GOOD NEWS
It’s not often that I get to trumpet good news, but this is something actually positive. I wrote last month about Carole Cadwalladr, the British journalist left with staggering damages to pay after losing a defamation case. The threat of bankruptcy in the British courts has cowed reporters far beyond the United Kingdom, with libel specialists attacking outlets that expose the financial misdeeds of the rich and powerful in Angola, South Africa, Malta, Ukraine and many other places. British defamation lawyers have been one of the worst threats to press freedom globally for far too long.
The UK government has now announced an amendment to an economic crime bill going through Parliament that will — at least partly — put an end to this.
- “For too long corrupt elites have abused our legal system to evade scrutiny and silence their critics. These new measures are a victory for truth and justice, and a blow to those who try and export their corruption to the U.K.,” said Tom Tugendhat, the U.K. security minister. “They will help expose wrongdoing and bring an end to spurious lawsuits from those who seek to suppress our freedom of speech.”
The legislation will facilitate a more effective public interest debate about the reporting of economic crime and limit the ability of wealthy claimants to use so-called SLAPP cases to crush reporters with the threat of costly lawsuits.
- “Good to see some work being done on Parliament to address SLAPPs, but this is the first step, not the last, and fuller anti-SLAPP legislation should continue to be pushed,” tweeted Eliot Higgins, who has himself been targeted by abusive lawsuits.
- “New anti-SLAPPs measures in the Economic Crime Bill are a great win for journalists looking to shine the spotlight on economic crime — no longer will they be silenced. But to be truly effective, these must be broadened out to all defamation lawsuits,” said Margaret Hodge, a member of Parliament who campaigned against oligarchs long before it was fashionable.
I am keeping my toes and fingers crossed that this legislation fulfills its potential. Now, they just need to limit the use of data protection legislation to restrict investigations and extend the protections to cover reporting on any topic, and we’ll start to get somewhere.
OLIGARCHS WITHOUT BORDERS
You could be forgiven for thinking, based on news reporting or government statements from the last 18 months, that the word “oligarch” is a synonym for “a rich Russian.” There is obviously a good reason for this: Western countries have been trying to put pressure on the most influential Russians to use whatever influence they possess to stop their mad king Vladimir from killing more people. If your kitchen is on fire, that’s your priority. You’re not going to worry too much about the state of the living room.
However, the trial starting this week in London — in which Ukraine’s largest bank seeks $1.9 billion, plus interest, from its former owners, the Ukrainian oligarchs Ihor Kolomoisky and Gennadiy Bogolyubov — is a good reminder that the viciously criminogenic combination of offshore secrecy, weak institutions, Western complacency and poor governance have created a class of politically influential tycoons all over the world, not just in Moscow.
Privatbank was nationalized in 2016 with a capital shortfall of $5.5 billion, despite holding 30% of all retail deposits in the country. The bank’s shareholders deny any wrongdoing and say that allegations of misdeeds are part of the tortured political maneuvering central to how Ukraine’s politicians steal from their rivals. The National Bank of Ukraine, however, said the bank had been run fraudulently, with most loans going to its former shareholders, for at least a decade.
- “Central to the coordinated manipulation of the loan book, and extraction of benefit was a shadow banking structure within PrivatBank. The secretive structure processed and facilitated the movement of the proceeds of hundreds of loans worth billions of USD to parties related to the former shareholders and their affiliates,” said a report by the international investigations firm Kroll, commissioned by the Central Bank, which said that Privatbank had the “characteristics of a pyramid scheme.”
The collapse sparked legal proceedings in many places, including in Ukraine, where Kolomoisky’s house was raided in February. The U.S. Kleptocracy Asset Recovery Initiative says it has traced the flow of the funds to commercial properties in Texas and Kentucky and has launched a civil recovery case. Kolomoisky has been sanctioned in the United States, and the two owners have been criticized by a court in Israel, where Kolomoisky has a citizenship.
However, the road has not been smooth for those seeking to recover the vanished billions. Kolomoisky retains some influence in Ukraine — initially, he had ties to President Zelenskyy — and has kept pressure on the authorities.
And skillful legal rearguard action has delayed the London case. An English judge previously said he lacked jurisdiction to hear it, setting aside a worldwide freezing order, only for that ruling to be overturned on appeal. Last year’s hearing was postponed thanks to the war in Ukraine, with a judge ruling that a fair trial would be impossible while the witnesses were under bombardment. Now, we have finally got under way, and Kolomoisky’s lawyers are maintaining their argument that he is the real victim and has been the target of a politically motivated prosecution.
- “The claim forms part of a politically motivated campaign against him that commenced with the wrongful expropriation of the bank from him and his fellow shareholders. He is confident that it will be established that the bank has not in fact suffered any loss whatsoever in respect of the transactions of which it complains,” legal firm Fieldfisher said in a statement to the Financial Times.
Neither of the tycoons is willing to give evidence in their defense, but Bogolyubov has also denied any guilt in the past.
Whatever the outcome of the case — and, to me anyway, it looks ickier than usual that a squad of British lawyers will be paid handsomely to argue on behalf of two oligarchs while ordinary Ukrainians are dying for their freedom — it feels like a relic of an age that needs to pass. Bogolyubov has previously been involved in ruinously expensive Western litigation, having been served with papers at his London mansion, which is just the latest example of how the oligarchs have flitted between Ukraine and the U.K. when it has suited them. Both men used British real estate as a store of value, including to settle a business dispute with the son-in-law of a former Ukrainian president.
