The Daily - Will Sanctioning Oligarchs Change the War?

Episode Date: March 22, 2022

Among the actions taken by the West to punish Moscow for the invasion of Ukraine is the blacklisting of the incredibly rich and politically connected Russian businessmen known as oligarchs.But how could sanctions on Russia’s superwealthy increase the pressure on President Vladimir V. Putin to end the war?Guest: Matt Apuzzo, a reporter for The New York Times, based in Brussels.Have you lost a loved one during the pandemic? The Daily is working on a special episode memorializing those we have lost to the coronavirus. If you would like to share their name on the episode, please RECORD A VOICE MEMO and send it to us at [e-mail]. You can find more information and specific instructions here.Background reading: For nearly a decade, sanctions have been little more than names on a list for wealthy Russians. Now, amid the war in Ukraine, governments are working to give them bite.Western investment, law and lobbying firms have previously helped enmesh oligarchs into financial and legal systems.Want more from The Daily? For one big idea on the news each week from our team, subscribe to our newsletter. For more information on today’s episode, visit nytimes.com/thedaily. Transcripts of each episode will be made available by the next workday. 

From The New York Times, I'm Sabrina Tavernisi. This is The Daily Watch. To punish Russia for invading Ukraine, the U.S. and Europe have targeted Russia's richest businessmen with a series of strict sanctions that have been described as a financial death penalty. as a financial death penalty. Today, I spoke with my colleague, Matt Apuzzo, about the logic of punishing oligarchs and whether it may actually change the course of the war. It's Tuesday, March 22nd. Matt, we've been hearing a lot over the past couple of weeks about the richest Russians in the world and Western governments' attempts at going after their wealth.

And I wanted to start with a really basic kind of explainer about who they are. Yeah, when you hear oligarchs, it means two things. One, you're talking about somebody who's very, very rich in Russia. But being rich in and of itself doesn't mean you're an oligarch. You also have to be in proximity to power. You have to be benefiting from the government, and you also typically have government sway. Got it. So what exactly are the Western governments doing to these rich, politically connected Russians? So what you're seeing is you're seeing governments saying, you can't do business with these oligarchs. They can't be your customers. They can't be your suppliers. They can't be your suppliers.

They're on a blacklist. The idea is we're going to cut off all of these rich, powerful guys from essentially the Western economies. So you cut all these people out of Western economies, and then what? What's supposed to happen next? Well, it's twofold. So the thinking goes that, first, if you profit from the government committing violations or otherwise sort of trampling all over international norms, well then Western governments are saying, you're making money off of that, so we're cutting you off. That's the first part. The second part is actually, I think, the bigger thing, which is the theory is if we blacklist Russians who are rich and powerful, that creates pressure on Putin.

It's sort of a bank shot argument. The idea is these guys have sway with Putin, or these guys, at the very least, are a political constituency that helps keep Putin in power. And if they feel economic and political pain, then Putin is incentivized to maybe change his ways. The problem is, it just has never worked. What do you mean it doesn't work? So go back to 2014. That was when Vladimir Putin invaded Ukraine the last time. He annexed the Crimean Peninsula. That was the last time the Western world was outraged at Putin's behavior in Ukraine.

Good morning, everybody. One of the responses at the time was, we're imposing sanctions on more senior officials of the Russian government. We're going to put economic sanctions on these guys. In addition, we are today sanctioning a number of other individuals with substantial resources and influence who provide material support to the Russian leadership. And we're going to squeeze some oligarchs and we're going to put pressure on Putin. For this reason, we've been working closely with our European partners to develop more severe actions that could be taken if Russia continues to escalate the situation.

And it was all the same sort of tough talk then. And, you know, this is feeling a little bit like deja vu. That can only happen if Russia also recognize the rights of all the Ukrainian people to determine their future as free individuals. So that was the response. To understand how this didn't work and why this didn't work, a really good case study is of Arkady Rotenberg. Tell us about him. So Arkady Rotenberg is childhood friends with Vladimir Putin, right? There's this famous photo of him and Vladimir Putin in their judo outfits. I mean, they're judo sparring partners going way

back. So you've got that friendly relationship. But there's also a real financial symbiotic relationship between him and Putin. Rotenberg is this big construction magnate, you know, pipelines and big construction projects. You know, Rotenberg's company's got something like $7 billion in construction contracts associated with the 2014 Winter Olympics, which were in Sochi, Russia. And in particular, one of the things the United States government was interested in is his company's got contracts to build a bridge into Crimea, right? So the United States government is looking at this and saying,

