Russia’s richest have unleashed a swarm of lobbyists, consultants, and lawyers upon Washington, D.C., in recent months to help avert a looming threat to the estimated $1 trillion pile of riches they’ve stashed away outside Russia.
The cause for the open checkbooks? A list of names. Or more accurately, a document with a cinematic nickname: “The Kremlin Report.”
The Treasury Department on Jan. 29 is set to publish a detailed report on the staggering wealth and business interests of Russian oligarchs and their family members, thanks to a once little-noticed provision tucked inside sanctions legislation that Congress forced U.S. President Donald Trump to sign with a veto-proof majority back in August.
“I’d refer to it as a name-and-shame list,” said Erich Ferrari, head of a Washington law firm specializing in sanctions.
But being “shamed” by the U.S. Treasury Department could have real-life consequences for some of the world’s richest people, according to current and former U.S. government officials, analysts, and lawyers who spoke to VICE News.
And Russia’s billionaire set is staging a collective freak-out.
“The degree of Russian alarm is striking,” said Ambassador Daniel Fried, the State Department's coordinator for sanctions policy from 2013 until last February.
The report won’t automatically trigger explicit penalties, but those who find their name in its pages have reason to fear they will become instantly radioactive in the elite upper reaches of Western financial institutions, effectively putting a big crimp in their extravagant lifestyles and limiting their ability to exploit their own astronomical wealth, experts said.
The stigma may be just the start of it. Being named by the report could indeed set the stage for further action, including real-life sanctions later on, U.S. Senator Ben Cardin, Democrat from Maryland and ranking member of the Senate Foreign Relations Committee, told VICE News.
“We are trying to deal first with transparency,” Cardin said. “Will there be consequences down the road as far as sanctions? That requires a different set of calculations. But certainly, transparency can lead to other actions.”
“I’ve never seen such a tool before"
Yet no one knows what the immediate impact of simply being named in the report will really be — because, apparently, the U.S. has never actually done anything quite like this, experts said.
“It’s an odd thing to be naming names, without any impact, as a legal matter,” said Adam Smith, former senior adviser to the director of the Treasury Department’s Office of Foreign Assets Control and now a partner at the law firm Gibson, Dunn & Crutcher. “I’ve never seen such a tool before."
In Moscow, the oligarch report is “the talk of the town,” said Anders Åslund, an economic adviser to the Russian government under former President Boris Yeltsin. “No U.S. bank would go near the people named on a list like this.”
One clear indication of the mounting panic, said Fried and others familiar with the report, is the extent to which Russia’s most prominent oligarchs have opened up their purses with the hope of keeping their names out of it.
“There’s a tremendous lobbying campaign,” Fried said. “I have reason to believe that there have been offers of rather a large amount of money… to keep them off the list.”
Fueling the freak-out is the tremendous, mind-boggling wealth that Russia’s richest have pulled together and which could come to be seen as tainted once the report comes out. Much of that money has already left Russia and is now widely dispersed throughout the world’s financial system.
Russia’s 96 billionaires alone are worth a combined $386 billion, according to Forbes’ 2017 World’s Billionaires List, a figure that’s $104 billion higher than the year before.
“No U.S. bank would go near the people named on a list like this.”
Top-tier Western banks and investment managers might choose to cut ties with anyone on the list in the name of reducing their own exposure to risk, potentially forcing a dramatic rethinking of designees’ financial empires.
“I think certain people will be off-boarded by their financial institutions; I think that’s almost inevitable,” said Ferrari, founder of Ferrari & Associates, of a boutique sanctions-focused law firm.
Rich Russians hold about $1 trillion outside of the country, according to a recent academic paper that put the figure at about 75 percent of Russia’s national income, or three times the size of the country’s total foreign reserves.
“That is, there is as much financial wealth held by rich Russians abroad—in the United Kingdom, Switzerland, Cyprus, and similar offshore centers — as held by the entire Russian population in Russia itself,” concluded the paper, published by the Cambridge, Massachusetts-based National Bureau of Economic Research.
“For Russians now, it’s already extremely difficult to open an [American] bank account as-is,” Åslund, now senior fellow at the Atlantic Council think tank, told VICE News. “If you’re mentioned on this list, it will become completely impossible.”
Russian newspaper Kommersant, citing unnamed sources in Washington, recently reported that as many as 300 people could end up on the final version of the report, including about 50 primary oligarch targets and their family members.
Rumor vs. reality
So far the Treasury Department, which was tasked with working on the list in conjunction with the State Department and intelligence agencies, has kept a very tight lid on the process, including how much of the report will be public and how much may be concealed in a classified annex.
Specifically, the bill requires the U.S. Treasury Department to publish a “detailed report” of the business interests of Russia’s most important oligarchs, as judged by the size of their fortunes and their closeness to Putin. The law requires an identification of “indices of corruption,” and an evaluation of the potential impacts of placing sanctions on oligarchs.
“It’s something we’re very focused on,” Treasury Secretary Steve Mnuchin said at a White House briefing on January 11. “It should be released in the near future.”
Fried, who personally crafted U.S. sanctions policy against Russia for years under President Barack Obama, said it doesn’t look like the Trump administration has attempted to water down the report.
“It’s not been farmed out to some cabal of political employees who used to work with Mike Flynn and take money from RT,” Fried said, referring to the Russian state-owned news network. “Not at all. The pros are running with this. Straight, flat-out, serious pros.”
For the oligarchs, experts said, that means the report may well take an unflinching look at their business empires, including parts they may not have want exposed to scrutiny.