We are all desperately worried about this kind of situation when the oligarchs are Russian, but the situation is just as concerning if they are Ukrainian (or, indeed, from anywhere else). Oligarchs use their access to the globalized economy to put assets out of reach of the courts, and now governments have to pay a fortune to try to gain access to them.
There is some speculation that the war in Ukraine signals the end of the country’s oligarchic era. Many of the oligarchs’ most valuable assets have been destroyed in the east of the country, and the tycoons’ ability to make profits from their relationships with Moscow has obviously been rendered valueless.
- “The deoligarchization of Ukraine looks set to be an irreversible process. Regardless of how the war ends, the conditions are simply not in place for the formation of a new class of the superrich: the Ukrainian economy has been too badly damaged by the war for any new oligarchs to emerge, while the ambitions of those who once had it all have been severely curtailed,” notes this analysis from the Carnegie Endowment from September 2022.
That may be true, but it sounds like an analysis based on hope rather than judgment. And, as the great Fiona Hill puts it, hope is not a strategy. The existing oligarchs still have substantial assets abroad, which they could use to buy back influence in a post-war Ukraine that is desperate for capital to restore its shattered infrastructure. Everyone must therefore be on their guard to prevent the oligarchs from slipping back under the cover of helping Ukrainians rebuild their future. And that is why it’s worth watching the outcome of the Kolomoisky-Bogolyubov case. If they lose, it will substantially weaken some of the wealthiest members of the old guard. If they win, the opposite will happen.
OW, MY EARS
I have tried — but, so far, failed — to add the term “kleptobrat” into the mainstream, to refer to the useless child of a kleptocrat. It is a weird but quite widespread phenomenon that a father can be a single-minded and ruthless tycoon, willing to bend rules, persecute enemies, exploit political connections and generally make Tony Soprano look like a pussycat, but his kids will want to be football players, pop stars, Youtubers or models. In fact, perhaps this is an optimistic sign for the future of Russia: All the stolen wealth will be spent on studio fees and influencer endorsements, and eventually the oligarchs will be bankrupt.
Anyway, on that note, the latest investigation from Alexei Navalny’s Anti-Corruption Foundation will make your eardrums bleed, since it includes some truly appalling singing from the son of Russian Defense Minister Sergei Shoigu, who goes by “Sheba” in what surely must be a doomed attempt to become a pop star. The video exposing his antics has millions of views already.
- “Putin’s criminal war has led to thousands of deaths of civilian people in Ukraine and has already affected almost everyone in Russia. At the same time, there are people whose lives have not changed at all: the Putin elites and their privileged children, who continue to live a luxurious lifestyle and chill on luxurious resorts,” the Foundation said.
Sanctions have hopefully made life less comfortable for people like Danila Shebunov, who is the son of Shoigu’s mistress, but it will take more than just asset freezes to end the economic system that allowed people like him to exist in the first place.
While on the subject of the dilettantish children of prominent Russians…Nikita Mazepin, the son of the fertilizer tycoon Dmitry Mazepin, has failed in his latest attempt to legally challenge the sanctions imposed upon him. Nikita, who had a brief career as a back-of-the-grid driver in Formula One, has been unable to race since he was added to the sanctions list. He sought “interim relief” from his U.K. designation so he could travel to Britain and negotiate a contract to drive in next year’s competition, but the judge declined to give it to him. The full case will not be heard until July, however, so his race is not yet run, though I can’t imagine that teams will be falling over themselves to hire him, whatever happens.
COMPLIANCE
There have been some interesting statistics from the British government about the penalties imposed for failure to comply with anti-money laundering regulations. Some 3.2 million British pounds (around $4 million) of fines were imposed in the second half of last year, on 240 different businesses, with the largest share paid by Xpress Money Services, part of the collapsed Finablr group.
It is, of course, good that this is happening, but it all feels a little divorced from reality. The British government estimates that hundreds of billions of dollars are laundered through the U.K. financial system every year, and yet the response is a few million in fines for companies that commit technical violations of the rules.
I was trying to think what this reminded me of, and I realized it was the sight of Ukrainian border guards sitting in the airport in Crimea in 2014, carefully stamping passengers’ passports before a flight to Moscow — while, outside the terminal, unmarked Russian soldiers had taken over the peninsula, the few troops still loyal to Kyiv were blockaded in their barracks, pro-Ukrainian citizens were fleeing their homes and the Kremlin was staging an illegitimate referendum to formalize Crimea’s illegal annexation. Yes, it’s important to take care of the formalities, but when there is a crisis, you need to be a bit more imaginative, energetic and forceful in your response.
Too much of the world’s approach to money laundering is like this.
WHAT I’VE BEEN READING
I’ve just finished Chris van Tulleken’s “Ultra Processed People,” and I highly recommend it to anyone concerned about what we eat and feed our children. The story he tells — of companies creating food additives that are harmful and then obfuscating/confusing/denying — seems to have significant crossover with economic crimes, environmental crimes and much more. Governments have let us down spectacularly over the last few decades, and we have multiple crises to fight, but the public health crisis caused by ultra-processed food is surely one of the most urgent.
