LONDON, Jun 22 (IPS) – The author is CEO of the Coalition for Financial Transparency Sanctions against Russian oligarchs who own billions of dollars for the most part have had no real impact beyond freezing some yachts and property . So what went wrong? Now we know.
The “Rotenberg Files”, a massive leak of more than 42,000 emails and documents, has shown how Russian oligarchs Boris and Arkady Rotenberg hid their assets and those of Vladimir Putin, using trusts and private equity investment funds, taking advantage of the Lack of public benefits. property records. Since the Russian invasion of Ukraine in 2014 and especially since 2022, sanctions against Russian oligarchs and legal entities linked to the Russian invasion of Ukraine include 12,900 designations against Russia. Some estimates say the offshore wealth of Russian oligarchs exceeds $1 trillion, but sanctions have so far only frozen $58 billion, due to the difficulty in establishing ownership. The sanctions vary, but have been implemented mainly by the G7 countries and the European Union. Their effectiveness depends on the creation of beneficial ownership registries covering all possible legal vehicles and the requirement to check beneficial ownership against sanctions regimes by a wide variety of professional facilitators for due diligence purposes. This has largely not happened. Despite progress in establishing centralized beneficial ownership registries, a commitment made by almost 100 countries, very few of them are open to public access and are riddled with loopholes. In reality, countries in the Global South are now at the forefront of establishing effective BO registries after the European Court of Justice ended public access to BO registries across the EU in November 2022. This has allowed trusts to become the legal vehicle of choice for Russian oligarchs to hide their wealth. They are also very difficult to detect, as the presence of a trust deed can be preserved in a lawyer’s office if there is no requirement to register the trust in a beneficial ownership registry. Many BO registries require the declaration of trusts, but there are loopholes that allow trusts to be established in jurisdictions that do not require trust registration or have loopholes regarding thresholds or exemptions. Only 65 countries require some form of trust registration. Eight of the 18 BVI companies mentioned in the Rotenberg leaks were eventually dissolved and two relocated to Cyprus. This implies that Cyprus has become a key location for using trusts and other instruments to hide property. As a member of the European Union, Cyprus was required to create a central beneficial ownership registry in accordance with the fifth EU Anti-Money Laundering Directive. Cyprus-based trusts are subject to this requirement, but the Rotenbergs used a loophole in the BO laws to hide beneficial ownership surrounding the existing 5th EU Anti-Money Laundering Directive. In effect, they created a complex ownership structure around different entities to be below the trigger points for reporting beneficial ownership (in most cases 25 percent control), and still retain control to through power through potential voting coalitions in the complex structure that was hidden elsewhere. . The structure used by the Rotenbergs involved a US entity that is owned by entities elsewhere, including Italy, the United Kingdom, Luxembourg, Cyprus, the Bahamas (four entities), the British Virgin Islands, and the Cayman Islands. Along with trusts, private equity firms have been revealed as another preferred vehicle to avoid sanctions. Investment vehicles called “closed mutual funds”, in Russian abbreviated as “ZPIF”, held these assets. They are not considered legal entities under Russian law and therefore are not required to disclose their shareholders to the authorities. The leaked files show that 13 ZPIFs were linked to the Rotenbergs. To avoid questions about the true nature of the beneficial owners, the leaked files show that “there is a practice in which the Managing Director of the Management Company is recognized as the beneficial owner.” ZPIFs invested in Russian companies, Monaco real estate and other assets where no beneficial ownership checks are performed. Companies in which they held minority stakes were able to do business relatively normally. Private equity and mutual funds are a global concern. According to a recent report, “Private Investments, Public Harm,” there are nearly 13,000 investment advisers in an $11 trillion industry with little or no anti-money laundering due diligence responsibility in the US, with the real possibility for sanctioned oligarchs to use such vehicles. to hide your property. The US Enablers Act seeks to remove the exemption from investment managers’ due diligence checks, but the bill failed to pass last December. Art is another way to hide ownership, as art dealers are not subject to any reporting requirements for money laundering purposes. A July 2020 report by a US Senate subcommittee detailed an elaborate scheme in which the Rotenberg brothers spent more than $18 million on art purchases in the months after the US sanction on March 2014. They acquired several works of art, including a $7.5 million René Magritte, through a network of offshore companies based in Cyprus and the British Virgin Islands. The wealth-hiding tools used by Russian oligarchs to evade sanctions are exactly the same as those used by those behind crimes against natural resources, such as illegal, unregulated and unreported fishing, or even wealthy billionaires abusing of the laws to pay less than they should in taxes. . You cannot create a regime to trap Russian billionaires. A review of the transparency of ownership is required, from companies and trusts to works of art, ships, aircraft and other asset classes, including private equity and hedge funds. Otherwise, Russian oligarchs and kleptocrats around the world will continue to evade controls, keeping their money safely hidden.
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