Want to really hit Russia’s oligarchs? Shine a light on their money

On Tuesday the U.S. intelligence community testified to the Senate that Russia would continue to try to interfere in U.S. elections. The testimony once again drew attention to the Trump administration’s Russia approach, which came under criticism in January when it released the long-awaited Russian Oligarch List. The slapdash release of that list set off a new round of recriminations between Washington and Moscow about election interference, as well as between the White House and Congress over who directs sanctions policy.

While Treasury Secretary Mnuchin indicated that the names publicized could be the target of future sanctions designations, it may not deter President Vladimir Putin or his network of supporters running Russia. The Trump administration and Congress should leverage attention around the Oligarch List to target dark money in the U.S. financial system, including Russian-funded election interference.

{mosads}Among the reasons so many of Putin’s cronies have been able to hold onto their substantial fortunes is that they are sophisticated financial actors who know how to exploit different legal and regulatory frameworks around the world. As David Klion pointed out in a New York Times op-ed, much of Russia’s efforts to interfere in the 2016 U.S. presidential election was aided by financial openness that allowed bad actors to stash money behind the reach of law enforcement or tax authorities.

This money has seeped into the wider economy, to the detriment of the economic security of middle class Americans. New York City and Miami are two prominent examples where all-cash purchase of property are a common way to launder money.  

Congress can place actual obstacles in the way of this financial evasion. The Senate is currently considering legislation, the “Counter Terrorism and Illicit Finance Act” to substantially overhaul the Bank Secrecy Act. The Act helpfully calls for much stricter transparent incorporation practices, including disclosure of the beneficial owners of a corporation, including significant identifying information.

Now, even in the world’s preeminent financial system, beneficial owners are quite easy to mask. That makes it very difficult for law enforcement officials and reputable businesses to trace the true source of funds. New authorities to collect this information will be a powerful tool for U.S. law enforcement.

Now, Congress can channel some of its disappointment with the Oligarch List into compelling more disclosure. Such an effective bipartisan action will also make us, and our democratic institutions, safer.

In addition, Congress should complement this domestic strategy with U.S. pressure to raise transparency standards among global partners. As investigations into the Panama Papers made clear, those who seek to pursue tax avoidance strategies are quite adept at playing regulatory arbitrage, constantly shifting their money to the jurisdictions with the weakest anti-money laundering and financial transparency controls.

U.S. leadership at the Financial Action Task Force (FATF), the international standards-setting body for financial transparency and fighting financial crime, can ensure that problem jurisdictions receive the guidance and technical assistance they need implement effective laws to promote financial transparency.

In this instance, financial transparency is a powerful tool of economic coercion. It would have an immediate, effective impact on the financial prospects of a number of bad actors, not just Russian billionaires. Many of the same strategies used by tax avoiders and money launderers can assist U.S. law enforcement in pursuing the illicit networks that North Korea uses to fund its weapons of mass destruction programs.

Following the money, especially of those who act to enable Vladimir Putin, would have a much more immediate and far-reaching effect on the behavior of a U.S. adversary than the present focus on Russian information operations. Rather than playing Moscow’s social media propaganda game, it can help push the international financial system to a more transparent and fair regime for financial crime and tax compliance. Doing so would generate revenue for low-income countries while sending an unambiguous message to U.S. adversaries that they cannot hide ill-gotten gains at will.

Both Congress and the administration have an interest in pursuing a strategy that will introduce more transparency into the operation of the U.S. financial system. Rather than refighting arguments about the proper prerogative of the executive in foreign policy, it can work together on squeezing bad actors who abuse our economic openness to channel financial resources back to U.S. adversaries.

Neil Bhatiya is a Research Associate with the Energy, Economics, and Security Program at the Center for a New American Security.