the rule of law. It’s the magnet that attracts capital across the world to our shores. When that fairness goes out the window, so does the golden goose as fairness is our golden goose.
The White House. March 1, 2022. 2022 State of the Union Address. https://www.whitehouse.gov/state-of-the-union-2022/
Strohm, Chris. March 2, 2022. DOJ’s ‘KleptoCapture’ Unit Will Target Russian Oligarchs. Bloomberg. https://www.bloomberg.com/news/articles/2022-03-02/doj-s-kleptocapture-task-force-will-target-russian-oligarchs
OEC. Retreived March 3, 2022. Russia Economic Overview. https://oec.world/en/profile/country/rus
Mining.com. March 2, 2022. Kinross Gold to suspend Russian operations. https://www.mining.com/web/kinross-gold-to-suspend-russian-operations/
Hummel, Tassilo. March 3, 2022. France seizes superyacht, says belongs to Rosneft boss. https://www.reuters.com/world/france-seizes-superyacht-says-belongs-rosneft-boss-2022-03-03/
Fairless, Tom. February 27, 2022. Sanctions on Russia’s Central Bank Deal Direct Blow to Country’s Financial Strength. The Wall Street Journal. https://www.wsj.com/livecoverage/russia-ukraine-latest-news-2022-02-26/card/sanctions-on-russia-s-central-bank-deal-direct-blow-to-country-s-financial-strength-AGe2bBTKmYW2bzqRnNWI?mod=article_inline
He, Laura. March 1, 2022. Switzerland ditches neutrality to sanction Russia and Putin. CNN Business. https://www.cnn.com/2022/03/01/business/switzerland-sanction-russia-freeze-assets-intl-hnk/index.html
Lynch, Sarah. March 2, 2022. U.S. launches 'KleptoCapture' task force aimed at Russian oligarchs. Reuters. https://www.reuters.com/world/us-launches-kleptocapture-task-force-aimed-russian-oligarchs-2022-03-02/