Arkady Rotenberg, a Russian billionaire, has stayed wealthy and spent lavishly despite sanctions against him. Photo / AP
For nearly a decade, sanctions have been little more than names on a list for wealthy Russians. Governments are working to give them bite.
The first time the US government slapped his family with sanctions and locked him out of the US financial system, Arkady Rotenberg waited about eight weeks, investigators say, before buying a US$7.5 million ($10.95 million) painting in New York City.
That was in 2014, after Russia annexed Crimea, and since then the sanctions have hardly slowed down Rotenberg, a lifelong friend and former judo partner of the Russian president, Vladimir Putin. His estimated worth sits at about US$3 billion, and his brother, Boris, became a billionaire after sanctions were imposed on him. Investigators have tracked at least US$91 million passing into the US economy from accounts linked to the Rotenberg family.
Today, as Putin's soldiers lay siege to neighbouring Ukraine, world leaders have responded by strangling the Russian economy. Major Russian banks have been cut off from the global financial system, the government faces default, and many multinationals are closing their Russian operations.
And a new raft of European and American sanctions has been announced, against Putin himself, as well as those considered close to him, including Boris Rotenberg and Arkady Rotenberg's son, Igor. The logic now is the same as it was in 2014: Squeeze Putin's allies to put pressure on him.
"We are coming for your ill-begotten gains," President Joe Biden said in his State of the Union address.
But despite such boasts, coming at what some analysts call a watershed moment, the question is whether the West can make its sanctions bite after largely failing to do so in the past. Arkady Rotenberg is just one example of the past ineffectiveness of measures described as the "financial death penalty."
A New York Times analysis of global corporate filings identified nearly 200 companies associated with the Rotenbergs, spread across three continents and a dozen countries. Many of the firms are now inactive, but even after Rotenberg was placed on sanctions lists in 2014, he was able to take a stake in at least seven companies in European offshore tax havens.
As recently as 2020, Rotenberg became the beneficial owner of two companies — Robben Investments and Lucasnel SA — in Luxembourg, a tiny European Union country known as a tax haven for shell companies. Corporate records suggest Rotenberg still owns those companies.
Multiple messages seeking comment from the Rotenbergs went unanswered at SMP Bank, which the brothers co-founded.
Rotenberg has stayed wealthy and spent lavishly because governments rarely investigate or try to untangle the fortunes of those they target. As oligarchs hired high-priced accountants, lawyers and other middlemen to conceal their assets, governments largely left it to banks and companies to figure out for themselves whether they were doing business with people on the blacklists.
Government investigators ignored reports of suspicious banking activity. European leaders promised to bring transparency to the financial system but dragged their feet in doing it. Congress voted to give the Treasury Department the authority to crack open shell companies but left that power unfunded for years. And Britain looked the other way as it became a playground and safe haven for Russia's rich and powerful.
"The general view of illicit finance has been a deep sense of being under-concerned," said Phil Mason, who served as a senior adviser to the British government on international corruption for nearly 20 years. He said lawmakers saw Russian money as a source of jobs and investments.
"There was a complete blind spot as to seeing it as a problem," Mason said. "In the absence of the Ukraine crisis, it is still the prevailing attitude inside government."
But just as 9/11 forced world leaders to get serious about terrorist money, current and former government officials in the United States and Europe say the recent invasion of Ukraine could be a turning point on tackling illicit Russian wealth. The broad moves have already been without precedent — freezing assets of Russia's central bank and banning Russian oil imports to the United States. A government spokesman said Britain was taking strong action and was "fully aligned with our allies and partners."
And the efforts toward oligarchs also have been more widespread and coordinated. The European Union and the United States led the charge, but were followed by Britain, which had been more reluctant in the past. Australia, Japan, Canada and others joined, shrinking the world market for Russian wealth. Even secretive Switzerland said it would freeze Russian assets.
The US Justice Department and Britain's National Crime Agency, for instance, both recently announced task forces for tracing Russian assets and enforcing sanctions.
"The oligarchs are important because they are the ones who would trigger a palace coup if it ever happened," said Tom Keatinge, a financial crime expert at the Royal United Services Institute, a British research body. "And we know that Putin relies on people close to him to hide his money."
There is no secret to how Russian oligarchs like Rotenberg have hidden their money. A US Senate investigative report, released in 2020, found money pinballing across the globe: a company in Belize was doing business in London with a majority shareholder living in Cyprus and a bank account in Estonia, to cite one example from the report.
It is a pattern that investigators say is common.
First, a trusted lawyer or other agent sets up a shell company in an offshore jurisdiction with little transparency. On paper, the company has its own director. But really, somebody else calls the shots.
This company can own other shell companies, making it even harder to identify what investigators call the "ultimate beneficial owner." These companies can then have bank accounts in jurisdictions that are known for secrecy.