here's a guy who not only has, from a friendly relationship with Putin, but he has financial stake in what the Russian government does. And so this is a guy who, in the universe of sanction theory, is perfect. He's somebody, if you can put financial pressure on Arkady Rotenberg, well then you can put indirect pressure on Vladimir Putin. Got it. So Rotenberg is really like the poster child for someone the U.S. would want to sanction. It was his connection to Putin that made him really rich. Exactly. And it's no surprise that in 2014, he is front and center in this theory of we're

going to sanction oligarchs to put pressure on Putin. So what actually happened to him once they did? Not a whole heck of a lot, actually. I mean, remember, this guy is a Russian construction tycoon. He's not building bridges in North Dakota. This is a guy whose money is coming from Russia. But let's play a Russian oligarch here for a minute. You are a billionaire, and you can spend your money on whatever you want. What do you want to spend your money on? If you're a billionaire in Moscow, maybe you want to have a summer home somewhere really warm to get away from those Moscow winters, right?

Yeah. Maybe you want to have a really nice yacht. Maybe you want to have helicopters and you want to jet around the world and you want mansions and butlers. I don't know. What do really rich people want? Fancy London apartments. Fancy London apartments.

And if you're R.K. Rotenberg, one of the things you want is you want the ability to collect fine art. And in Manhattan in particular, because Manhattan is, you know, one of the centers of the world for such things. Sanctions are supposed to cut you off from that sort of lifestyle. It's supposed to be really painful. It's supposed to say, like, all right, you're rich in Russia. If you want to be rich in Vladimir Putin's Russia and stay in Russia and not spend your money and not do any dollar transactions and not come to the United States, not buy anything

in the United States, good luck with your billions. Enjoy Moscow. That's the point of these sanctions. So it's supposed to make you effectively a pariah, which for a guy like that would be really painful because he wants to buy art and he wants to go to New York. Yeah, I mean, what fun is being a billionaire if you can't spend it on cool stuff all around the world, right? And so that's what was supposed to happen, but it didn't happen. Literally within weeks, he's buying stuff in New York City. Investigators have found something like $91 million of transactions from Rodenberg's family's accounts into the United States economy.

Wow. After being sanctioned. And, you know, the big one for me, eight weeks, eight weeks after he gets sanctioned, Eight weeks. Eight weeks after he gets sanctioned, investigators have found that he purchased a $7.5 million painting in New York City. So, I mean, literally eight weeks. It took eight weeks to get around sanctions. So, you know, if the point is to squeeze him and say, you can't participate in the finer things in life. He didn't feel very squeezed. So Matt, how is that even possible? I mean, how exactly does Rotenberg evade the sanctions so seemingly effortlessly?

Well, I think the first thing to understand, sanctions sound really strong and harsh sanctions. They're just a name on a list. When the United States, the United Kingdom, or the European Union sanction you, they put your name on a list. And that's inconvenient because now every company or every bank doing business is supposed to be checking the list to make sure, hey, I shouldn't be doing business with this guy. But that's sort of all it is. They're not really looking for you. The government isn't coming after you. They just put you on a list. So now the game becomes, okay, how do I hide my name from everybody I want to do business with? So if you check the list, you're not doing

business with Arkady Rotenberg. You're doing business with somebody else. Got it. So how do you do that? And here, I'll give everybody a primer on how to launder your billions. So the first thing you need to do is you need to find a trusted middleman. A lawyer is good. An accountant is just as good. But honestly, just somebody you can trust. is good. An accountant is just as good. But honestly, just somebody you can trust. And that person is going to help incorporate a bunch of companies for you. Incorporate? Yeah, they're going to start a company, let's say, I don't know, let's say the British Virgin Islands or the Isle of Man. Cyprus is a good one, right? Somewhere where the banking system tends to be pretty secretive. And so you would like, ideally, to not have one.

You'd like to have many. And even better if the one you make in Cyprus owns the one you made in the Isle of Man. It's, to use an apropos cliche, it's Russian nesting dolls. And so when you then decide you want to buy a piece of art, you have a middleman say, I represent company A, and that company is buying the piece of art. Anybody who checks the sanctions list says, well, company A is not sanctioned. This is a company doing business that's incorporated in Luxembourg. Now, if somebody wants to say, hey, middleman, who's company A? Because we got to check the sanctions list. We

got to make sure we're not doing business with somebody on the sanctions list. They can say, well, company A is actually owned by, and then it turns out that they're owned by company B. And maybe there's even a name associated with that because you can stick anybody's name on these things. But in the end, it's you, Sabrina. You're the billionaire. You're buying the art. And I should, by the way, I should get some sort of fee for this. Are you the lawyer, Matt? I should. I mean, I'm not a lawyer, but I mean, I feel like I could be an advisor to your oligarch buying spree. oligarch buying spree. So, I mean, I guess what's coming to my mind is, you know, lots of super rich, powerful people hide their money this way, right? Not just Russian oligarchs. I mean, people who might be wanting to evade taxes as opposed to sanctions.

