When the Biden administration announced that it would be freezing Russian oligarchs’ assets in the United States as part of the sweeping sanctions slapped on Russia for invading Ukraine, there was only one problem: Many of those oligarchs’ assets are not exactly easy to find. That may be surprising given that many of these holdings come in the form of yachts, private jets, or luxury apartments, which would require quite the talented illusionist to hide. But behind those properties often exists a web of shell companies that makes identifying the owner a daunting and sometimes seemingly impossible task.
Take, for example, a $14 million townhouse in the West Village neighborhood of New York City. For years, the property has been believed to be linked with the Russian oligarch Oleg Deripaska. The billionaire was sanctioned by the US government in 2018 in response to Russia’s interference in the 2016 US presidential election. And though a spokeswoman for Deripaska told The New York Times that the property belonged to one of his relatives after the FBI raided the home last year, property records show that the home is registered under a shell company.
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That’s just one example, which shows how even easy-to-identify properties are still concealed in opaque layers of shady corporate ownership that protect the oligarchs behind them. These kinds of ownership structures are common but can be misused to avoid sanctions. They can also pose a national security threat to the United States when they are owned by foreign governments, which can leverage the money for espionage, bribery, and political influence or even election interference. (That is to say nothing of how allowing this kind of money laundering to go unchecked enables rampant corruption overseas, especially in kleptocratic regimes.)
In response to Russia’s assault on Ukraine, the Department of Justice announced a new initiative to target these very assets. Known as “KleptoCapture,” the program will target money launderers and sanction evaders, and will work alongside the newly formed transatlantic task force — which includes Canada, the European Commission, France, Germany, Italy, Britain, and the United States — to help identify and seize Russian oligarchs’ assets. It’s a good and forceful step by the Biden administration, but it should not be limited to targeting Russians in the short run. Ideally, this program would be coupled with legislation and other federal programs to clean up the US financial system altogether from dark money, much of which is held legally.
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The sheer amount of Russian assets stashed outside the country — especially in the United States — is shocking. According to some estimates, Russia has more dark money hidden across the world than any other nation: about $1 trillion. A quarter of that is believed to be directly controlled by Russian President Vladimir Putin and his inner circle. But what’s damning for the United States are the loose financial regulations that allowed foreign oligarchs to so easily, successfully, and often legally keep so many of their offshore funds in American jurisdictions. (The United States is ranked the second biggest promoter of financial secrecy in the world, after Switzerland and before the Cayman Islands.)
Last year, a trove of leaked financial documents known as the Pandora Papers showed how leaders of foreign countries with known human rights abuses own hundreds of millions of dollars worth of assets in the United States, mostly through shell companies that can hide the extent of the wealth they own. The king of Jordan, for example, owns properties in Malibu, Calif., totaling $70 million and $10 million worth of luxury condos in Washington, D.C., all registered under a shell company. He bought these properties while his country’s economy was suffering, underscoring how corrupt regimes essentially rob their taxpayers while easily stashing their loot in the United States without consequence — especially if they’re considered an ally.
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One appeal the United States has for money launderers is its low tax rates for the ultra-rich, which is why financial experts have said US-based billionaires have less incentive to look for offshore tax havens. (That’s one of the many reasons Congress should undo the Trump tax cuts for the wealthy.) Still, the ultimate draw of the United States and much of Western Europe as a destination for oligarchs is that they are rule-of-law countries and have to go through grueling and drawn-out legal procedures before they can actually seize someone’s assets. They’ll remain destinations for autocratic regimes to store money regardless of how high tax rates rise, though higher tax rates would help make the United States less attractive.
That’s ultimately why the Biden administration — as well as Western allies — should commit to cracking down on international money laundering in the long term. That includes implementing reforms that would bolster financial transparency and holding banks accountable for their roles in aiding kleptocrats to launder their money. US government documents show that major banks around the world have helped trillions of dollars of dirty money flow freely. But prosecutions of financial crimes hit historic lows during the Trump administration; the Biden administration ought to swiftly ramp up enforcement to show that there will be accountability for facilitating money laundering schemes.
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It shouldn’t have taken a war for the United States to take international money laundering schemes more seriously. But now that it has, it has an obligation to stay focused on financial reforms well after this war is over.
Editorials represent the views of the Boston Globe Editorial Board. Follow us on Twitter at @GlobeOpinion.
