How Western sanctions actually affect fortunes and lives of Putin's richest friends — NV analysis

After February 24, the United States and the European Union imposed sanctions against hundreds of Russian organizations and more than 1,000 Russians, including dozens of oligarchs. The business of the latter feeds the economy of the aggressor country, besides, all of them are more or less connected to the Russian dictator Vladimir Putin.

According to the multinational task force REPO (Russian elites, proxies and oligarchs), which was created by Western partners of Ukraine in March, the assets of Russian oligarchs to the tune of more than $30 billion were blocked or seized due to sanctions.

Read also: Putin losing favor with Russian oligarchs – Center for Countering Disinformation

The sanctions have affected both the profits and business geography of Russian oligarchs, as well as their ability to travel and lead normal lives. However, among Russian oligarchs, there are those who coped with the new restrictions and even increased their profits.

NV analysed how Western restrictions affected five moneybags from the top twenty richest Russian businessmen — Mikhail Fridman, Vladimir Potanin, Alexei Mordashov, Roman Abramovich, and Suleyman Kerimov.

Mikhail Fridman

Western sanctions dealt a significant blow to Fridman, a native of Lviv and the founder of Alfa-Bank, one of the largest financial institutions in the Russian Federation.

After the start of Russia's full-scale invasion of Ukraine, the businessman with Russian and Israeli passports was put on the sanctions lists of the EU, UK, Australia, and Canada.

On the eve of the imposition of sanctions, he said in a letter to employees of his investment company LetterOne that he considered the "current conflict a tragedy" for the Russian and Ukrainian peoples, and later in an interview with Bloomberg, he claimed that – like other Russian billionaires – he has no influence on Putin. However, Western governments were not convinced by his words.

Read also: Poland imposes sanctions against 15 Russian oligarchs, 35 firms over Ukraine war

In their justification for the restrictions, European officials noted: Fridman managed to establish strong ties with the Putin administration and through this acquire certain state assets. In addition, the eldest daughter of the Russian dictator, Maria, managed the Alfa-Endo charity project, which was financed by Alfa-Bank. And Fridman himself and his business partner Petr Aven "were involved in the Kremlin's efforts to lift Western sanctions introduced to counter Russia's aggressive policy against Ukraine."

In May, the two business partners challenged the European sanctions, filing lawsuits against the EU Council at the European Court of Justice in Luxembourg. And before that, in a number of interviews for Western media, they complained about the everyday difficulties they face due to restrictions. In particular, Fridman admitted to El País in March that he is "practically under house arrest", his bank accounts and credit cards are blocked, and he is forced to turn to the British government to expend money.

Meanwhile, Aven told Financial Times that he was struggling to pay the bills and wasn't sure if he would be able to hire a driver or a cleaner.

Because of the sanctions, Fridman and Aven left their positions on the board of directors of LetterOne, which they founded; their stakes in the investment company were frozen. In April, the United States government also ordered to "freeze any assets of Alfa-Bank connected to the American financial system and prohibit US citizens from doing business with them."

Read also: Ukraine freezes Russian oligarch’s mineral water company assets

As for Fridman's assets in Ukraine, in May he and his partners removed themselves from legal influence on the Ukrainian Alfa-Bank, and in mid-June Ukrainian law enforcement officers and the court seem to have deprived him of the right to manage the mineral water production business

Fridman's largest business in Ukraine – Kyivstar telecom operator – remains overlooked by law enforcement officers and regulators. Meanwhile, as Oleksandr Novikov, head of the National Agency on Corruption Prevention, stated in an interview with Forbes Ukraine at the beginning of June, Fridman is consulting with the Ukrainian authorities regarding obtaining Ukrainian citizenship and re-registration of major assets in Ukraine. However, the Russian Alfa-Bank denies these reports.

Vladimir Potanin

This oligarch is considered the richest Russian according to the American financial news agency Bloomberg. Potanin owns Nornickel, which accountsfor 10% of world production of refined nickel and 40% of palladium production, and after the start of the war in Ukraine, his investment company Interros also acquired Rosbank and shares of Tinkoff Bank.

Potanin is under the sanctions of Australia, Canada, and the United Kingdom. The British government announced the introduction of new individual sanctions against the richest Russian on June 29.