Totally. And one of the reasons why it shouldn't be surprising that nothing happened to Arkady Rotenberg. It's like nothing happens to any of these guys, right? There have been, for years, there have been these stories coming out. The Panama Papers, the Paradise Papers, all of the different papers that get leaked, these big leaks, and they're super complicated. These are big investigations.

Big, huge investigative projects going on with journalists all around the world based on huge leaks of financial data. But they all come down to one thing. If you're super rich, you can hide your money. Right. So it sounds like the way that Arkady Rotenberg, Putin's old friend, was able to evade sanctions was that he was really, really good at hiding the fact that he was the one behind the money, that he was the one buying the painting in New York. You know what, though?

I don't actually know that he was really, really good. Maybe he was really, really good. But in this world, you just have to be good enough. Because for a lot of companies and a lot of industries, people don't really want to know. But I don't want to just, you know, single out art dealers because, let's be fair, governments weren't incentivized to go after these guys either. But wait, Matt, that's kind of confusing

because governments are the ones that are drawing up the lists that these guys ended up on to begin with. So aren't they incentivized? I mean, they're doing it. Yes, sort of. I mean, let's take the UK, for instance. People have been warning for years and years and years that these oligarchs were buying up property,

really, really expensive property, all around London. And when our colleague Jane Bradley and I were reporting this story out, she spoke with Phil Mason, who served for decades as a top advisor to the British government on international corruption. And he just said flat out, lawmakers in Britain saw Russian money as a source of jobs and investments. It was sort of like a willing blindness. Just like the art dealers didn't have a real incentive to say, no, no, no, you have to tell us, you have to tell us.

There wasn't a huge incentive in Britain to say, you know what, we're going to get serious about this. This isn't good. We're not going to allow this to happen. So Matt, for all the reasons you just laid out, it seems pretty clear that the 2014 sanctions did not have their desired effect. Certainly not against Arkady Rotenberg and people like him. Why would anyone think that sanctions against these same guys, many of them, stop Russia's war in Ukraine now?

Yeah, I mean, it's a great question. And I'm skeptical, but there are some signs that things are changing. We'll be right back. So, Matt, you said you thought things could be different this time. What are you seeing that makes you say that? A couple of things. Thank you, Mr. Speaker. With your permission, I'll make a statement about the situation in Ukraine. The first is that countries that didn't seem all that interested in cracking down on this problem suddenly are in the game.

Now the UK and our allies will begin to impose the sanctions on Russia that we have already prepared. The United Kingdom came out with a really big sanctions list after this most recent invasion. The UK is sanctioning the following three very high net worth individuals, Gennady Timchenko, Boris Rottenberg and Igor Rottenberg. Including the Rottenbergs who hadn't been on their list until now. This package includes financial sanctions that cut Russia's access to the most important capital markets. The European Union, in a big way, has backed sanctions on oligarchs and people around Putin. You're seeing it from Japan.

Australians always stand up to bullies. Australia. The attack of Russia against Ukraine is unacceptable. stand up to bullies. Australia. And governments like Switzerland, where you could famously park your money and not have to worry about such things, have said, we're going to freeze assets on sanctioned oligarchs. I mean, Switzerland was famously a place where rich people parked their money to evade all sorts of things. Exactly. And, you know, it's not this sort of broad sanctions that you're seeing from the United States, but it's a first step. Okay, so what else?

The other thing is you're starting to see governments saying, we're coming for your stuff. Tonight, I say to the Russian oligarchs and the corrupt leaders who built billions of dollars off this violent regime, no more. Remember, until now, sanctions just meant you were a name on a list. Nobody came looking for your stuff. Nobody came looking for anything. Now, we're joining with European allies to find and seize their yachts, their luxury apartments, their private jets. We're coming for you, ill-begotten gains.

You've got President Biden talking in the State of the Union about we're going to come for your ill-gotten gains. And by stuff, you mean? Like all the stuff that's awesome about being rich. All the stuff that's awesome about being rich. I'm talking about your multi, multi-million dollar home in London and your, you know, chateau in the south of France and your huge super yacht. These are now targets. And that is a huge change.

