The Rise And Fall Of Russian Oligarchs | Rise And Fall | Business Insider

Summary

This video delves into the rise and fall of Russian oligarchs, who amassed wealth through the privatization of state-owned companies post-Soviet Union. With the war in Ukraine, international sanctions have targeted these billionaires, freezing assets and restricting their global influence. The narrative explores the origins of their wealth, their ties to Putin, and the impact of sanctions on their businesses and personal lives, highlighting the precarious balance of power and wealth in the face of geopolitical tensions.

Takeaways

• 💵 A superyacht worth nearly $100 million, owned by a Russian oligarch, was seized by the FBI and Spanish officials in April 2022, highlighting the crackdown on assets of sanctioned individuals.
• 🌍 Approximately 60% of the wealth of the richest Russians is held offshore, indicating the global scale of their financial operations.
• 🔄 The post-Soviet privatization of Russian companies in the 1990s, particularly from 1992 to 1994, allowed individuals like Roman Abramovich and Boris Berezovsky to amass wealth and become oligarchs.
• 🏦 In 1995, Russian oligarchs loaned the government hundreds of millions of dollars, securing ownership of major enterprises when the government defaulted on loans.
• 🤝 The oligarchs were initially seen as supporting the Russian system, with some even funding political campaigns, including Yeltsin's re-election in 1996.
• 🚫 Vladimir Putin's rise to power marked a shift in relations with the oligarchs, with some facing imprisonment, exile, or worse, signaling a new era of state control over business elites.
• 🏠 Wealthy Russians, including oligarchs, have invested heavily in overseas properties, sports teams, and other assets, leading to nicknames like 'Red Square' for parts of London.
• 🚫 The annexation of Crimea in 2014 and the invasion of Ukraine in 2022 led to a wave of international sanctions targeting Russian oligarchs and their assets.
• 🔍 Sanctions have been imposed rapidly and aggressively, with the US sanctioning over 400 individuals and entities within weeks of the Ukraine invasion, aiming to restrict the wealth and movement of those linked to the Kremlin.
• 💸 The sanctions have had a significant impact, with 18 oligarchs dropping off the Forbes billionaires list by April 2022, and assets in various forms being seized or frozen.

Q & A

What was the approximate value of the superyacht seized by the FBI and Spanish officials in April 2022?

The superyacht was worth almost $100 million.

What percentage of the wealth of the richest Russians is held offshore?

Around 60% of the wealth of the richest Russians is held offshore.

How did the oligarchs amass their wealth during the early years of the Russian Federation?

The oligarchs amassed their wealth by taking advantage of the privatization of companies that had been under communist state control, and by loaning the government hundreds of millions of dollars in exchange for a slice of Russia's biggest enterprises.

What was the role of the oligarchs in the political landscape of Russia during the 1990s?

The oligarchs were reported to be behind the funding of Boris Yeltsin's re-election in 1996 and also helped launch the career of Vladimir Putin, his successor.

Why did Vladimir Putin target the oligarchs during his presidency?

Putin targeted the oligarchs because he did not want them meddling in his politics. He wanted to send a message that they could run their businesses but should not interfere in the country's governance.

How did the Russian oligarchs invest their wealth overseas?

Russian oligarchs invested their wealth overseas by purchasing luxury properties, soccer teams, and other assets such as yachts and private jets in various countries including the UK and France.

What impact did the annexation of Crimea in 2014 have on Russian oligarchs?

The annexation of Crimea in 2014 triggered sanctions on individuals with close ties to the Kremlin, including some oligarchs, marking a shift in how the international community dealt with them.

What was the immediate effect of the sanctions imposed on Russian oligarchs following the invasion of Ukraine in 2022?

The immediate effect of the sanctions was the loss of access to their accounts, freezing of assets, and restrictions on their movement and business activities.

How did the sanctions affect the ability of Russian oligarchs to conduct international transactions?

The sanctions made it extremely difficult for the oligarchs to conduct cross-border transactions, effectively confining them mostly to living and operating within Russia.

What measures have been taken by Western countries to prevent Russian oligarchs from hiding their wealth?

Western countries have imposed sanctions, required the naming of beneficial owners of companies and accounts, and have frozen assets in offshore tax havens to prevent the oligarchs from hiding their wealth.

How has the international community's response to the Russian oligarchs' wealth changed over time?

The international community's response has evolved from tolerating the oligarchs' wealth accumulation to actively imposing sanctions and freezing assets in response to geopolitical events, particularly the invasion of Ukraine.