It is not yet known whether the British sanctions against Potanin will extend to Nornickel. The company itself stated that it is studying this issue. Although the UK is not a significant market for Nornickel, which sells most of its products to the EU, US, and China, the island nation is home to the London Metal Exchange (LME), which oversees a network of warehouses around the world and sets global prices for the metal.

More definite are the consequences of the restrictions for Potanin's another asset — Rosbank. According to the order of the British Office of Financial Sanctions Implementation (OFSI), companies must close all transactions involving this financial institution by the end of July 2022.

To save his $300 million Nirvana superyacht from confiscation, Potanin ordered it docked in Dubai, where oligarchs hide their luxury vehicles and other assets from Western governments. Recently, the billionaire's 88-meter vessel was spotted in Dubai's Port Rashid.

Read also: Yermak-McFaul Group develops plan for sanctions against 12,000 Russians

So today, Potanin — like some other Russian oligarchs such as Suleyman Kerimov, Andrey Melnichenko, and Alisher Usmanov — managed to keep most of their fortunes (or even grow them) after a sharp decline that occurred shortly after the Russian invasion of Ukraine, states George Voloshin, an expert on sanctions, director of the French branch of the consulting company Aperio Intelligence. According to Bloomberg estimates, Potanin's capital increased from $30.2 billion as of February 18 to $34.4 billion as of July 4.

"All because the key assets [of these oligarchs] were not sanctioned and are not considered subject to sanctions due to their connections," explains Voloshin.

In the case of Potanin, the increase in raw material prices also contributed to his enrichment. After all, the main profit of his business comes from the export of nickel and palladium – metals used in automobile construction and electronics production, and which are in high demand on the world market. On the announcement of sanctions, palladium rose 7.7%, while nickel prices jumped 9.2% before paring gains.

Alexei Mordashov

The situation is much worse for Alexei Mordashov, the main shareholder of Severstal, one of the largest metallurgical companies in the Russian Federation, who ranks fourth among the richest Russians. Ukraine, the EU, the US, the UK, as well as Australia, and Japan all imposed sanctions against him.

Due to them, the estimated value of Mordashov's business decreased compared to 2021, Voloshin admits. In particular, because of the ban on exporting products to Europe, Severstal lost a third of its revenue just one month after the introduction of sanctions. And the equity of the businessman himself, according to Bloomberg, has decreased from $28.6 billion to $22.9 billion over the past 4.5 months.

Read also: Russian efforts to put pressure on big business

Mordashov's assets also include shares in Rostelecom, Bank Rossiya, which is considered the personal bank of senior officials of the Russian Federation, and the National Media Group. The latter "controls television stations that actively support the policy of the Russian government to destabilize Ukraine," says the document justifying European restrictions against the businessman.

The billionaire also owns shares in the power engineering company Power Machines and, until recently, in the European tour operator TUI and the international gold mining company Nordgold. This year, he gradually transferred the shares of the last two with a total value of $2.6 billion to his wife Marina Mordashova. However, on June 2, the United States imposed sanctions also against her and the two sons of the oligarch. Two days later, the Office of Foreign Assets Control of the US Department of the Treasury announced that American companies must close all transactions involving Nordgold by July 1, and Severstal by August 31, 2022.

Sanctions probably also affected the oligarch's Ukrainian assets. After it became known on June 30 that the Kyiv court had seized the corporate rights of "one of the largest tourism companies of Ukraine, connected to a Russian oligarch", the media assumed that it was most likely TUI Ukraine, which was previously owned personally by Mordashov. In particular, the seizure concerns 100% of the company's authorized capital in the amount of over 31.5 million hryvnias ($1.1 million), and funds in the amount of more than 3 million hryvnias ($101,535), and $106,000 in its bank accounts.

Sanctions have a real effect when, together with the oligarch himself, his significant corporate assets fall under them, Voloshin emphasizes. This entails the deterioration of the financial standing of the business and its long-term prospects. The overall value of assets is also reduced — especially if they are traded on an exchange. "The same applies to cases when an oligarch transfers control over his main assets to a family member or trusted person, and this person also falls under sanctions," the expert adds.

In addition to business losses, Mordashov had to part with valuable property. In early March, his 65-meter superyacht Lady M was arrested in the Italian port of Imperia. According to Russian media reports, he registered his other yacht Nord worth $300 million in the Russian Federation in June and moored it in the port of Sakhalin Island.

