Catching the Kleptocrats
March 21, 2022
The Justice Department announced on March 4, 2022, the creation of the task force, “KleptoCapture,” to go after billionaire oligarchs who have aided President Vladimir V. Putin in his invasion of Ukraine. The task force will target people and companies that are trying to evade anti-money laundering laws, hide their identities from financial institutions, and use cryptocurrencies to evade sanctions and launder money. President Biden in his recent State of the Union address declared that the administration was “joining with European allies to find and seize their yachts, their luxury apartments, and their private jets.” It is anticipated that those who have aided and abetted these violations in the United States could also be prosecuted.
Russian oligarchs have invested their fortunes in assets around the world, and their ties to Putin have helped them gain influence and connections in fine art, real estate, Wall Street and Silicon Valley. However, oligarchs do not enter the U.S. economy–or that of our democratic allies–without assistance from professionals such as accountants, lawyers, formation agents, art dealers, real estate and title agents, and others. A 2020 bipartisan report by the Senate Permanent Subcommittee on investigations, led by Sen. Portman (R-OH) and Sen. Carper (D-DE), named the U.S. art market as a key vehicle for Russian oligarchs to launder money and evade sanctions. The Subcommittee found that the art industry’s secretive nature allowed art intermediaries to purchase more than $18 million in high-value art in the United States through shell companies linked to Russian oligarchs. While well-known dealers such as Sotheby’s, Christie’s, and Phillips all have voluntary anti-money laundering (“AML”) controls in place, the art industry is not subject to the Bank Secrecy Act and is thus not required under U.S. law to maintain anti-money laundering and anti-terrorism financing controls for transactions.
Other professionals critical to oligarch investment similarly have no formal customer due diligence or other AML reporting requirements. According to a March 2, 2022, New York Times article, one of the nation’s largest law firms, Skadden, Arps, Slate, Meagher & Flom, appears to be continuing to work on litigation related to the 2016 election with Alfa Bank, which the United States placed under sanctions last week. https://www.nytimes.com/2022/03/02/us/politics/russian-oligarchs-justice- department.html. Whether KleptoCapture will investigate and/or prosecute these types of Russian ties remains to be seen.
Among other things, the Senate Subcommittee recommended that Congress should amend the Bank Secrecy Act to add businesses handling transactions involving high- value art. The report noted that Congress should also require the Treasury Department to collect beneficial ownership information for companies formed or registered to do business in the United States. Many believe that long overdue are laws that require.oligarch enablers to identify the true identity and source of funds of their customers, in line with international recommendations and best practices. See https://securingdemocracy.gmfus.org/regulating-the-enablers/.
KleptoCapture will be a multi-agency effort designed to deprive oligarchs of American safe havens for their assets Attorney General Merrick B. Garland said in a statement. “We will leave no stone unturned in our efforts to investigate, arrest and prosecute those whose criminal acts enable the Russian government to continue this unjust war.”