Outlines

00:00

💵 Rise and Fall of Russian Oligarchs

This paragraph discusses the origins and wealth of Russian oligarchs, who amassed fortunes through the privatization of state-owned companies following the collapse of the Soviet Union. It highlights how these individuals, such as Roman Abramovich and Mikhail Khodorkovsky, leveraged their early wealth to acquire even more assets during the 1990s. The paragraph also touches on the political influence these oligarchs had, including their involvement in funding political campaigns and the subsequent crackdown by Vladimir Putin, who sought to limit their political power. The narrative concludes with the impact of the Ukraine war on these oligarchs, leading to asset seizures and sanctions.

05:01

🚢 Oligarchs' Assets and International Sanctions

The second paragraph delves into the lifestyle of Russian oligarchs, known for their extravagant spending on properties, yachts, and sports teams. It then shifts focus to the sanctions imposed on them following Russia's annexation of Crimea and the invasion of Ukraine. The paragraph outlines the rapid and aggressive nature of these sanctions, which targeted individuals with close ties to the Kremlin, including Igor Sechin. It discusses the scramble of oligarchs to safeguard their wealth and the challenges they faced in doing so, such as asset freezes and travel bans. The narrative also includes specific examples of seized assets, like Abramovich's yachts and properties, and the broader implications for Putin's ability to finance his war efforts.

10:02

🏦 Hidden Wealth and the Impact of Sanctions

The final paragraph explores the complex methods used by oligarchs to hide their wealth through trusts, shell companies, and offshore tax havens. It discusses the challenges faced by authorities in tracking and sanctioning these hidden assets, comparing the process to a game of 'whack-a-mole.' The paragraph also highlights the efforts of countries like the UK and the Cayman Islands to reveal beneficial ownership and freeze assets. The narrative concludes by emphasizing that while sanctions may hurt the oligarchs, their primary aim is to target Putin and his war machine, suggesting that the oligarchs' dependence on Putin could increase as a result of these measures.

Keywords

💡Oligarch

An oligarch refers to a member of a small group of powerful individuals who control a country, organization, or institution. In the context of the video, oligarchs are wealthy Russian individuals who amassed their fortunes following the collapse of the Soviet Union and the subsequent privatization of state-owned assets. They are often associated with close ties to the Russian government and have been subject to international sanctions due to their influence and wealth.

💡Sanctions

Sanctions are measures imposed on countries, entities, or individuals by governments to achieve specific political or economic objectives. They can include trade restrictions, financial penalties, or travel bans. In the video, sanctions are imposed on Russian oligarchs and entities in response to Russia's actions in Ukraine, with the aim of freezing their assets and restricting their financial activities, thereby impacting their wealth and influence.

💡Privatization

Privatization is the process of transferring ownership of public assets or services to private entities. The video discusses how, following the dissolution of the Soviet Union, the Russian government privatized thousands of companies, leading to the creation of a new class of wealthy individuals, the oligarchs, who were able to acquire these assets at favorable terms.

💡Offshore Wealth

Offshore wealth refers to assets held in foreign jurisdictions, often in tax havens or offshore financial centers. The video highlights that a significant portion of the wealth of Russian oligarchs is held offshore, which has allowed them to maintain their wealth and avoid scrutiny. However, recent sanctions have targeted this offshore wealth, making it more difficult for them to access and protect their assets.

💡Siloviki

Siloviki is a Russian term referring to individuals with backgrounds in the military, security services, or law enforcement who have significant influence in the government or business sectors. In the video, the new class of Russian oligarchs, who are closely tied to the state and President Putin, are described as siloviki, indicating their reliance on state power for their business interests.

💡Forbes Billionaires List

The Forbes Billionaires List is an annual ranking of the wealthiest individuals in the world, compiled by Forbes magazine. The video mentions that the number of Russian oligarchs on this list has fluctuated, with some dropping off due to the impact of sanctions, illustrating the economic consequences of their political connections and the geopolitical tensions.

💡Asset Seizure

Asset seizure refers to the act of taking control of an individual's or entity's assets, typically by a government or legal authority. In the context of the video, asset seizures are a consequence of sanctions imposed on Russian oligarchs, with examples given of yachts, properties, and other assets being seized by Western authorities.

