How to combat Putin’s financial aggression

Russia has become a kleptocracy under President Vladimir Putin. As a consequence, Russia’s foreign policy has become more aggressive. Putin has outsourced much of foreign policy to Russian business, allowing the Kremlin to benefit from their entrepreneurial ingenuity, save money and keep a cloak of plausible deniability.

A recent development is that Putin has asked specific businessmen to take the lead in specific countries. In 2014, the orthodox stalwart Konstantin Malofeev led private separatist activities in eastern Ukraine, for which the United States sanctioned him. Putin’s chef Yevgeny Prigozhin runs his own military company in Syria, Libya and elsewhere in Africa. In 2019, the United States sanctioned him for running the St. Petersburg Internet Research Agency that interfered in the 2016 U.S. elections. Oleg Deripaska, who was sanctioned by the U.S. for being an oligarch close to the Kremlin in 2018, appears to supervise Russian policy in Montenegro and Armenia. Rosneft’s Igor Sechin runs Russian policy on Venezuela. The immensely wealthy Russian-Georgian oligarch Bidzina Ivanishvili rules Georgia. In Greece, the Kremlin’s man is the Soviet-born Ivan Savvidis. 

These businessmen are risk-loving, having survived the challenging Russian business climate. Being close to the Kremlin and the Russian intelligence services, they have been granted monopolies in specific countries, just like the English crown pampered its privateers in the 17th and 18th centuries. By looting foreign lands, they built the British Empire in quite a haphazard manner.

The Mueller report testified that Putin personally solicited top Russian businessmen for interference in U.S. politics. Petr Aven, a billionaire who heads Alfa-Bank, Russia’s largest private commercial bank, “told the Office that he met on a quarterly basis with Putin… and understood that any suggestions or critiques that Putin made during these meetings were implicit directives, and that there would be consequences for Aven if he did not follow through.” Putin asked him to establish contacts with the new Trump administration. Aven has not been accused of any misdemeanor.

Deripaska maintained close links with the Kremlin, and Donald Trump’s former campaign manager Paul Manafort began working for him in 2005. Manafort’s deputy Rick Gates explained to the FBI: “Deripaska used Manafort to install friendly political officials in countries where Deripaska had business interests. Manafort’s company earned tens of millions of dollars from its work for Deripaska and was loaned millions of dollars by Deripaska as well.”

Kirill Dmitriev, the CEO of the Russian Direct Investment Fund, a sovereign wealth fund, has an outstanding U.S. background (Stanford BA, Harvard MBA, McKinsey and Goldman Sachs). He appears to be Putin’s point man to the U.S. business elite. He developed contacts with the new Trump administration through meetings with the Trump representatives George Nader and Erik Prince. 

Putin has reduced the freedom not only of ordinary Russians but also of the tycoons. The richer they become, the more obedient they have to be to the Kremlin, because they have ever more to lose. Russian businessmen who previously appeared independent are now compelled to serve the Kremlin abroad or lose their property in Russia. 

The West must stand up to this threat posed by the Kremlin. The first defense is personal sanctions, prohibiting the culprits from entry and asset freezes, but they are only effective if actually implemented. The West needs to abandon its practice of “golden passports,” selling residence permits and citizenships to wealthy people no questions asked. Cyprus is taking the lead in reversing this unhealthy practice.

Peculiarly, vast amounts of Russia’s dark money is being held in the West because it is not safe in Russia. Russian private money abroad is assessed at about $1 trillion. Traditionally, it flows through a series of offshore havens, ending up in anonymous companies in two major markets, the United States and the United Kingdom. These are the two major Western financial markets that are both deep and allow anonymous ownership.

The West’s best defense against Russian subversion is to demand full transparency, revealing all dark money. The European Union’s fifth anti-money-laundering directive of June 2018 tasked all member states to establish public registries of significant ultimate beneficiary owners of assets.

In the United States, the Corporate Transparency Act may be adopted as an amendment to the must-pass defense bill in December. If so, it would grant the Financial Crimes Enforcement Network (FinCEN) of the U.S. Treasury the right to know significant ultimate beneficiary owners of all companies.

As Philip Zelikow and his coauthors have argued in Foreign Affairs, corruption has become an instrument of national strategy, and “weaponized corruption has become an important form of political warfare.”

Anders Aslund is a senior fellow at the Atlantic Council in Washington, D.C. His latest book is “Russia’s Crony Capitalism: The Path from Market Economy to Kleptocracy.”