Highlights
The United States is mulling its options to increase pressure on Russia over its reported election meddling and disinformation campaigns. Moscow is preparing for expanded sanctions by attempting to insulate its government, companies and elites.
While Russia has mostly shielded itself from sanctions affecting its ability to issue sovereign debt, the possible targeting of its most powerful and wealthy citizens, even if not implemented, will ripple deep into Russia’s core.
As the poverty rate in Russia expands, the population's dissatisfaction with widespread corruption and the exorbitant wealth held by the elites is growing. A list detailing that wealth could spark pushback on the Kremlin during this pivotal election year.
The United States has for years used economic sanctions as a cudgel against Russia for various perceived transgressions, including its actions in Crimea and Ukraine. They not only have targeted sectors vital to the Russian economy, contributing to its recession, but they also hit individuals in the upper echelons of Kremlin leadership. Now, Russian leaders are bracing for the possibility of even more sanctions, these stemming from allegations that Moscow interfered in the 2016 U.S. elections.
On Jan. 29, the U.S. Treasury Department will begin releasing a series of reports detailing options to increase pressure on Russia through expanded sanctions. The U.S. Congress ordered the reports in August as part of its Countering America’s Adversaries Sanctions Act. The Treasury Department reports are not an automatic expansion of sanctions, but rather are an exploration of the various pressure points the United States could use against Russia and the ramifications that doing so could have on the wider international economic and financial systems. Even as the reports were being readied, Moscow has taken steps to blunt the impact of any new sanctions that might be levied. In anticipation that its ability to fund sovereign debt could be restricted, Russia has worked to line up alternate sources of financing.
But it's the other possible targets of U.S. penalties that have drawn the most attention: Congress ordered the Treasury Department to draw up a list of oligarchs with strong Kremlin ties, and to include any evidence of corruption against them, plus details of their net worth, assets, foreign business ties, sources of income and families (wives, children, parents and siblings). The scope of this option marks a stark contrast from any other sanctions the United States has undertaken. Even though a string of Russian personalities already has landed on U.S. sanctions lists, they have been people directly tied to Russian military interventions, or personally to President Vladimir Putin and his grip on power.
Those who land on the highly anticipated "oligarch list" will likely be a who's who of Russia's most powerful and wealthy elite, many without clear ties to Russian foreign policy or activities abroad. The new sanctions option is intended to go after the less obvious Russian power bases, closing supposed loopholes that allow Russia to skirt current sanctions, and to apply direct pressure to Putin's administration. Leaks emanating from Washington indicate that the oligarch list initially will remain separate from the Treasury Department’s specially designated nationals list of people targeted by individual sanctions. The exploratory report naming Russia's wealthy power brokers, portions of which may remain classified, will give
Congress another option.
The Guessing Game
The question of who will land on the list has been somewhat of a parlor game among international news media outlets. Russian media giant Kommersant reported that it had identified some 50 elites, plus their families and associates — about 300 people in total — who will be named by the Treasury Department. Forbes has compiled a list of 96 Russian citizens, mostly oligarchs, who hold some $386 billion in assets. In addition, there's a group of Kremlin elites thought to hold vast sums of secret money, estimated in one new study performed by academics in Paris and London to approach the trillion-dollar range.
In the past, the United States has not compiled and publicized a comparable list without implementing sanctions. But the atypical nature of the oligarch list has raised questions whether this is a "shame list," meaning that no sanctions are intended on the individuals named, but rather it will be used for its optics. The Kremlin and many Russian elites have reportedly bolstered their lobbying efforts to persuade the Treasury Department to keep certain names off the list.
The intense interest in who will be named in the oligarch list has been matched by speculation over what its publication might mean for Putin's administration and Russia as a whole. The elites expected to be named on the list fall into four broad categories:
1. Senior Kremlin officials who are directly tied to the administration and its mechanisms for creating and implementing foreign policy. Most of these Kremlin elites serve on boards of some of the largest and most lucrative companies in Russia, own shares anonymously, and store much of their wealth in safe havens abroad.
2. Russian elites who are part of Putin’s loyalist circle and who help him maintain a hold on power. Like the senior figures in the Kremlin, these elites also hold shares in large Russian firms or occupy critical seats of power and are willing to carry out Putin's bidding.
3. Other government officials who either plan, implement or finance Russian activities abroad.
4. Russian oligarchs, who are mostly holdovers from the 1990s holding vast amounts of wealth and assets. While mostly on friendly terms with the Kremlin and Putin, these oligarchs are not particularly loyal to the current government but understand that they have to work with it to survive.
Preparing for Action
As the Treasury Department reports were being formulated, the Russian government held a series of meetings to develop strategies to shield elites and oligarchs from U.S. sanctions. The Kremlin exempted large state firms from disclosing their contractors, thus offering fewer possible targets for U.S. actions. Putin called on the elites and oligarchs to repatriate their assets held abroad. The Finance Ministry and Central Bank offered methods for anonymous money transfers that would fly under the sanctions radar. The government is also allowing a $3 billion eurobond float to Russian business elites that offers them anonymity. Multiple reports indicate that many elites have either liquidated their assets abroad or run them through a series of stress tests to gauge risk. Many large Russian companies have tapped international capital markets and issued hundreds of millions of dollars worth of bonds in recent months. Many oligarchs, cautious of the state's monitoring and its propensity to nationalize assets, don’t want to keep their cash in Russia.
The Russian government has characterized the upcoming oligarch list as an attempt to destabilize the country financially and politically in a pivotal election year. The Kremlin already has laid the groundwork for reciprocal sanctions against the United States, but it is waiting to see how far Washington will take the issue.
Even if the list does not lead to sanctions, it will have two powerful effects in Russia and among Putin’s administration. The elites and oligarchs remain loyal to Putin as long as they have the freedom to run their fiefdoms. Even the thought that the United States might move to seize or limit their wealth and power will have a strong psychological effect on their perception of Putin’s ability to protect them, and thus affect their continued loyalty to his administration. In recent years, many elites have already dissented from Putin’s direct orders on a slew of issues, as the Russian economy and financial sector fell back into recession. Putin reacted by surrounding himself with a group of ultraloyalists, shifting his presidency to an even further autocratic extreme. The longtime Russian leader understands that struggles in the Kremlin and among the country's elites have led to the downfall of other powerful Russian leaders in the past.
But even more dangerous to Putin could be the Russian people's reaction to a list of wealthy elites at a time when the country's poverty rate is growing at its fastest pace in 20 years. The primary cadre of elites and oligarchs hold as much wealth abroad as the combined wealth of all Russians back home, the academic study found. Calls for an anticorruption campaign in Russia have grown louder in recent years, and two-thirds of the more than 1,100 protests in 2017 were focused on corruption and economic woes. Most of the ire of those protests was not directed at the oligarchs, but at the government officials, such as Prime Minister Dmitri Medvedev, who live lavishly while claiming meager salaries. Seeing a list of the elites with the details of their wealth could reignite those sentiments during this election year, and force the Kremlin to respond with a campaign against corruption — even at the cost of sacrificing some of its own.
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