How Russian oligarchs are avoiding sanctions
Nga Mark Hollingsworth
On February 25, 2022, a day after Russia began its occupation of Ukraine, a select group of oligarchs attended a private meeting with President Putin at St. Catherine’s Hall in the Kremlin. Apparently the reason was the explanation of how the government would help the Russian state-owned banks, which would be placed under US sanctions, especially “Sberbank” and “VTB Group”.
Russian Deputy Prime Minister Andrey Belousov urged oligarchs and corporate executives to continue cooperating with banks that would be placed under Western sanctions. He said, among other things, that trust in the banking system was crucial for a country where financial chaos has historically destroyed people’s savings and livelihoods.
Among those present was Russian billionaire Dmitry Mazepin, best known in the UK for sponsoring the Formula 1 team, Haas, where his son Nikita was one of the pilots. Mazepin was among other rich and powerful billionaires, such as Gazprom’s Alexey Miller and Rosneft’s Igor Sechin.
He soon realized that sanctions would be imposed not only on Russian banks but also on the oligarchs. And he was right. Two weeks later, on March 9, Mazepin was included in the list of EU-sanctioned businessmen, and very soon his assets across Western banks were blocked by Britain, Canada and Switzerland.
Sanctioning Putin’s kleptocrats, who have funded his war machine, is well-documented. But what is less known is their covert steps to circumvent sanctions, hiding and transferring ownership of their companies to relatives and business associates, thus bypassing the impact of asset freezes.
And it seems that regulatory bodies in the West have forgotten the fact that these oligarchs are capable of exploiting legal loopholes. Just days after being sanctioned, Mazepin sold his majority stake in the chemical fertilizer giant Uralchem, transferring ownership to his former associates and colleagues Dmitry Tatyan and Dmitry Konyaev.
The three had been business partners since 2007 when Uralchem was founded, and had become many friends. Tatyanin, the company’s head of legal affairs, became the owner of 48 percent of the shares of Basic Chemical Uralchem, while Konyaev, the former director of trade, took 4 percent of the shares.
From March 21 onwards, billionaire Mazepin was no longer the owner of the majority of the company, and had resigned from leading positions at Uralchem, which owns the Uralkali plant, the world’s largest potassium producer. Also, the ownership structure of his two factories in Riga, Latvia, changed rapidly.
Suddenly, the co-owner was a Swiss company called “Svizraa”, and the beneficiary was an individual named Bhidwal Aamer Atta, whose nationality is not mentioned in official corporate documents. By transferring ownership of his businesses to his two closest partners, the punitive effect on Mazepi for his loyalty to Putin appears to be limited.
Other billionaires on the sanctions list have also transferred their assets to family members. Former banker Andrey Melnichenko, with a fortune of about $ 16 billion, owner of the chemical fertilizer company “EuroChem” and coal producer “SUEK”, was sanctioned by Switzerland on March 4.
The billionaire may have been informed in time about other sanctions to be imposed, after he resigned on March 8 as the beneficiary of the financial institution in Cyprus, which held 90 percent of his shares in “EuroChem”, worth billions of dollars.
The new beneficiary was a close family member, his wife, Aleksandra, a former Serbian model and singer. The next day the Russian multi-billionaire was sanctioned by the EU and the following week by the UK. Surprisingly, EuroChem then won a tender from the Swiss government after its regulatory body, responsible for monitoring sanctions against Russia, was informed of the new ownership structure.
As a result, EuroChem was no longer a sanctioned company, and its bank accounts were unlocked. But earlier this month, the European Union realized that Melnichenko was receiving favorable treatment. On June 3, she also sanctioned the billionaire’s wife.
One week later, Switzerland also blacklisted Ms. Melnichenko, insisting that EuroChem provide evidence that it complied with the sanctions imposed on its new owner. Even Alexey Mordashev, with a fortune of about $ 21.2 billion, owner of Severstal, Russia’s largest steel and mining company, transferred billions of euros worth of assets to his wife.
On February 28, 4 days after the invasion of Ukraine, Mordashev was placed under sanctions by the EU and later by Britain, the US and Switzerland. But corporate files in London show that in March the pro-Putin billionaire quietly transferred $ 1.1 billion worth of shares from his Nordgold company to his wife, Marina Mordashev.
He also transferred most of his ownership shares to the TUI tourism conglomerate to a Caribbean company called Ondero Ltd, which is also controlled by his wife Marina. These oligarchs have not violated any law, but the transfer of ownership to a relative or friend, goes dangerously close to breaking the law.
A problematic aspect relates to the control of an asset, especially after a sanctioned oligarch has sold his ownership. “A certain person can maintain control over the company even after the sale, ie even without having formal voting rights or the right to appoint directors.
He can decide appointed by him or representative owners, who will act in accordance with his wishes. In these circumstances, the company itself is treated as subject to sanctions. “Consequently, it is illegal for other companies to do business with it,” said Robert Dalling, a sanctions supporter and partner at consulting firm Jenner and Block.
He therefore stresses that it is very important for businesses to see if companies previously owned by sanctioned persons can still be controlled by them. If so, the relationship may need to be terminated.
The three oligarchs, Mazepin, Melnichenko and Mordashev, are angry at the imposition of sanctions, and have filed lawsuits in the EU Court of Justice to overturn what they see as punitive measures. They claim that it is unfair to blame them for Putin’s war, and that there is “no excuse” for being subject to sanctions.
But despite their protests, these oligarchs have found a way to evade sanctions, and transfer their wealth and assets to a trusted relative or collaborator. Sanctions could ostensibly hurt Putin’s kleptocrats. But in the secret world of asset ownership, oligarchs often find a way out.
Note: Mark Hollingsworth is the author of Londongrad: From Russia to Money, The Inner History of the Oligarchs.