Russia Update: What's Up?
Quickly Evolving Events
It’s been about a week since I posted an update about Russia’s continued aggression against Ukraine, which has turned into a full-scale invasion and war. Since Russian President Putin sent troops into the Donetsk and Luhansk “independent” republics (whom only Russia recognizes as anything other than parts of Ukraine), the West has proceeded to do what it promised: destroy Russia’s economy and put an economic hurt on Putin, his pet oligarchs, their families, and Putin’s “wallets.”
Wallets are those individuals who help Putin move and conceal his wealth. While Putin and his acolytes claim he lives a “modest” life, numerous organizations, including Russia’s Anti-Corruption Foundation (FBK) have pointed to his enormous wealth, misappropriated from the Russian people, that helped him build a literal palace, for example.
Other investigations have focused on individuals such as former cellist Sergey Roldugin, who has long been the subject of investigations as someone who helped Putin move and hide his assets. Roldugin—the godfather of Putin’s daughter Maria—was sanctioned today by the EU, joining the list of 680 individuals and 53 entities that have been slammed by the block in the aftermath of Putin’s invasion of Ukraine.
Roldugin was apparently a participant in the Troika Laundromat, which used scores of offshore shell companies to move around Russian money.
The network operated like a washing machine: money arrived from multiple sources and was then “spun” between network companies and sometimes between multiple bank accounts belonging to a single company. These convoluted transactions mixed and blended the funds, so that legitimately earned private wealth became impossible to separate from money that appears to have come from major frauds. Most of the transfers took place at Lithuania’s Ukio Bank, which was closed by the authorities in 2013 and is under investigation.
Roldugin was also prominently featured in the Panama Papers in 2016 .
…thanks to the leaked documents from Mossack Fonseca, Novaya Gazeta reporters discovered that Roldugin’s offshore companies likely received money from companies close to the Russian oligarchy: the Rotenberg family, Suleiman Kerimov, Alexei Mordashov and other big businessmen across the country.
Roldugin, the humble musician earned tens of millions of rubles per day from deals that experts say are fictitious, often using the stock of Russian state-owned companies. Then they invested these funds into strategic assets in the country and personal “fun” projects connected to Putin’s relatives and friends.
The list of sanctioned individuals, Putin cronies, government officials, propaganda mouthpieces, and others is long and distinguished. Between the United States, EU, and the UK, Putin himself, Foreign Minister Lavrov, Finance Minister Mishustin, Defense Minister Shoygu, and Chief of the General Staff Gerasimov have been sanctioned.
In addition, Russian banks, Russia’s Finance Ministry, the Central Bank, and (FINALLY!!!) Nord Stream 2 AG—the Gazprom-owned operator of the much-disputed liquified natural gas pipeline from Russia to Germany—have finally been designated, along with Nord Stream 2 AG’s (former Stasi) CEO Mattias Warnig. The media reports today that Nord Stream 2 AG has filed for bankruptcy and has fired most of its employees. Russia itself is reportedly facing a financial meltdown. Putin held crisis talks with his top economic advisers after the ruble crashed to a record low against the US dollar, the Russian central bank more than doubled interest rates to 20 percent yesterday, and the Moscow stock exchange remains closed. Unfortunately, so far it’s the regular Russians feeling the pain of the economic measures resulting from Putin’s aggression, and although Kremlin mouthpiece Peskov (who was also sanctioned by the EU yesterday) said a few years ago that Russians would starve for Putin, I’m fairly sure things have changed.
Oh, did I mention that shipping companies are giving Russia the finger as well? Maersk, MSC Mediterranean Shipping Company, and CMA CGM have all decided they don’t need Russian business that badly.
Western companies are quickly exiting Russian projects. Shell, BP, and Equinor all announced their intent to jettison Russian joint ventures. SWIFT, the global payments messaging system, is ready to remove Russian banks once it receives legal instructions giving it the green light and the list of banks that are to be ejected. I’ve heard rumors that VTB and Bank Rossiya are on that list of financial institutions being booted from SWIFT.
The EU and Canada are prohibiting the use of their air space to Russian aircraft, and Switzerland is adopting EU sanctions and freezing assets belonging to Putin, Finance Minister Mishustin, and Lavrov. It will also close its skies to flights from Russia and and impose entry bans against a number of individuals who have a connection to Switzerland and are close to Putin.
The Russian Central Bank, the Finance Ministry, and Russia’s Sovereign Wealth Fund are cut off from the US financial system, limiting their ability to access money to support their invasion of Ukraine.
The oligarchs are getting nervous, with some, like Oleg Tinkov—the billionaire founder of Russia’s Tinkoff Bank (who is not sanctioned), highlighting the work his foundation does to help children and his desire for no war—publicly calling for peace. US-designated oligarch Oleg Deripaska wrote on social media Sunday that peace “is very important.” And the son of former head of Russian Railways, Vladimir Yakunin, is publicly criticizing Putin’s invasion.
“Please don’t draw an equal sign between Russians, the Russian state and the Government of [the] Russian Federation. There are many Russians strongly opposing the current military action, and I am one of them,” said Andrey Yakunin, the founder of private-equity group VIY Management and son of Vladimir Yakunin, former president of OAO Russian Railways. The elder Mr. Yakunin was sanctioned in the U.S. a few years ago.
Russia is becoming a world pariah, and with good reason.
Today, after disingenuously claiming that Russia’s military operations are meant to “denazify” Ukraine (never mind Ukrainian President Zelensky is Jewish), Russia blew up the Babyn Yar Holocaust Memorial, killing five civilians.
They have murdered children, bombed hospitals, and destroyed infrastructure, as well as caused a refugee crisis in the region. And somehow, Putin still feels himself entitled to make demands.
Putin demands that Ukraine be “demilitarized” and that the West recognize Russian sovereignty over the Crimean peninsula, which he invaded and illegally annexed in 2014 and for which Russia has faced sanctions for the past eight years.
I’m not in charge, but if I was, the answer would be below.
Will all the restrictions and the hits against Russia’s economy change Putin’s calculus? It’s hard to say.
He seems to be willing to sacrifice his nation, his people, their welfare, and his own reputation to achieve his geopolitical goals. He does not care how ridiculous his propaganda is or how absurd his claims about Ukraine and the West are. He needs publicly recorded pretext for his actions, and I doubt that he believes his own propaganda mouthpieces.
It was heartwarmingly gratifying to see so many UN diplomats turning away from Lavrov at the UN Human Rights Council meeting this morning and walking out as he began to speak! Given Russia’s actions, I’m surprised there’s no way to boot them out of that body.
The sanctions against Russia are significant, and it can be difficult to navigate the landscape, especially with so many countries and alliances, as well as legal actions involved. There are directives, general licenses, guidance, Bureau of Industry and Security (BIS) Entity List restrictions, and various types of sanctions imposed by the United States. BBC has a good general write-up of the current sanctions against Russia imposed by the West. Al Jazeera has one as well, breaking the restrictions up by country and providing a general trade picture.
Some firms and financial institutions will no doubt just take a broad approach to derisking and withdraw from the Russian market altogether. Others will likely engage with experts to help them negotiate the regulatory minefield.
But whatever course global firms and financial institutions take, it’s bound to be a bumpy ride!
As someone who has been trying to figure out just the OFAC sanctions and what entities they impact (and what those entities internet presence is), the situation is a mess. I assume at some point I'll have to repeat the thing with the EU etc. sanctions, hopefully they are 99% the same