In this way, the shell company can transfer money or make purchases without anyone knowing the real owner. This is typically legal.
"We're talking about people with limitless resources to move money and avoid scrutiny," said David H. Laufman, a lawyer with Wiggin and Dana who used to run the Justice Department's counterintelligence section.
To set up this network, investigators found, the Rotenbergs turned to Mark Omelnitski, a Briton who was born in Moscow and specialized in setting up opaque networks of shell companies. Senate investigators found a company handbook showing how, for as little as US$1,000, Omelnitski's company, the Markom Group, would establish offshore companies for his clients.
"Companies organised by Omelnitski and his group suggest that Markom may potentially have created numerous companies for Russian oligarchs and close acquaintances of Russian President Vladimir Putin," an internal investigation by the British bank Barclays concluded.
Barclays closed 198 bank accounts associated with Omelnitski's Markom Group in August 2017. But he still runs a network of British and offshore companies. He is not known to have faced sanctions or criminal charges. Letters requesting comment went unanswered by Omelnitski, who deactivated his LinkedIn profile after being contacted by a Times reporter.
Until now, neither the United States nor British governments have prioritised going after oligarchs, partly because unravelling their networks takes time, manpower and international cooperation. Banks are required to alert the authorities when they spot suspicious activity, but even when they do, government officials can be slow to act. One senior Senate aide said that Rotenberg investigators found countless examples of banks filing reports with the Department of Treasury, to no avail.
For years, governments resisted efforts to require greater financial transparency, even as leaked documents like the Panama Papers made clear how secrecy allowed illicit money to move.
The European Union, for example, passed a regulation in 2018 that said the public should have access to information about who owns European companies, even those nested in shell companies. Four years later, after delays from 17 countries, no such registry exists.
Congress passed a similar transparency law in 2021. But until this week, lawmakers had not provided the US$63 million to enact it. Treasury officials are working on regulations now that would help pierce the veil of secrecy around shell companies.
Governments may need to change laws to tackle the problem.
In the United States, authorities have broad powers to seize property if they suspect a crime has been committed. Investigators caution, however, that they do not expect to find many oligarch fortunes in US bank accounts, or Russian superyachts in American ports. The harder task, they said, will be identifying transactions in real time when the buyers have concealed themselves behind shell companies and foreign banks, much as the Rotenbergs did for years.
In France, the government is considering laws that would allow it to seize, not just freeze, assets belonging to blacklisted people. For now, the government can only seize things with evidence of a crime. (In a twist, however, France did seize the yacht of Igor Sechin, the head of the Russian state oil giant Rosneft, before it could leave port early this month. Fleeing sanctions, the government said, would itself be a crime.)
Similarly, the British government announced last week that it had seized a private jet suspected of being linked to the Russian oligarch Roman Abramovich. But the government's argument — that it could seize the jet under a ban on Russian-linked aircraft entering Britain — has yet to be tested. And the plane in question is registered not in Britain or Russia, but in Luxembourg.
The anti-corruption organization Transparency International estimates that nearly US$2 billion worth of British property is owned by Russians accused of financial crime or linked to the Kremlin.
Britain has been slow over the years to impose sanctions on those oligarchs. Some, like the Rotenbergs, have long been blacklisted by other countries and are only now making the British list.
But London is moving with newfound decisiveness. More than five years after it was proposed, Parliament recently passed a law prohibiting people from hiding behind offshore companies when buying property. And last week, the British government finally hit Abramovich with sanctions more than a decade after corruption allegations and evidence of ties to the Kremlin first emerged. His soccer team, Chelsea, was already for sale when his assets were frozen; lawmakers said he was also seeking to sell his London real estate, which includes a mansion in Kensington.
Court records from a divorce dispute show that Arkady Rotenberg owns a US$35 million mansion in a village in Surrey, south of London, which was purchased through a British Virgin Islands entity with the help of the law firm Hogan Lovells. His nephew, Roman Rotenberg, who is also subject to US sanctions, listed his address as a US$4.3 million London townhouse owned by a Cypriot entity.
"Successive governments have chosen not to grapple with this issue," said Keatinge, the financial crime expert.
But even with all the changes, gaps remain. After the Senate report demonstrated how Arkady Rotenberg purchased fine art in the United States, lawmakers like Sen. Rob Portman, R-Ohio, tried to force art dealers to abide by the same anti-secrecy requirements as banks.
Under heavy lobbying from auction houses, lawmakers killed the idea and allowed art sales to remain anonymous.
This article originally appeared in The New York Times.
Written by: Matt Apuzzo and Jane Bradley
Photographs by: Lynsey Addario
© 2022 THE NEW YORK TIMES
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