29th Sep 2023


Sanctions — how they work, and how oligarchs get around them

  • While sanctions are supposed to always entail asset freezes, whether property is in fact frozen — or, say, remains hidden behind nominee owners and thus cannot be linked to the sanctioned individual — depends on multiple factors (Photo: Novaya Gazeta Europe)
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Think of the word oligarch, and the prefix 'sanctioned' is almost inevitable.

Known as 'targeted sanctions' as they aim to hold individuals rather than states to account, asset freezes and travel bans are a mainstay of the collective Western response to Russia's aggression against Ukraine.

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But that is far from the only way they are used. Sanctions are also imposed to address corruption and human rights abuse, based on what is often described as Magnitsky laws — after the lawyer killed in a Moscow prison for exposing corruption by Russian officials.

The EU already has a targeted human rights sanctions regime. And, in September 2022, European Commission president Ursula von der Leyen committed the EU to introducing an anti-corruption sanctions framework, declaring it one of her priorities in 2023.

Some have argued that its omission to date is a major oversight. Others claim that Magnitsky sanctions are ineffectual anyway. After all, if wielded against individuals outside the EU's borders, who have little if any property in the EU, what is their point?

There is a kernel of truth to both those views.

For governments, there is the temptation to make grandiose sanctions announcements without regard to whether they mean anything in practical terms. On the other hand, the steady drumbeat of (non-Magnitsky) sanctions cases hitting the Court of Justice of the European Union demonstrates that those on the receiving end of EU designations do care about being sanctioned by the EU.

To get a proper sense of what corruption sanctions could achieve, we need to move beyond assumptions.

One way of doing so is looking at the use of Magnitsky sanctions elsewhere. This is precisely what we did in a new study, which aimed to answer a very simple question: What happened to the 20 individuals subjected to the first corruption-related sanctions under the Global Magnitsky Act 2016 in the US?

Case study: 20 oligarchs

This select club brings together a senator and a lobbyist from the Dominican Republic; the former president of The Gambia; a former provincial governor and a businessman from Iraq; an Israeli billionaire; a former governor from Mexico; the former president of Nicaragua's electoral council; the son of Russia's prosecutor general; an alleged Serbian arms dealer; a politically-connected businessman from South Sudan; the former president's daughter from Uzbekistan; as well as an Indian-South African business family with ties to the former president of South Africa.

Our aim was not to confirm or deny any of the allegations made by the US government but merely to explore, based on publicly available information, what effect those sanctions had. Here are the highlights.

First, the actual freezing of one's assets, or even the inability to enter the US, are far from the only consequences of sanctions. In fact, we counted no fewer than 10 types of impact, ranging from heightened press scrutiny to the loss of political influence or employment.

Second, while sanctions are supposed to always entail asset freezes, whether property is in fact frozen — or, say, remains hidden behind nominee owners and thus cannot be linked to the sanctioned individual — depends on multiple factors, including the availability of information about their financial network. That said, assets being frozen are indeed the most common form of impact observed.

Third, half of our case studies concerned individuals who had already faced law enforcement action in their home countries prior to US sanctions. Such designations are less likely to result in a diplomatic rift with a foreign government, as well as helping freeze the US-based property of the individuals involved. But, if used in support of foreign investigations, sanctions arguably lose their edge as a tool of true accountability against those shielded by their governments.

Fourth, perhaps most notably, a third of the designations had no apparent effect, save for media scrutiny, which can be taken for granted in all sanctions cases.

Those instances of 'ineffectual' sanctions involve individuals from Iraq, Nicaragua, Russia and South Sudan. Politics is part of the explanation: in each of those cases, the governments concerned opposed US sanctions, and may have shielded those targeted from their consequences. But nor did the US government seek to publish any information on those individuals' overseas holdings or corporate networks, which would have lent the designations a real punch.

It is, in short, a mixed picture, but one with important implications for the EU. Sanctions can have a meaningful impact, if properly calibrated.

That can be done by prioritising individuals with international business dealings, as well as publicising corporate networks associated with them. And, before sanctions are imposed on those whose alleged wrongdoing has already been addressed by overseas domestic justice systems, there should be a clear rationale for doing so, lest the potential of sanctions as a tool against impunity should be diluted.

If the EU takes into accounts these lessons, it cannot just set up a corruption sanctions regime, but create one that really matters.

Author bio

Dr Anton Moiseienko is the author of Corruption and Targeted Sanctions and lecturer at the School of Law, Australian National University.


The views expressed in this opinion piece are the author's, not those of EUobserver.


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