Roman Abramovich

Like Mordashov, Roman Abramovich suffered significant losses from the sanctions that were imposed on him personally and on his assets. The main shareholder of the second largest metallurgical and mining company of the Russian Federation, Evraz, is under sanctions from the EU, Australia, Canada, and the United Kingdom.

"He had privileged access to the president [Putin] and maintained a very good relationship with him," the EU's justification for sanctions states. "Heis also one of the leading Russian businessmen who work in sectors of the economy that provide a significant source of income for the government of the Russian Federation, which is responsible for the annexation of Crimea and the destabilization of Ukraine."

After the introduction of sanctions against Evraz and Nornickel, which Abramovich also owns, his wealth fell. From $16.4 billion in mid-February 2022, the oligarch's fortune melted away to $12 billion at the beginning of July. Meanwhile, Western governments seized his Gulfstream G650 private jet and a 15-bedroom estate in London worth $140 million. At the same time, Abramovich did manage to get two yachts – Eclipse and Solaris, worth a total of about $900 million – out of Europe. It is known that the billionaire also owns luxury real estate in London, Austrian Salzburg and the French Riviera.

However, as Voloshin notes, the seizure of yachts, airplanes, and other expensive assets has no real impact on the wealth of the richest Russians. "After all, they still belong to the oligarch and are considered part of his equity until they are confiscated," the expert explains.

Meanwhile, Western governments are already taking the first steps to move from arrests to confiscations. In particular, on June 24, Canada passed a budget that provides for the right of the state to seize and sell assets frozen after Russia's full-scale invasion of Ukraine. However, this regulation does not provide for the publication of a register with the names of individuals or legal entities associated with confiscated assets and their value. Therefore, when its implementation begins, it may not be easy to track specific seizures, observers predict. Following in Canada’s footsteps, the United Kingdom also thought about confiscating Russian assets for transfer to Ukraine.

Meanwhile, the oligarch has already said goodbye to the Chelsea Football Club, which belonged to Abramovich since 2003. At the end of May, the American consortium of investors Guggenheim Partners closed the deal for the purchase of the English club for the amount of 4.25 billion pounds. The permission to sell the club for Abramovich, who received Portuguese citizenship in 2021, was granted by the Foreign Office and the Ministry of Finance of Portugal in agreement with the European Commission. The condition of such permission was guarantees from the British authorities that the money from the sale of Chelsea would be used for humanitarian purposes and would not bring direct or indirect benefit to the oligarch himself.

As the British newspaper Financial Times reports, in the future, Abramovich and his partners are waiting for another hardly lucrative deal — the sale of the British telecommunications operator Truphone to European businessmen for 1 pound. Despite the fact that in 2020 this company was valued at 410 million pounds.

Suleyman Kerimov

On the contrary, the main asset of Suleyman Kerimov, the eleventh richest Russian and the current senator of the Russian Federation from the Republic of Dagestan, was not affected by the sanctions. His firm Polyus, which is the largest gold mining company in the Russian Federation, produces about 3 million ounces of gold per year and owns the rights to more than 61 million ounces of proven reserves.

Ukraine, the EU, the United States, the United Kingdom, Canada, Australia, and Japan have introduced various restrictions against Kerimov. As a result, his wealth has decreased from $15.1 billion to $13.3 billion since the beginning of the war in Ukraine.

The billionaire first came under sanctions in 2018, when the United States government suspected him of money laundering related to the purchase of villas in France. And in March 2022, the European Union also introduced sanctions against the oligarch.

"On 24 February 2022, Kerimov attended a meeting of oligarchs at the Kremlin with Vladimir Putin to discuss the impact of the course of action in the wake of Western sanctions," the text of the EU Council's decision reads.

“The fact that he was invited to attend that meeting shows that he is a memberof the inner circle of oligarchs close to Vladimir Putin and that he is supporting or implementing actions or policies which undermine or threaten the territorial integrity, sovereignty and independence of Ukraine, as well as stability and security in Ukraine".

With the beginning of the war in Ukraine, the US government added Kerimov to new sanctions lists, thanks to which his superyacht Amadea worth $300 million, which was moored in the port of Fiji, was arrested already in April 2022. The following month, the 106-meter vessel was confiscated by law enforcement agencies of the island state.

And recently new restrictive measures against the Russian oligarch were reported: on June 30, the US Treasury Department froze $1 billion of Kerimov-related assets. The department's website reports that they belong to the Heritage Trust. The company is registered in the state of Delaware and was used to manage Kerimov's assets.