Truly targeted economic sanctions might work with Putin

It has been reported that President Biden has considered some very drastic economic sanctions to thwart a prospective Russian invasion of Ukraine in order that Putin experience “serious consequences” for any military conquest of a sovereign state bordering Russia.

Considering past attempts at asserting sanctions that amounted to a cut and paste job of a Forbes magazine listing of Russian oligarchs, a reasonable person might ask, “What might those sanctions be and would they work? How would they be different? Are there alternative options?”

Bloomberg reports that Biden has considered barring Russian access to the Swift financial system that is utilized by banks worldwide. This is unlikely given the likely harm innocent Russians would suffer.

Bloomberg also suggests that Biden might be more inclined to go after Russia’s ability to convert rubles into dollars, euros, or British pounds. But that would be a large, complex task not easily done.

It has been further suggested that Germany’s new government has hinted for the first time that an escalation of the Ukraine crisis may also affect the fate of Nordstream 2, a pipeline that is to carry gas from Russia. This might prove to be a solution more costly than the problem for Germany.

An alternate approach might lie in the recent unveiling of a new tranche of the Pandora Papers by the International Consortium of Investigative Journalists (ICIJ) revealing that “Russian nationals are disproportionately represented in the Pandora Papers.” According to ICIJ, “Russians are behind about 14 percent of the more than 27,000 companies whose ownership details are revealed by the leak. Among them, at least 46 Russian oligarchs are using offshore companies.”

Biden might look to set an example with one lesser-known oligarch — and ratchet up the pressure from there.

Consider the following from the Pandora Papers: A Russian company receiving $500M in contracts from Russia’s state gas company in 2012 was owned by Ruslan Goryukhin, one-time aide to Arkady Rotenberg who was a childhood friend and judo partner of Vladimir Putin and — along with his brother, Boris — an owner of the reputed largest construction firm in Russia. The Rotenbergs have long been thought of as fronting for Putin’s accumulation of wealth by serving as nominee officers in a multitude of offshore shell companies for the head of the Russian mafia state. 

The Rotenberg brothers control much of the gas pipeline construction for Gazprom, the above-referenced state gas company. Goryukhin has long been involved in providing logistics for pipeline construction including involvement in Nordstream 1 & 2. He is retired now and living in Switzerland. The Pandora Papers have identified at least 25 offshore companies related to Goryukhin, most of which are located in the British Virgin Islands but linked to Cyprus and Ukraine as well as addressed in Switzerland. It would be a simple exercise for Biden to provide the listing of offshore companies to FinCEN (Financial Enforcement Center) of the U.S Treasury and request them — either formally or informally — to reach out to their global banking sources to uncover those banks servicing Goryukhin and his shell companies. They might start in Switzerland since Goryukhin and his family have resided there for years now. Upon identifying all Goryukhin-related bank accounts, Biden might request that FinCEN provide this detailed data to another Treasury agency — OFAC — Office of Foreign Asset Control, the office designated to enforce sanctions, assuming Biden sanctions Goryukhin.

Has Goryukin already been sanctioned? Certainly, the Rotenbergs and other oligarchs living high off the Western hog have been sanctioned before. How would this approach be different?

The difference is the detail that the Pandora Papers provide in terms of the meticulous research ICIJ has done in identifying offshore shell companies and their nominee directors that can now be associated with specific oligarchs. Spotlighting and hopefully cutting off these offshore shells and nominees from their servicing bank accounts might just be an inconvenience to the Russian elite as were past sanctions — but publicizing the minutia of the offshore wealth and the efforts that rich Russians have gone to conceal their exfiltrated wealth from regular Russians struggling to get by might just trigger an insurrection with real consequences in Mother Russia.

Starting with sanctioning a Russian oligarch residing in Switzerland who is closely associated with Gazprom, the Rotenbergs, Nordstream, Cyprus, and Ukraine might send a chilling warning shot across Putin’s bow without harming working Russians or Germans.

Disseminating information of this action throughout Russia, Europe, Ukraine and the parallel financial offshore world — including Switzerland and BVI — might trigger unrest among Navalny supporters in Russia and/or energize the other 45 Russian oligarchs to prevail upon Putin to use the off-ramp on Ukraine provided him by Biden in order to ensure financial self-preservation for the Russian elite.

It was Russian oligarch Roman Abramovich who recommended to Yeltsin that Putin be designated Yeltsin’s heir, or so the story goes. Might history repeat itself should Russian oligarchs really feel threatened financially?

Might that be what Biden really is referencing when he suggests that Putin faces serious consequences never before faced should he continue down the path of Ukraine military incursion?

If targeting Goryukhin doesn’t do the trick, perhaps pointing the Pandora Papers’ financial microscope at the Rotenbergs would prod Putin. Does Putin really want the world to know the true range of his bank account holdings, stock investments, foreign real estate — all held in nominee names of trusted friends and associates who control the offshore shell companies that hold the key?

Sounds serious.

Martin J. Sheil is a retired supervisory agent for IRS Criminal Investigation with 30 years experience, including service as coordinator of the Organized Crime Drug Enforcement Task Force (OCDETF) for the Gulf Coast Region, Branch Chief for the North Texas District (Dallas), Special Agent in Charge for the South Texas District (San Antonio) and as Director of IRS CI Asset Forfeiture in Washington, D.C.