As Western democracies expand their coordinated sanctions targeting Russia, they're also moving against an elite group of Russian billionaires — the oligarchs — in an effort to pressure Russian President Vladimir Putin to pull out of Ukraine.
"We don't have a clear idea of just how wide, just how broad or just how deep these oligarchic investments have gone in Canada or frankly, anywhere else," Michael Casey, an author and investigative journalist who specializes in money laundering, told CBC Radio's The House.
"And that's for a relatively simple reason. We have seen industry after industry ... offering not just investments, not just ease of access, but especially anonymity."
Deputy Prime Minister and Finance Minister Chrystia Freeland told reporters this week that she is imposing sanctions on some oligarchs while also looking into what they own in Canada.
Canadian sanctions have targeted hundreds of officials in the Russian regime and a much smaller number of oligarchs. Freeland said more moves against the oligarchs are coming.
"These are people who have tried to have it both ways for a long time. They're people who have been hangers-on of Vladimir Putin, his sycophants, his enablers, as he has become more and more of a threat to the world," the finance minister said this week.
"But at the same time they have enjoyed a pretty fabulous lifestyle in the West, with yachts and mansions and having their kids at the fanciest universities and private schools. And what we've done with these measures, much more forcefully than the Russian elite anticipated, is we have said, 'You know what, you have to pick sides.'"
What is a Russian oligarch?
While Boris Yeltsin served as the first president of the Russian Federation from 1991 to 1999, a group of well-connected entrepreneurs became billionaires by taking advantage of Russia's entry into global markets.
These men made their early fortunes during a time of economic reformation presided over by the last president of the Soviet Union, Mikhail Gorbachev. By the time Yeltsin came to power they had the clout, money and connections required to secure a foothold in Russia's economy.
"These were nominally businessmen, especially in the 1990s, when there was this gigantic fire sale of assets across the former Soviet space — gas fields and oil wells, timberland and mining rights," said Casey.
"These businessmen swooped in and because of political connections, as well as connections to organized criminal networks … [they] were able to seize these assets themselves and in so doing, seized not only those assets, but also all future revenues that stemmed from those assets."
Mikhail Khodorkovsky made his money through Russian oil with his company Yukos. Others, like Boris Berezovsky and Vladimir Gusinsky, made their fortunes acquiring media assets. Others made money in mining, lumber, natural gas or other major industries.
When Putin came to power, he butted heads with some of the Yeltsin-era oligarchs. Khodorkovsky, once considered the richest man in Russia, was charged with fraud and jailed, but has since been released. Berezovsky lost his empire and was found hanged in his London home in 2013. Gusinsky was forced to flee Russia to avoid prosecution.
Experts say the oligarchs from the Yeltsin era who remain in Putin's favour now, and the oligarchs who came to prominence in Putin's era, exist only at the pleasure of the Russian president.
"The commanding heights of the economy are all controlled by people who are close to the regime or are connected to it in various ways," said Matthew Light, an expert in Russian studies at the University of Toronto's Munk School of Global Affairs and Public Policy.
"In Russia, you cannot really be a big businessman or woman and not be an ally of the president."
Why sanction Russian oligarchs?
While Putin earns a relatively modest salary for the leader of a global power, he is thought to be one of the richest men in the world. Much of his money is kept offshore, or in the hands of his oligarch allies. Sanctioning them is seen as a way of putting pressure on Putin's finances and his collaborators.
Governments are sanctioning oligarchs, said Light, in the hope that "if you make their life unpleasant, that eventually they will get tired of Putin and move to replace him."
"It has to be said that people have been hoping that for a long time and he seems to have quite a tight grip on his team," he added.
Light said that the oligarchs are only allowed to enjoy property, wealth and privilege because of their loyalty to Putin.
"It's not that they are going to refuse to give him money," he said. "First of all, they can't. Their money is his money. They're just allowed to have it."
Daniel Fried is a former American ambassador to Poland who helped craft U.S. sanctions against Russia after Putin's 2014 annexation of Crimea. He told CBC News that even if the oligarchs can't be pressured to rebel against their master, sanctioning them is still a good idea.
"It's not as if the oligarchs are going to make Putin stop his war," he said. "But if you go after the oligarchs generally, then it's part of putting pressure on the whole system and that can have an impact over time."
Casey said that while assuming sanctions on oligarchs will directly influence Putin's actions would be a mistake, it could help turn the Russian population against Putin's leadership.
"These targeted sanctions are really an absolutely wonderful soft power tool for places like the U.S. and the U.K. and Canada," Casey told The House. "These oligarchs are viewed as simple parasites that are looting from the populations back home. So not only is it a scramble for the oligarchs and a headache, but it also improves Western soft power in the process."
How are governments sanctioning oligarchs?
Canada has been placing sanctions on individual Russians and Ukrainians sympathetic to Moscow since Putin first annexed Crimea in 2014. Over the years, that list has been expanded and now runs to several hundred names, including 351 members of the Russian State Duma that voted for the invasion of Ukraine.
