Introduction

Following the Russian Federations invasion of Ukraine in 2022, the nation’s oligarch class came into the spotlight as the United States and its allies implemented sweeping sanctions on Russia. In the context of Russia, oligarchs refer to individuals with immense wealth and influence in the Russian political system. The interdependent relationship between the oligarchs and the government of Vladimir Putin made the latter a viable target for sanctions against Russia, and a major aspect of the United State’s sanctions strategy.

Background

The origins of Russia’s oligarchs begin with the dissolution of the Soviet Union, and the newly established Russian Federation’s transition from a socialist to capitalist economy. Under President Boris Yeltsin, the Russian government sought a rapid transition to capitalism. In pursuit of this, a policy program known as “Shock Therapy” was introduced to rapidly privatize the Russian economy. Shock Therapy involved two waves of mass privatization in which state owned assets and enterprises were handed over or sold to the newly established private sector. Russia’s oligarchs first emerged within these circumstances. 

During the first wave of privatization, the Russian government distributed vouchers to citizens which could be used to buy shares of companies being privatized across the country. The individuals who would go on to become part of Russia’s first generation of oligarchs enthusiastically accumulated vouchers, allowing them to secure massive stakes in newly privatized industries. The second wave of privatization began amidst Yeltsin’s bid for reelection in 1995. Facing declining support and a government lacking money, the Yeltsin government made a deal with Russia’s emerging oligarchs. In exchange for billions of dollars in loans and support for Yelstin’s reelection, the oligarchs were given massive stakes in remaining state enterprises. Conducted through fraudulent auctions, vast swathes of essential industry fell under the control of oligarchs, further solidifying their position and power. Yeltsin was successfully reelected.

Prime Minister Vladimir Putin was elected President in 2000, which marked the beginning of a new era for Russia’s oligarchs. Although he campaigned on promises to uproot the oligarchs, following his inauguration, only oligarchs opposed to Putin were targeted. In their steed, the present class of Russian oligarchs solidified—those loyal to Putin including oligarchs who had emerged under Yeltsin as well as new upstarts who benefitted from their loyalty or personal connections to Putin. 

In the more than two decades since Putin first became President of Russia, the oligarchs and Putin’s government remain intrinsically linked by their shared history and reliance on one another for support and protection. Prominent oligarchs sit within the Russian government, at the helm of state corporations like Gazprom (a major energy company), and enjoy beneficial government contracts for their companies under the auspices of Putin’s government. 

Policy Success

Evaluating the success of sanctions against oligarchs can be gauged on two metrics: 

• Impact on wealth, assets, and lifestyle
• Changes in attitudes towards Russia’s war in Ukraine and the Russian government

The sanctions against the oligarchs can be considered to have yielded successes in both areas. Immediately following the initial implementation of sanctions, several prominent oligarchs with close ties to Putin came out in public opposition to the war despite the repercussions for doing so. Various oligarchs were also reported to have experienced significant losses in wealth, and the seizure and freezing of assets abroad has been estimated to have resulted in $67 billion in losses by the first anniversary of the war for the 23 wealthiest oligarchs in Russia.

Policy Setbacks

The primary setbacks in the current sanctions policy against the oligarchs are:

• Insufficient level of impact on their wealth 
• Inadequate impact on the relationship between the oligarchs and the Russian government. 

Despite considerable losses since the initial implementation of sanctions, oligarchs were able to recover some of the losses. As a collective, Russia’s oligarchs lost 13% of their total wealth more than a year after Russia’s invasion began. Impacting the wealth of the oligarchs is further complicated by difficulties with identifying their assets abroad. For example, it is challenging to know with certainty which real estate in the United States is owned by oligarchs. As a result of policies favoring privacy over transparent disclosure of ownership, real estate in the United States has become a particularly effective means for oligarchs to hide their wealth abroad. New legislation and policy revisions have enabled more effective investigation into real estate ownership and other assets, but challenges associated with identifying the assets of oligarchs continue to be a hurdle to maximizing the impact of sanctions on oligarch’s wealth. 

Some research indicates the sanctions have had a limited impact as instead of dividing the oligarchs, sanctions have instead united Russia’s oligarchs to fend off the external threats to their collective wealth. In turn, the sanctions against oligarchs have struggled to manifest sufficient opposition among the Russian elite to the conflict. The Russian government has responded to any opposition with rapid and intense action. Since the beginning of Russia’s war, critics of Putin as well as multiple oligarchs have died under suspicious circumstances raising the likely possibility that opposition at even the highest levels is being liquidated, further limiting the impact of opposition of oligarchs to the war as a result of sanctions. 

Future Outlook

There is one emerging option: targeting the wealth managers of the oligarchs. The wealth managers utilized by the oligarchs represent new viable targets for sanctions for several reasons:

• Oligarchs can rely on a few elite financial managers who possess the necessary qualifications, making their identification easier.
• The majority of these wealth managers are located in Europe, making their sanctioning logistically easier.
• The position, responsibility, and knowledge held by these wealth managers makes them a particularly weak point in the financial networks of the oligarchs.

Focusing on these individuals could pose a substantial threat to the oligarchs. The United States can ensure that oligarchs are unable to bypass the impacts of sanctions by maintaining and expanding cooperation with foreign partners in Europe and other regions. This can be achieved by implementing sanctions and restrictions to deny them viable safe havens.

These approaches in tandem would create an evolved approach to the United State’s sanction regiment against Russia’s oligarchs, with the potential to yield greater long term impacts that will contribute to the aims of the sanctions. These strategies may in turn yield the necessary pressure to instigate sufficient high-level opposition to Russia’s war which Putin’s government can not afford to ignore or attempt to silence.