I mean, it does really feel like a big deal because, as you said, governments didn't really have an incentive to do this kind of thing. They didn't want to take away those mansions because they didn't want to forego that tax base and forego the spending that helped the rest of their economy. So the fact that they're doing this now, I mean, that does feel very different and big. But why now and not before? I mean, I think the short answer is everybody's watching on television as, you know, the Russian army lays siege to Ukraine. And that galvanizes people in a way that we didn't see in 2014. I mean, a really good analogy is 9-11, right? 9-11 happens. is 9-11, right? 9-11 happens.

Nobody was saying, oh man, it turned out Osama bin Laden's a bad guy. It turned out Al-Qaeda is no good. Everybody knew that. These guys were already on sanctions lists. There had already been dossiers compiled on them. Everybody in government knew who Osama bin Laden was.

But there hadn't really been any concerted political will among the United States and its international partners to get serious about it. And that's kind of what's happening now. It's like back in 2014, the Justice Department had a kleptocracy task force to go after ill-gotten gains around the world.

And now they've announced a kleptocracy task force to go after ill-gotten Russian gains around the world. And now they've announced a kleptocracy task force to go after ill-gotten Russian gains around the world. But this time, it seems to actually be getting some teeth. They're getting some real manpower. They're talking about information sharing with the United Kingdom. You're hearing the United Kingdom saying it's going to get serious about things. The Treasury is finally getting funding to force some transparency on this crazy, opaque market for shell companies that we talked about. It just feels like there's a greater coordination now than there ever was before.

see this greater coordination as, you know, effectively a sign that these Western governments are going to reckon with what their relationship with Russian money and Putin had been. You know, to see this really concerted effort to dig for oligarch money and to see them go out on a limb legally seizing assets, if we should interpret that as some type of reckoning with the sins of the past. Yeah, I mean, color me a cynic here, but I don't see a lot of interest in reckoning with the past. And here's what I think is really happening. I think world leaders are looking at what's going on, and they're saying, what levers do we have that we can pull that don't involve us going to World War III? Clearly, you're seeing President Biden say, we're going to take a lot of steps, but I'm not putting American troops on the ground.

I'm not going to, you know, enforce a no-fly zone over Ukraine. you know, enforce a no-fly zone over Ukraine. It's this calculus. What can be done that has a chance of changing the outcome here that doesn't involve us all going to war? And when presidents and prime ministers look at what their options are, sanctioning oligarchs suddenly seems totally reasonable. It's an option. It doesn't involve us going to war.

We got to try it. So they really genuinely want to end this war. And this is one of the levers that they have to try to do it. Yeah. And I guess we're going to finally figure out if that works, right? We've been talking for eight years about this idea that you can pressure Putin by putting the squeeze on the people around him, but then we never actually really put the squeeze. And so now I guess we're going to see if it works. And I don't know that

it's a guarantee. You know, all the intelligence my colleagues and I have been hearing is that Putin is more isolated than ever. It's not exactly clear whose counsel he's taking. Is he going to care that Arkady Rotenberg can't buy art? I don't know. Right. I mean, effectively, does anyone really have influence on Putin? Yeah. And what if the answer's no? Matt, thank you.

Anytime. We'll be right back. Here's what else you need to know today. On Monday, President Biden confirmed that Russia had used a hypersonic missile in its war against Ukraine. against Ukraine. As you all know, it's a consequential weapon. But with the same warhead on it as any other launch missile, it doesn't make that much difference except it's almost impossible to stop it. There's a reason to use it. The new generation of Russian missile is capable of flying at more than five times the speed

of sound and can evade air defenses. On Saturday, Russia's defense ministry claimed it had used such a missile to destroy an ammunition depot in western Ukraine. But the Pentagon did not confirm the claim. And... I have dedicated my career to ensuring that the words engraved on the front of the Supreme Court building, equal justice under law, are a reality and not just an ideal.

Judge Katonji Brown Jackson, the first Black woman to be nominated to the Supreme Court, completed her first day of confirmation hearings before the Senate Judiciary Committee. her first day of confirmation hearings before the Senate Judiciary Committee. Judge Jackson, who is 51, spoke for under 15 minutes after four hours of remarks by senators on the committee. She pledged to decide cases, quote, without fear or favor, if confirmed. Today's episode was produced by Ricky Nowetzki, Muj Zaydi, Luke Vanderplug, and Jessica Chung. It was edited by Paige Cowett and Liz O'Balin. Contains original music by Marion Lozano, Brad Fisher, and Alicia Vietube.

And was engineered by Chris Wood. Our theme music is by Jim Rumberg and Ben Lansford of Wonderly. That's it for The Daily. I'm Sabrina Tavernisi. See you tomorrow.