Main Image Credit Limited progress: a sign next to a superyacht in Canary Wharf, London, which was detained by UK authorities in March over the owner's links to Russia. Image: Eleventh Hour Photography / Alamy
While the UK continues to impose sanctions, it is lagging behind allies in developing its approach to the recovery of ill-gotten assets.
At the end of September, members of the Russian Elites, Proxies and Oligarchs (REPO) Taskforce convened to discuss initiatives to tailor ‘already robust asset forfeiture tools and maximize the impact of … joint work on Russian elites’. Participants from G7 countries, plus Australia, debated legislative efforts and several proposals – including some already discussed in a previous commentary by this author – with a key focus on expanding definitions of racketeering to include sanctions evasion as well as a trigger for property forfeiture.
In the UK, gone are the days of ministers posing in front of detained yachts or proposing to seize oligarchs’ villas to house Ukrainian refugees. Despite continuing to sanction individuals for their support for Russia’s aggression – the UK has so far sanctioned over 1,200 Russian individuals – and a couple of parliamentary debates on the matter, it has been months since the last attempt to freeze (and seize and confiscate) oligarch assets. This inaction is indicative of two elements: the persistent confusion among UK policymakers surrounding the ultimate goal of confiscating Russian sanctioned assets, and the inadequacy of the UK’s asset recovery frameworks when faced with this task.
Time to Refocus
Countries in the Western alliance are grappling to develop legislation that enables asset confiscation while adhering to the rule of law, a process that has produced a number of different approaches. Sanctions evasion offences are likely to have limited reach as a starting point for asset forfeiture, given that they would only capture the specific proceeds of the evasion itself. The seizure of the yacht Amadea is a case in point. As such, this approach is likely to be only a minor solution in the ‘freeze to seize’ debate.
The REPO Taskforce has made it clear that the goal of recovery initiatives should be to hold ‘Russian elites and their cronies’ accountable ‘for their complicity in Putin’s illegal invasion’. In the US, this has translated into cases being brought forward on loosely related grounds, including violation of bank fraud, money laundering, and sanction statutes.
Canada has taken a different approach, where new legislation will allow the government to directly issue an Order seeking permanent asset forfeiture based on individuals who risk a ‘grave breach of international security’. This type of administrative, government-issued forfeiture order, however, is unlikely to stand up to challenges in the courts and may risk diluting the meaning and impact of the wider sanctions regime.
Sanctions evasion offences are likely to have limited reach as a starting point for asset forfeiture, given that they would only capture the specific proceeds of the evasion itself
A common thread uniting these initiatives is the attempt to bypass the stumbling block of proving the underlying corruption of the oligarchs, a process that is too challenging, slow and time-consuming. This legal creativity seeks to deliver the short-term goal of constraining the oligarchs and responding to Russia’s invasion of Ukraine. It does not, however, tackle the bigger issue of kleptocracy.
In the first commentary of this series, the author highlighted the need for policymakers to ‘carefully consider the primary purpose of this asset confiscation’. Without identifying such a purpose or the characteristics of the property to be confiscated, recovery efforts will be confused, disjointed and likely to fail. A choice is needed, one that the UK is yet to make: while some MPs would like confiscation efforts to tackle the UK’s dirty money problem, others firmly believe they should be linked to Russia’s invasion of Ukraine. Given the limitations highlighted above, and the threat that dirty money poses to national security, a long-sighted strategy aimed at tackling corrupt proceeds would be more advisable. However, no strategy can be brought forward until its ultimate goal is decided.
Tweaking the Law
Once the ultimate goal of asset confiscation is clear, it is possible to look at ways to recalibrate the current legislation to include provisions that target oligarch assets. If the goal is to go after kleptocracy, it is clear that the current provisions are simply not capable of overcoming the hurdle of procuring evidence from overseas and proving the oligarchs’ underlying corruption.
Potential amendments to the Proceeds of Crime Act (POCA) to provide a broader definition of ‘unlawful conduct’ may be a way forward. These could include, for instance, ‘assets obtained through political patronage’, or ‘assets which may be made available to support a hostile regime’. Full reverse burden offences have also been proved human-rights compliant in a range of jurisdictions and may be a useful component of future amendments. As explained in a previous commentary, categorising kleptocracy as organised crime may also provide another avenue to overcome some of the challenges inherent in asset confiscation.
A Matter of Resources
Intention and legislation aside, much of the inaction in the UK results from law enforcement’s ability to go after the assets in question. A recent investigation found that £700 million worth of luxury homes linked to sanctioned oligarchs have not been flagged for asset freezes. This is due not only to the ongoing role of offshore secrecy jurisdictions, but also to law enforcement’s current lack of specialism and resources to go after these assets. How is it even possible to talk about moving from freeze to seize if the assets are not frozen in the first place?
If the goal is to go after kleptocracy, it is clear that the current provisions are simply not capable of overcoming the hurdle of procuring evidence from overseas and proving the oligarchs’ underlying corruption
Law enforcement agencies are also confronted with sanctioned individuals’ appeals. In UK courts, the first major sanctions evasion case sees a Russian billionaire requesting that two Account Freezing Orders are overturned because of the ‘chaotic and unprincipled approach’ of the National Crime Agency (NCA). A setback in this case could seriously affect future efforts in this area, in much the same way as the Baker case did with Unexplained Wealth Orders. To obviate these challenges, the NCA needs enough time and resources to trace assets and provide evidence to bring watertight cases to court. This means ensuring a funding stream that is long-term and increasing in order to face the growing threat posed by illicit finance – something that has so far been lacking.
Late to the Party … Ready to Dance?
The UK is still far from being successful in freezing, seizing and confiscating the assets of sanctioned Russian oligarchs, but can of course catch up.
Firstly, it is important that the UK government finally makes up its mind on the ultimate goal of asset confiscation. Granted that linking asset confiscation to the actions in Ukraine is not the recommended option, it is still possible to target hostile regimes and their associates on the basis of kleptocracy or national security interests. Secondly, once decided, changes in legislation that are meaningful and respectful of human rights and due process are needed. Lastly, resourcing and specialism need to be prioritised to tip the balance in favour of law enforcement agencies. It is now time to refocus, recalibrate and resource: only in this way will it be possible to turn sanctions-based asset freezes into asset recovery opportunities.
The views expressed in this Commentary are the author’s, and do not represent those of RUSI or any other institution.
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Centre for Financial Crime and Security Studies