This super yacht is worth almost $100 million. It's owned by a sanctioned Russian oligarch, and in April, 2022, FBI agents and Spanish officials seized it. For years the oligarchs didn't have much trouble buying up boats, jets and mansions in places like this. That's if they didn't end up in prison, exiled, or mysteriously dead. Around 60% of the wealth of the richest Russians is held offshore. But the war in Ukraine has turned the world against members of this opulent Uber class. That's caused a lot of chaos. They've lost access to their accounts. Their family members have had their own accounts frozen or restricted, or been kicked out of their banks. So where did all the money come from, and is there still a chance of the oligarchs holding on to it?
The year was 1992 and new business opportunities were emerging from the ashes of the Soviet Union. The President of the New Russian Federation, Boris Yeltsin, started privatising companies that had been under Communist state control. It was as if the whole country was up for sale. The government issued millions of these vouchers that Russians could use to buy shares in companies. Each voucher was worth about two months wages at the time. There were already some people who had amassed. Small fortunes, they were the ones who were in the best position to take advantage of the new opportunities that were available.
Businessman Roman Abramovich was one of them and Boris Berezovsky, a car dealership owner, another. More than 15,000 companies were privatised between 1992 and 1994, and as these companies grew, so did the wealth of their owners. And that's how the oligarchs were born? But Russia's rich were about to get much richer. In 1995, the government really needed cash. Oligarchs managed to edge their way in the door. They were part of the group that loaned the government. Hundreds of millions of dollars in exchange for a slice of some of Russia's biggest enterprises. The deal was if the government couldn't pay back the loans, the shares would be auctioned off, which is what ended up happening. The oligarchs ended up with vast business empires, some at well below market rate. The bank menatep run by Mikhail Hoda Kovsky acquired oil company Yukos.
Abramovich, with the help of Berezovsky, took control of another oil company. The newly privatized businesses and their oligarch owners did very well. They were thought to be somehow keeping the system afloat. It was reported the oligarchs were behind the funding of Yeltsin's reelection in 1996. They also helped launch the career of his successor, Vladimir Putin. But he would turn out to be no friend of the oligarchs. The Russian President has warned that the country's super rich are not above the law. The authorities have been getting tough with the oligarchs. Putin didn't want the oligarchs meddling in his politics. The wealthiest of them all, Michael Hodo Okonski, was imprisoned for alleged tax crimes after openly challenging Putin's charges, which he has denied. The message that was sent to other oligarchs was I'll let you run your businesses and you let me run the country. Another critic, Berezovsky, fled to the UK while Abramovich stayed loyal, serving as a governor in North East Russia. It wasn't long before all this Russian money started cropping up overseas. Berezovsky bought this house in the UK, and this one in the South of France. Abramovich went one step further. He bought Chelsea Football Club for around $200 million, along with a vast London mansion and about 70 other properties in the UK. Berezovsky. remained a vocal critic of Putin. He was found dead in his home in England in 2013. Investigators recorded an open verdict, which means they could not say if he died by suicide or was murdered back in Russia a new class of oligarchs emerged. Remember Hodor kovsky the reins of his oil empire eventually went to a man known in Moscow as Darth Vader.
Your searching is reported to be a former KGB officer like Putin himself. This new class of oligarchs is known as the siloviki or strong men. Today's oligarchs are all essentially beholden to Putin because they're their business depends on the state. The number of Russians on the Forbes rich list rose from zero in 1996 to over 100 in 2014, and the oligarchs certainly knew how to splash their cash. This part of London was nicknamed Red Square because so many wealthy Russians moved in and parts of the French Riviera became known as the Bay of Billionaires. Then there were the floating palaces, soccer teams and private jets. But their fortunes were about to take a turn. Russia's annexation of Crimea in 2014 triggered sanctions on individuals with close ties to the Kremlin including sechin but these were nothing in comparison to the sanctions storm. That was to hit the oligarchs in 2022. What's different about it is just the speed and aggressiveness with which these sanctions have been imposed. The brutal invasion of Ukraine launched by Putin in February caused an international outcry. Sanctions came thick and fast, aimed at restricting the wealth and movement of those with links to the Kremlin. In a matter of weeks, the US sanctioned more than 400 people and entities. Our clients are all scrambling to understand what these new restrictions on them are, what they have to do to comply. Lawyers like Eric Ferrari advise people and companies that have been sanctioned. The US government has determined there is a threat in this case. Russia's harmful foreign activities, which allows them to designate parties who are engaged in certain types of conduct.
