Morally Bankrupt : What Sanctions Against Russian Oligarchs Really Reveal About the West
It was Balzac who warned that the secret of a great fortune no one can explain is invariably an undetected crime. This sounds profound, coming from one of the great observers of the human condition, but it’s been an open secret amongst Western governments, financial institutions and regulators for the best part of 50 years. Great fortunes with dubious origins have been actively courted by well paid professionals in wealth management, libel and tax law, accounting, high end real estate and PR in financial centres like Londongrad for decades. Their jobs have been made easy by governments and jurisdictions who have employed a “Don’t Look, Won’t Find” approach to flight capital, money laundering and wealth extraction.
Of course, I am not telling you anything new. A series of high profile leaks; beginning with the Panama papers (April 2016), followed by the Paradise papers (Nov 2017), Luanda Leaks (Jan 2020), Pandora papers (Oct 2021) and now the “Suisse Secrets (Feb 2022), have shone a light into this murky world.
Moneyland
Moneyland, a term coined by British investigative journalist Oliver Bullough, is shorthand for the structures that enable kleptocrats to extract stolen wealth, hide it, clean it and lavishly spend it with impunity. It stands for English libel law that hits enquiring journalists with SLAPP lawsuits; Panamanian shell companies; and Jersey trusts or Liechtenstein foundations that obscure the Ultimate Beneficial Owners (UBOs) of an asset. It also includes fast track passport schemes run by the likes of Malta and a number Caribbean island nations that give despots diplomatic immunity from their crimes.
You don’t need to be a finance, foreign relations or international development expert to understand that this type of professionalised looting drags down economies, erodes faith in democracy and deprives citizens — often in the world’s poorest countries — of funding that could be used to improve public health, infrastructure and education. The French economist Gabriel Zucman estimates that $7.6 trillion have been “transferred” into Moneyland within the last 30 years. That is equivalent to 8% of the global economy.
Although Russian oligarchs are front of mind, and for good reason, a quick glance at my freshly minted Klepto Hall of Shame ®, which sums the estimated loots of different kleptocrats, confirms that this is a more persistent, global problem:
The cost of doing business
Clearly ethics are not the fiduciary duty of Moneylanders. Western financial institutions and their coterie of enablers operate within a framework that encourages immoral materialism. The anonymous whistleblower behind the “Suisse Secrets” leak is right in saying that:
“…the responsibility for this state of affairs does not lie with Swiss banks but rather with the Swiss legal system. Banks are simply being good capitalists by maximising profits within the legal framework they operate in. Simply put, Swiss legislators are responsible for enabling financial crimes and — by virtue of their direct democracy — the Swiss people have the power to do something about it.”
The biggest offenders have seen hits to their share price and some brand damage, but under the current regime of regulations they are still better off conducting “business as usual” than getting a proper grip on compliance. After all, this amounts to an occasional fine for breaching Anti-Money Laundering (AML) regulations, or “failing to check” whether they have been transacting with a Politically Exposed Person (PEP) i.e. someone in a senior government position carrying suitcases full of cash without being able to explain where it came from.
The CFOs of these financial institutions surely allocate these fines to a cost-centre called “the cost of doing business”, whilst Chief Risk Officers (CROs) have learnt not to copy their proprietary and ethics department into certain correspondences.
Something is rotten in the state of Denmark
Nevertheless, some financial institutions like Danske Bank, have the temerity to claim that they were unaware of €200 billion of nonresident money, predominantly from Russia and former Soviet states , that flowed through the bank’s Estonian branch from 2007 to 2015. In this case regulators are unlikely to be hoodwinked. The bank is in line for a $590m -$ 3.3Bn fine. Something is surely rotten in the state of Denmark when the fees from managing great fortunes, minus fines, are still net profitable.