💡Menatep and Yukos

Menatep is a Russian bank, and Yukos was a major Russian oil company. The video explains how Menatep, under the leadership of Mikhail Khodorkovsky, acquired Yukos during the period of privatization in the 1990s. This acquisition exemplifies how oligarchs expanded their business empires through the acquisition of strategic assets at potentially undervalued prices.

💡Chelsea Football Club

Chelsea Football Club is a professional football club in London, England. It is mentioned in the video as an example of the high-profile investments made by Russian oligarchs in Western assets. Roman Abramovich, one of the oligarchs discussed, purchased the club and used it as a symbol of his wealth and influence, which became a target of scrutiny and sanctions.

💡Reputation Damage

Reputation damage refers to the negative impact on an individual's or entity's public image or standing due to adverse events or actions. The video discusses how being sanctioned or associated with controversial figures or actions can lead to long-lasting reputational harm, even after the immediate sanctions are lifted, affecting the ability to conduct business or financial transactions.

Highlights

A superyacht worth nearly $100 million was seized by the FBI and Spanish officials from a sanctioned Russian oligarch in April 2022.

Around 60% of the wealth of the richest Russians is held offshore.

The war in Ukraine has led to a global backlash against Russian oligarchs, affecting their wealth and access to assets.

In 1992, the Russian Federation began privatizing state-controlled companies, leading to the emergence of new business opportunities.

Oligarchs like Roman Abramovich and Boris Berezovsky capitalized on the privatization of over 15,000 companies between 1992 and 1994.

In 1995, oligarchs loaned the Russian government hundreds of millions of dollars, gaining control of major enterprises when the loans weren't repaid.

Mikhail Khodorkovsky's bank, Menatep, acquired the oil company Yukos, exemplifying how oligarchs amassed vast business empires.

Oligarchs were reportedly involved in funding Yeltsin's re-election and supporting Putin's rise to power.

Vladimir Putin warned that the superrich were not above the law, signaling a shift against oligarchs' political influence.

Mikhail Khodorkovsky was imprisoned for alleged tax crimes after challenging Putin, sending a message to other oligarchs.

New Russian oligarchs, known as siloviki or strongmen, emerged, closely tied to Putin and dependent on the state for their businesses.

The number of Russians on the Forbes rich list increased dramatically from zero in 1996 to over 100 in 2014.

Russian oligarchs' wealth was prominently displayed through luxury properties, superyachts, soccer teams, and private jets.

Russia's annexation of Crimea in 2014 initiated sanctions on individuals with close ties to the Kremlin.

The invasion of Ukraine in 2022 led to an aggressive imposition of sanctions targeting the wealth and movement of oligarchs.

The US sanctioned over 400 people and entities within weeks, significantly impacting the oligarchs' wealth and business operations.

Oligarchs raced to find safe havens for their wealth as sanctions tightened, with some assets being moved or hidden.

Roman Abramovich's assets, including Chelsea Football Club and multiple properties, were impacted by sanctions.

The EU and UK have banned Abramovich from entering and seized properties linked to him.

Many oligarchs' assets are hidden through trusts or shell companies in offshore tax havens, complicating the tracking of their wealth.

Sanctions have led to reputational damage and difficulties for even those removed from sanctions lists, affecting their financial activities.

By April 2022, 18 oligarchs had dropped off the Forbes billionaires list due to the extensive sanctions imposed.

The ultimate target of sanctions is not the oligarchs but Putin and his war machine, aiming to restrict financing for the invasion of Ukraine.

Transcripts

Narrator: This superyacht is worth

almost $100 million.

It's owned by a sanctioned Russian oligarch,

and in April 2022,

FBI agents and Spanish officials seized it.

For years, the oligarchs didn't have much trouble

buying up boats, jets, and mansions in places like this.

That's if they didn't end up in prison,

exiled, or mysteriously dead.

Around 60% of the wealth of the richest Russians

is held offshore.

But the war in Ukraine has turned the world

against members of this opulent uber-class.

Erich: It's caused a lot of chaos.

They've lost access to their accounts.

Their family members have had their own accounts frozen,

or restricted, or been kicked out of their banks.

Narrator: So where did all the money come from?

And is there still a chance

of the oligarchs holding onto it?

The year was 1992, and new business opportunities

were emerging from the ashes of the Soviet Union.

The president of the new Russian Federation,

Boris Yeltsin, started privatizing companies that had been

under communist state control.

It was as if the whole country was up for sale.

The government issued millions of these vouchers

that Russians could use to buy shares in companies.

Each voucher was worth about two months' wages at the time.