Freeland's list of sanctioned individuals includes Russian bankers such as Yuri Solovyov, Andrey Puchkov and Kirill Alexandrovich Dmitriev. The list also includes other Russian business tycoons such as casino and restaurant magnate Yevgeny Prigozhin, his wife Lyubov and daughter Polina.
Sanctions have been levied also on media baron Vladimir Kiriyenko, pipeline billionaire Nikolay Tokarev and banker Petr Fradkov, among others.
One oligarch absent from the list is Roman Abramovich, owner of Chelsea Football Club and holder of a 28.6 per cent stake in the U.K.-based steel company Evraz. The firm's North American wing is supplying 58 per cent of the steel used to construct the 1,150-kilometre Trans Mountain Pipeline expansion.
The sanctions affecting people on this list are detailed under Section 1 of the federal government's sanction regulations. They are extensive and include economic measures that prohibit Canadians inside or outside the country from "participating in any activity related to any property of these listed persons" and from providing them with money or services.
That basically means it is illegal for any Canadian to help anyone on the list secure financing and debt. It also means Canadians are prohibited from supplying the oligarchs on the list with goods that could be used for ventures like new oil exploration initiatives.
"What we know is that when these sanctions are placed on specific oligarchs, they scramble," Casey told CBC Radio's The House. "They have to find new legal teams, they have to find new shell companies. You have to find new jurisdictions. It is a headache for them."
Casey warns that while sanctions create trouble for oligarchs and lower-level businesspeople, they must evolve to stay ahead of the oligarchs' moves to avoid them.
How hard is it to sanction oligarchs?
While the companies, mansions, private jets and supercars owned by Russian oligarchs are often public knowledge, Casey said, these politically connected businesspeople have turned hiding money abroad into an art form.
"We only have a very small idea of who is controlling these assets or where all these oligarchic assets may be, but there's no reason to think that they aren't spread far and wide, unfortunately across Canada as well," Casey said.
Peter German is a lawyer, former deputy RCMP commissioner and chair of the Vancouver Anti-Corruption Institute. He said that tracking who owns what — especially when it comes to real estate holdings — is very difficult.
"If I give you $500,000 to buy a condo in Edmonton and then you take that $500,000 and purchase a condo and register it in your name, everybody would think that you are, in fact, the owner of that condo," he said.
"Well, technically you are the owner, but who is the beneficial owner? I am. I gave you the $500,000 … The important thing is to be able to verify who is that ultimate owner."
James Cohen is the executive director of Transparency International, an international anti-corruption organization with offices in the U.S. and Europe. He told CBC Radio's The House that legal loopholes in the West may have enabled oligarchs.
Cohen says that oligarchs often own assets through a complicated arrangement called "layering" — using multiple numbered companies and shell corporations to obscure who owns what.
"They're going to own it through something like Ontario Limited Company 1234, and then that company will be owned by Alberta Limited Partnership 5678, and that company will be owned by Bahamas International Worldwide QW73," he said. "And then finally behind that, you may have … who what we call the ultimate beneficial owner is."
In 2015, the Supreme Court of Canada ruled that lawyers are exempt from reporting suspicious financial transactions to FINTRAC, the federal government's financial intelligence unit, on constitutional grounds.
German said that while almost all lawyers behave ethically, oligarchs only need a few willing to take advantage of the system by not reporting critical information to authorities.
The "thing to keep in mind about lawyers is that they have trust accounts so they can receive large amounts of money on behalf of clients and then disperse that money," German told The House.
German said law societies across the country are trying to fill that gap but he wants to see more oversight.
Do governments need new laws to sanction oligarchs?
Experts agree that the veil obscuring who actually owns a property, a company or other assets has to be pulled back.
"So the big thing is the push for a publicly accessible, centralized, beneficial ownership registry," Cohen told The House.
In the 2021 federal budget, Freeland announced the creation of a beneficial ownership registry to "catch those who attempt to launder money, evade taxes, or commit other complex financial crimes."
But the registry is not expected to be up and running until 2025. The U.K. has had a beneficial registry for companies since 2016 but it has been called ineffective. British Prime Minister Boris Johnson has promised to fast-track a register for landowners in the wake of the invasion of Ukraine.
"Without being able to access this information on ultimate beneficial ownership, we make it incredibly difficult on ourselves to conduct these analyses," Cohen told The House. "Now, if we made that information transparent, it's not a silver bullet. Nothing is. There's still a lot of work to be done. But it would be a huge gain."
Experts say that for a registry to work, it has to be both easy to access and current, and the information available has to be verifiable.
"We prefer it to be free [and] the identities that are provided behind the companies need to be verified by someone. It also needs to be updated with some regularity and penalties enforced for not providing the information or keeping it up to date," Charlene Cieslik, chief compliance officer with Localcoin — a Toronto-based BitATM company — told The House.
German said that requiring lawyers to report suspicious transactions would also help, but ever since the 2015 Supreme Court of Canada ruling, it looks like that battle has been lost.
Experts say that what matters most now is the political will of Western democracies to take action against oligarchs' companies and assets — something they have been reluctant to do in the past.
"The full-scale invasion of Ukraine seems to have had a sobering effect on a lot of political leaders in North America and Europe and persuaded them to do things that they didn't want to do before," Light said.