But this might be about to change as the rising costs of financial crime (FinCrime) compliance shift incentives. Institutions who are able to get out ahead managing customer risk profiling, sanctions screening, regulatory reporting, PEP identification and Know Your Customer (KYC) for account onboarding will find that they profit from the shift away from shareholder capitalism to stakeholder capitalism. In Europe, the 6th Anti-Money Laundering Directorate (6AMLD) certainly raises the stakes by making firms more accountable for AML compliance failings, and extending this liability to company directors who can now face prosecution for poor supervision. As we are about to find out, it is the hand of history that now rests firmly upon their shoulders.
A decisive shift in the Overton window
The Overton Window is a useful model for understanding what ideas and policy prescriptions are deemed acceptable by the majority of voters at any given point in time. Seismic events, like the war in Ukraine, can lead to radical shifts in these positions almost overnight. A good example are the decisive sanctions against Russian oligarchs like Roman Abramovich, the owner of Chelski FC. The day before Putin invaded a sovereign nation of 40m people, very few people seemed to care that he had “bankrolled a club with the stolen mineral wealth of the Russian people”.
As Matthew Syed put it as far back as 2013, the moral context behind Chelski’s money was completely ignored by football fans, the FA and political leaders. Over time this has undermined the values of a so-called “ western liberal order” and the “international rules based system” that underpins it. In the context of the Ukraine war, Rishi Sunak’s claim that that the U.K. “leads the world on transparency”, is not only tone deaf, but an unpalatable lie. Thankfully a more accurate description of Britain’s current political system is offered by Giles Coren:
“[Are we] a symposiocracy (rule by party-goers)? A oenocracy (rule by drunks)? A pseudocracy (rule by liars)? A lagnocracy (rule by omni-shaggers)? Or is our system of government best described as a oenosymposiopseudolagnocracy (rule by lying, drunken, party-going omni-shaggers)?”.
Role models to authoritarian states, indeed.
The rot within democracies
This state of affairs is one of the principal causes behind the rot taking hold within western democracies. Freedom House reports sixteen consecutive years of decline in global freedom and the global expansion of authoritarian rule. In other words, the share of the world’s population living in free environments has fallen as authoritarian regimes have proliferated:
It is no coincidence therefore that strongmen rulers and their cronies feel emboldened by financial and political systems that enable them to spend with impunity and buy influence in the upper echelons of western societies. (The admission of a former KGB agent’s son into the House of Lords is just one example.)
It is also pretty clear that many democracies have become complacent; last years Capitol Hill riots incited by Trump were a warning sign way before Vlad invaded the Ukraine. So I agree with Francis Fukuyama’s sentiment when he says:
“More than a generation has passed now since the fall of the Berlin Wall, and the virtues of living in a liberal world have been taken for granted by many. The memory of destructive wars and totalitarian dictatorship has faded, especially for younger people in Europe and North America”
Seized by the moment
With all of this in mind, and it’s a lot to hold in our heads, we have a long road to travel to make true on the values we claim to defend. Seizing super yachts and gaudy villas in the Côte d’Azur may look like taking action, but they don’t get us any closer to solving a systemic problem.
As Dan Brooks rightly points out:
“Just navigating the minefield of complicity in immoral systems seems like the most any of us can do, and so these systems abide, with any plan to collectively overthrow them replaced by individual acts of symbolic disapproval”.
In the West, we have become masters of symbolic disapproval. Although western solidarity with the Ukrainian people is chastening — from sending arms to taking in refugees and implementing economic sanctions that hurt us too — we are fooling ourselves if we think we are anything other than complicit in paving the road that led us here.
Reading list 📗
- Oliver Bullough — Moneyland: Why Thieves And Crooks Now Rule The World And How To Take It Back (2018)
- Catherine Belton — Putin’s People : How the KGB Took Back Russia and Then Took on the West (2020)
- Oliver Bullough — Butler to the World: The book the oligarchs don’t want you to read — how Britain became the servant of tycoons, tax dodgers, kleptocrats and criminals (2022)
- Frederik Obermaier and Bastian Obermeyer — The Panama Papers: How the World’s Rich and Powerful Hide Their Money (2016)
- Honoré de Balzac — Le Père Goriot (1835)