Stephen: There were already some people

who had amassed small fortunes.

They were the ones who were

in the best position to take advantage

of the new opportunities that were available.

Narrator: Businessman Roman Abramovich was one of them,

and Boris Berezovsky, a car dealership owner, another.

More than 15,000 companies were privatized

between 1992 and 1994.

And as these companies grew,

so did the wealth of their owners.

And that's how the oligarchs were born.

But Russia's rich were about to get much richer.

In 1995, the government really needed cash.

Stephen: Oligarchs managed to edge their way in the door.

Narrator: They were part of the group

that loaned the government hundreds of millions of dollars

in exchange for a slice of some

of Russia's biggest enterprises.

The deal was if the government couldn't pay back the loans,

the shares would be auctioned off,

which is what ended up happening.

The oligarchs ended up with vast business empires,

some at well below market rate.

The bank Menatep, run by Mikhail Khodorkovsky,

acquired oil company Yukos.

Abramovich, with the help of Berezovsky,

took control of another oil company.

The newly privatized businesses

and their oligarch owners did very well.

Stephen: They were thought to be somehow keeping the system afloat.

Narrator: It was reported the oligarchs

were behind the funding of Yeltsin's reelection in 1996.

They also helped launch the career of his successor,

Vladimir Putin.

But he would turn out to be no friend of the oligarchs.

TV reporter: The Russian president has warned

that the country's superrich are not above the law.

The authorities have been getting tough with the oligarchs.

Narrator: Putin didn't want the oligarchs

meddling in his politics.

The wealthiest of them all, Mikhail Khodorkovsky,

was imprisoned for alleged tax crimes

after openly challenging Putin --

charges which he has denied.

Stephen: The message that was sent to other oligarchs was,

I'll let you run your businesses,

and you let me run the country.

Narrator: Another critic, Berezovsky, fled to the UK,

while Abramovich stayed loyal,

serving as a governor in northeast Russia.

It wasn't long before all this Russian money

started cropping up overseas.

Berezovsky bought this house in the UK

and this one in the south of France.

Abramovich went one step further.

He bought Chelsea Football Club for around $200 million,

along with a vast London mansion

and about 70 other properties in the UK.

Berezovsky remained a vocal critic of Putin.

Putin's Russia is very dangerous for democracy.

Narrator: He was found dead in his home

in England in 2013.

Investigators recorded an open verdict,

which means they could not say if he died by suicide

or was murdered.

Back in Russia, a new class of oligarchs emerged.

Remember Khodorkovsky?

The reins of his oil empire eventually went

to a man known in Moscow as Darth Vader.

Igor Sechin is reported to be a former KGB officer,

like Putin himself.

This new class of oligarchs is known

as the siloviki, or strongmen.

Today's oligarchs are all essentially beholden to Putin,

because their business depends on the state.

Narrator: The number of Russians on the Forbes rich list

rose from zero in 1996 to over 100 in 2014.

And the oligarchs certainly knew how to splash their cash.

This part of London was nicknamed "Red Square"

because so many wealthy Russians moved in.

and parts of the French Riviera became known

as the "Bay of Billionaires."

Then there were the floating palaces,

soccer teams, and private jets.

But their fortunes were about to take a turn.

Russia's annexation of Crimea in 2014

triggered sanctions on individuals with close ties

to the Kremlin, including Sechin.

But these were nothing in comparison to the sanctions storm ...

Sanctions.

Sanctions.

Sanctions.

Narrator: ... that was to hit the oligarchs in 2022.

What's different about it is just the speed

and aggressiveness with which these sanctions

have been imposed.

Narrator: The brutal invasion of Ukraine

launched by Putin in February

caused an international outcry.

Narrator: Sanctions came thick and fast,

aimed at restricting the wealth and movement

of those with links to the Kremlin.

We're coming for your ill-begotten gains.

Narrator: In a matter of weeks,

the US sanctioned more than 400 people and entities.

Our clients are all scrambling

to understand what these new restrictions on them are,

what they have to do to comply.

Narrator: Lawyers like Erich Ferrari advise people

and companies that have been sanctioned.

Erich: The US government has determined there was a threat,

in this case, Russia's harmful foreign activities,

which allows them to designate parties who are engaged

in certain types of conduct.

Narrator: The sanctions hit not just government officials,

but also executives of state-owned enterprises.

The US Treasury only needs a reasonable cause

to believe that they meet the designation criteria.