The sanctions hit not just government officials, but also executives of state owned enterprises. U.S. Treasury only needs a reasonable cause to believe that they meet the designation criteria.
U.S. Treasury only needs a reasonable cause to believe that they meet the designation criteria. The two biggest factors are kind of proximity to Putin and in doing Putin's bidding set up against the what's the impact going to be and can we mitigate properly.
UK and the EU have their own sanctions lists, as do a handful of other countries. Oligarchs in London will have nowhere to hide. All of these measures will significantly harm Putin's ability. to finance his war.
As the net tightened, the race was on for oligarchs to find safe havens for their money, boats and planes. Abramovich could see the storm coming. He reportedly shifted an investment company to a close associate as Russia was invading Ukraine. About 2 weeks later he was added to the UK's sanctions list for having a stake in a company accused of producing steel for Russian tanks, which the company denies. His UK assets were also frozen.
The majority of the wealth of these these people isn't publicly traded companies. There might be complicated corporate structures around them blocking up those those holdings and and impacting those companies has an effect, and that's that's just hard to dodge. Some of Abramovich's business interests have been harder to track down. Take Matterhorn Capital, which has been linked to Abramovich.
It was first registered in the Cayman Islands before being moved to the British Virgin Islands. Both are British overseas territories known for helping wealthy people hide their money and then moved to the island of Jersey.
But in April 2022, Jersey froze assets worth more than $7 billion, connected to Abramovich. That's around half of his estimated wealth. He won't even be able to profit from the sale of his beloved Chelsea Football Club. Meanwhile, Abramovich has done all he can to distance himself from the Kremlin, even playing a role as mediator in peace talks between Ukraine and Russia. But after one of these meetings, he and other negotiators reportedly suffered symptoms of poisoning. The US has so far spared Abramovich from its sanctions list, but the EU hasn't. About a dozen properties in France linked to Abramovich were seized.
In fact, the EU and UK have banned him from entering. He was spotted at Tel Aviv Airport a few days after being sanctioned. A jet linked to him then flew to Istanbul and on to Moscow. Two of his yachts were scrambled to Turkey. Beyond the reach of Western sanctions, maritime trackers show yachts belonging to wealthy Russians also fleeing to places like Montenegro and the Maldives. But Sachin wasn't quick enough. French authorities seized the Super yacht more evaro near Marseille in March 2022 as its crew was preparing to set sail, the French say it belongs to Sechin, which he denies. Another boat that's also linked to Sechin was detained by Spanish authorities.
He fundamentally will have trouble conducting any sort of cross-border transaction. It's probably confined mostly to living in Russia. Fast boats and homes can be hard to hide, but much of the oligarchs real wealth is carefully hidden away. Many of their assets and businesses are registered under a different name as trusts or shell companies based in offshore tax havens. In the US, banks are required to name the beneficial owner of an account while private equity firms and hedge funds are not. But it's been getting harder for the oligarchs to conceal their wealth. Since 2016, the UK has required that the beneficial owners of companies be named. The Cayman Islands said it froze $7.3 billion in assets belonging to sanctioned Russians. Once they are blacklisted, the reputational damage can last a lifetime and no amount of money can buy that bag. I have clients who are off of the sanctions list who've been removed years ago who still can't get a bank account in UAE or whose family members still can't get a bank account, although they were never sanctioned.
Sanctioned oligarch Mikhail Friedman feels he has been unfairly targeted. According to Forbes, his wealth has shrunk by more than $3.5 billion by April 20, 2218, oligarchs had dropped off the Forbes billionaires list because of the avalanche of sanctions. Sanctions may be hurting the oligarchs, but they are not the real target. That would be Vladimir Putin and his war machine. And so far, Putin appears unfazed as he double s down on his invasion of Ukraine.
Over the past several years, the Russian government and the Russian President had kind of insulated themselves from the influence of elite business persons in that country. In the end, the biggest threat of all to the oligarchs may not be the West. That what they're worried about most is that Putin's own power over them will actually increase. As a result of sanctions, because they have nowhere to go, they have to rely on Putin.
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