Shortly after global sanctions were imposed in response to Russia’s invasion of Ukraine, President Biden announced the U.S. will “identify, hunt down, and freeze the assets” of Russian oligarchs—“yachts,” “mansions,” and “any other ill-gotten gains.”
Immediately, reports of seized yachts and villas and frozen bank accounts in Europe started pouring in. The world rejoiced at the possibility that oligarchs will “feel the squeeze,” or better yet, put pressure on the Kremlin to stop the war or pay for Ukraine’s reconstruction. But first things first: getting the assets.
To take ownership of such property, one tool the government uses is forfeiture. There are three types of forfeiture: criminal, civil, and administrative. Criminal forfeiture depends on a conviction, which would require an oligarch’s presence in the U.S., something that is unlikely. Administrative forfeiture is not for real property or assets valued higher than $500,000 (yachts can cost tens or hundreds of millions). This leaves civil forfeiture—a potentially complex and lengthy process.
Civil forfeiture is a judicial process against the assets, not their owners. The government would need to (1) establish a crime and (2) trace the property to it. While the decision to seize oligarchs’ assets came in the context of the war in Ukraine, the crime need not and likely will not be related to it. Assets anywhere in the world could be forfeited if they were involved in money laundering, for example.
Moreover, real estate can be forfeited even if it was not purchased with tainted funds. Improvements and loan payments with laundered funds are enough to establish the required link.
As for tracing fungible assets like money and stocks, accounting presumptions, such as “first in, first out,” help the government. These came into play in the 2017 forfeiture against Prevezon Holdings’ assets involved in the Russian tax fraud scheme.
A forfeiture’s success depends on several factors. First, the government needs to identify the property. That could prove difficult, considering the oligarchs are known to mask their ownership by titling assets in the names of family members, associates, and offshore companies.
But governments may already have a good idea of where the assets are. The U.K. estimates seven oligarchs own about $19.5 billion worth of assets there. It is also no secret, for example, that Oleg Deripaska is linked to real properties in the U.S. Two were raided by the FBI in October 2021 in relation to an unspecified criminal investigation.
And shortly after Russia’s invasion of Ukraine, the U.S. government unsealed indictments involving Russia-related activity—for failure to register as a Russian agent, Crimea-related sanctions violations, and on March 14, illegal campaign contributions by an oligarch. All were based on investigations that were underway for years. So, too, the government may be able to pull the trigger quickly on forfeitures, especially with the new KleptoCapture and Russian elites, proxies, and oligarchs (REPO) task forces.
Once civil forfeiture is filed, the government needs to prove its case by a preponderance of the evidence. This standard is not as high as in criminal cases, but the government must establish a “substantial” connection between the assets and the alleged crime. A prime example of this process is the recent forfeiture effort related to the 1Malaysia Development Berhad.
In over 40 1MDB actions, art works, real estate, movie proceeds, a jet, a yacht, and money were forfeited, culminating in the recovery of over $1 billion. This was often done with little or no resistance. For example, no one showed up to fight for a Van Gogh drawing or a Claud Monet painting, together worth hundreds of millions. Jho Low, the 1MDB mastermind, and his family relinquished assets worth over $700 million. This happens because criminal actors are reluctant to enter a U.S. court over property, no matter how valuable, and expose themselves to U.S. jurisdiction, broad discovery, and the airing out of their criminal activity.
Oligarchs will likely have the same reluctance. They worked too hard to shield their dealings and ownership interests to fight over a mansion or a yacht. And, with some countries starting to question their foreign citizenships, they may have bigger problems to worry about.
That said, when asset owners do fight, they can have success. For example, the government has struggled to recover $300 million allegedly linked to the 1MDB fraud from PetroSaudi Oil Services. The government was finally able to establish the connection to the alleged crimes after multiple dismissals, only to now find itself litigating against PetroSaudi on appeal.
But again, if it gets to that point, the oligarchs will be in a fight they don’t want. That alone is justice done in the government’s eyes.
For now, some oligarchs have already been deprived of their ability to have control over seized assets. As 1MDB forfeitures show, seizure comes at a price to taxpayers. Prior to its sale at a discounted price of $126 million, superyacht Equanimity’s maintenance cost over $4 million. Maintenance of the oligarchs’ seized property will likely be costly, too.
What ultimately happens with the oligarchs’ assets remains to be seen. In 1MDB, the U.S. repatriated over $1 billion to Malaysia. But typically, the forfeited assets go into the asset forfeiture fund, managed by the U.S. attorney general, who may use the funds for myriad law enforcement purposes, including reimbursement of agencies involved and payment of related taxes and fees.
Not the party scene likely envisioned by oligarchs—but that’s the point.
This article does not necessarily reflect the opinion of The Bureau of National Affairs, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.
Franklin Monsour, a former federal prosecutor for the Southern District of Florida, is a partner in the White Collar & Corporate Investigations practice in Orrick’s New York office. He represents clients in criminal and civil enforcement actions and compliance matters, including those involving money laundering, Foreign Corrupt Practices Act, and False Claims Act issues.
Kristina Arianina is a member of the White Collar & Corporate Investigations practice in Orrick’s Washington, D.C., office. She represents companies and executives in internal investigations and enforcement actions in the areas of bribery, securities fraud, violations of U.S. economic sanctions, the FCPA, and the FCA. Her Russian and Ukrainian background contributes to the global nature of her practice.