The two biggest factors are proximity to Putin

and doing Putin's bidding,

set up against what's the impact going to be,

and can we mitigate it properly?

Narrator: The UK and the EU

have their own sanctions lists,

as do a handful of other countries.

Oligarchs in London will have nowhere to hide.

All of these measures will significantly

harm Putin's ability to finance his war.

Narrator: As the net tightened,

the race was on for oligarchs to find safe havens

for their money, boats, and planes.

Abramovich could see the storm coming.

He reportedly shifted an investment company

to a close associate as Russia was invading Ukraine.

About two weeks later, he was added

to the UK's sanctions list for having a stake

in a company accused of producing steel for Russian tanks,

which the company denies.

His UK assets were also frozen.

The majority of the wealth of these people

in in publicly-traded companies.

There might be complicated corporate structures around them,

but blocking up those holdings

and impacting those companies has an effect,

and that's just hard to dodge.

Narrator: Some of Abramovich's business interests

have been harder to track down.

Take Matterhorn Capital,

which has been linked to Abramovich.

It was first registered in the Cayman Islands

before being moved to the British Virgin Islands.

Both are British overseas territories

known for helping wealthy people hide their money.

And then, it moved to the island of Jersey.

But in April 2022, Jersey froze assets worth more

than $7 billion connected to Abramovich.

That's around half of his estimated wealth.

He won't even be able to profit

from the sale of his beloved Chelsea Football Club.

Meanwhile, Abramovich has done all he can

to distance himself from the Kremlin,

even playing a role as mediator in peace talks

between Ukraine and Russia.

But after one of these meetings, he and other negotiators

reportedly suffered symptoms of poisoning.

The US has so far spared Abramovich from its sanctions list,

but the EU hasn't.

About a dozen properties in France linked

to Abramovich were seized.

In fact, the EU and UK have banned him from entering.

He was spotted at Tel Aviv airport

a few days after being sanctioned.

A jet linked to him then flew to Istanbul and on to Moscow.

Two of his yachts were scrambled to Turkey,

beyond the reach of Western sanctions.

Maritime trackers show yachts belonging to wealthy Russians

also fleeing to places like Montenegro and the Maldives.

But Sechin wasn't quick enough.

French authorities seized the superyacht, Amore Vero,

near Marseilles in March 2022

as its crew was preparing to set sail.

The French say it belongs to Sechin, which he denies.

Another boat that's also linked to Sechin

was detained by Spanish authorities.

Brian: He fundamentally will have trouble conducting any sort

of cross-border transaction, period.

He's probably confined mostly to living in Russia.

Narrator: Fast boats and homes can be hard to hide,

but much of the oligarchs real wealth

is carefully hidden away.

Many of their assets and businesses are registered

under a different name as trusts or shell companies

based in offshore tax havens.

Brian: This is oftentimes a game of whack-a-mole.

That's a lot of what sanctions is.

Narrator: In the US, banks are required

to name the beneficial owner of an account,

while private equity firms and hedge funds are not.

But it's been getting harder for the oligarchs

to conceal their wealth.

Since 2016, the UK has required that the beneficial owners

of companies be named.

The Cayman Islands said it froze $7.3 billion in assets

belonging to sanctioned Russians.

Once they are blacklisted,

the reputational damage can last a lifetime.

And no amount of money can buy that back.

I have clients who are off of the sanctions list,

who've been removed years ago,

who still can't get a bank account in UAE.

Or whose family members still can't get a bank account,

although they were never sanctioned.

Narrator: Sanctioned oligarch Mikhail Fridman

feels he has been unfairly targeted.

We do not have any impact for political decision.

Narrator: According to Forbes,

his wealth has shrunk by more than $3.5 billion.

By April 2022, 18 oligarchs had dropped off

the Forbes billionaires list

because of the avalanche of sanctions.

Sanctions may be hurting the oligarchs,

but they are not the real target.

That would be Vladimir Putin and his war machine.

And so far, Putin appears unfazed

as he doubles down on his invasion of Ukraine.

Erich: Over the past several years,

the Russian government and the Russian president

had kind of insulated themselves from the influence

of elite businesspersons in that country.

Narrator: In the end, the biggest threat

of all to the oligarchs may not be the West.

Stephen: These are people who are so dependent on Putin,

that what they're worried about most

is that Putin's own power over them will actually increase

as a result of sanctions, because they have nowhere to go.

They have to rely on Putin's goodwill.