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It’s a bad time to be a Russian billionaire…
A month ago, they were cruising on their yachts in the Mediterranean and now they
are stuck at home watching their toys get repossessed on a state approved news broadcast.
European governments have seized over 20 billion dollars’ worth of cash,
real estate, and other valuables in the past month as the result
of sanctions targeted at wealthy Russian individuals with connections to the kremlin.
I know you have probably all been enjoying this news as much as I have,
after all it’s hard to feel bad for billionaires who needed 450 feet of floating compensation,
but we still need ask, what happens to these assets now? Do they just go to the
governments that took them or will they eventually be given back to their owners?
Well regular viewers of my channel will know I hate needlessly dragging out the answer to a
simple question so the inconvenient truth that most of media outlets are choosing to ignore
is that these people never lost their assets… they still own their mansions,
jets, yachts, and everything else that has been seized so far.
What will get complicated is what happens with all these assets from now on.
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…
In almost every country involved in sanctioning Russia at the moment there are laws in place
which prevent the governments from simply taking the assets of private individuals.
In fact the only way assets like these can ever truly be separated from their private owners
is if it is possible to prove that they were the proceeds of criminal activity.
This rule can be stretched in some American states with asset forfeiture laws, but even then,
individuals do have the right to challenge those seizures in
a court of law to prove that the seized assets were not the proceeds of crime.
This can be challenging if you don’t have the time,
money or effort to challenge an asset forfeiture case in court
but Russian billionaires do have all these things so that shouldn’t be a problem for them.
It’s important to stress that not all Russian billionaires are affected by these asset seizures,
it’s only a few dozen individuals and related family members who
are directly listed in US and EU sanctions.
The crimes that these individuals are been accused of are very complex and span multiple national
jurisdictions, it’s highly likely the court cases involving these assets will carry on for decades.
In the meantime, these assets are just frozen.
Frozen assets still belong to the original owner whether it’s a company,
trust or an individual. Frozen assets however CANNOT however be sold,
used, or benefited from in any way financial or otherwise.
So these Yachts cannot be used by their owners for a weekend on the med (obviously),
they can’t be sold and they also can’t be chartered out.
Some of these yachts are rented out for hundreds of thousands, or even millions of
dollars per week. A yacht once charted by Jay Z and Beyonce for 3 million euros was
recently seized in the Dominican Republic and this particular asset is now frozen
on suspicious of been the proceed of criminal behaviour related to a sanctioned individual.
That suspicion is worth talking about because one of the big challenges is going
to be proving that the sanctioned individuals actually own these assets in the first place.
Russian billionaires are some of the most creative people in the world
when it comes to asset protection and identity masking business structures.
In a video I made at the beginning of the year I spoke about the Paradise papers,
which were the latest in a long line of accounting leaks that exposed a series
of trusts and holding companies around the world that were set up with the sole intention
of legally separating valuable assets from their owners questionable sources of income.
If you haven’t watched that video, a Russian billionaire will never
directly own a mansion or a yacht like you or I own a house or a car.
These assets are instead normally owned by a trust which is owned by a shell company and managed by
another shell company. For added effectiveness these people will weave these business entities
through multiple jurisdictions with strict banking privacy laws like Panama. They will
also have family members or trusted associates own shares in these companies which can make it
functionally impossible for anybody to work out who the true owner of these assets really are.
Borderline illegal data leaks like the Panama, Pandora and Paradise papers are one of the
rare times that authorities get a good look at these ownership structures in their entirety,
but unfortunately it can be hard to prosecute based off this information
because there is no way to definitively tell if the information was accessed legally.
This deception is all leading to some rather humorous situations where port
authorities are taking control of yachts and holding them until whoever does own
them comes forward. If the person can prove that they own the boat and they
are not a sanctioned individual, they can have their boat back.
But what happens to the boats that have
been rightfully seized while they await their day in court?
…
Some assets are very easy to freeze. Bank accounts, shares, bonds even crypto accounts
can be frozen by authorities with a simple phone call to the institution managing the accounts.
These assets can sit untouched for years and they won’t change at all.
Non-financial assets are different though.
We have already seen news reports of yachts and planes turning off their trackers in an
attempt to avoid capture while they flee back to Russia, but even if countries
are able to properly take control of these assets, the problems are only just beginning.
Most estimates put the running cost of yachts at between 10 to 15% of their value every year.
That means a 100 million dollar yacht is going to cost up to 15 million dollars a year to maintain.
Unlike a bank account if these boats are left unchecked, they will deteriorate very quickly.
If these boats, jets and villas are simply left to sit then the rubber components on the engines
start to crumble. Rainwater gets in, sunlight degrades the plastic, salt water will begin to
corrode the hull. If left unattended for long enough these boats could simply just sink.
The responsibility is currently still on the owners of these boats to pay the crew and other
costs, but that isn’t possible when their bank accounts are frozen. This has caused crews from
many of the seized boats to simply abandon their posts and look for work elsewhere.
The responsibility will hence be passed along to the governments who have seized
these assets to maintain them to an acceptable standard.
Governments will be motivated to do this for a variety of reasons.
First and foremost, if the asset in question is taken back by the owner
after they prove their innocence in court, then that owner could potentially sue for
damages if they get given back a boat which is now sitting at the bottom of the ocean.
If the owner does not win their boat back then the state will
own the asset and will look to sell it through a government auction program.
This could be a multi-billion-dollar windfall for some governments,
so spending the money needed to maintain these assets is a worthwhile endeavour.
The most disappointing but simultaneously most likely reason that governments will
pay for this upkeep is that these frozen assets are likely to be used
as a bargaining chip in any kind of negotiations.
The billionaires WILL likely, quietly, get their yachts back with a lean on them for
whatever the accumulated maintenance costs were while they were been being held by the government.
It really is just like the world fanciest impound lot.
If you thought this was going to be a video about rich people
actually having to pay for their crimes then I am sorry, that’s just not How Money Works.
But if you want to find out how you too can circumvent justice with your own assets then
go and watch my video on the paradise papers to reverse engineer the financial
systems that billionaires use to make sure it’s impossible to take away their money.
Thanks again to Squarespace for making it possible for everybody to keep on learning how money works.