Sanctions might improve the Russian situation at some point in the future, rather than making it worse. Expert Robert Barrington, head of Transparency International’s UK branch fears that Russian money may be too big to sanction. Sanctions hurt both sides, but in Russia the greatest hardship will be born by those already most vulnerable economically, not just Putin’s cronies, the bad guys; but also the Russians whose quality of life has already suffered with the diversion of state assets into oligarchs’ pockets. Economic punishment perceived as vindictive may turn many Russians towards ethnic nationalism and garner support for the crafty Putin.
James M. Lindsay of the Council on Foreign Relations fears the worst; if Putin is forced to to pay maximum price for aggressions in Crimea, he may choose to seek the maximum gain, continuing his military adventures into Moldova. From the outside of the crisis, the question of how Russia will respond to sanctions seems urgent, but is oriented towards the short term. After sanctions, or even without them, those nations doing business with Russia will need to enforce vigorous anti-corruption mechanisms.
The threat of sanctions alone will not cause Putin to change course. Putin has demonstrated to the world and increasingly effectively to Russians that his grasp of power cannot be threatened. At every opportunity he has boasted to Russians about Russian revival on the world stage. For many Russians, who feel left out of the prosperity of Europe, ethnic nationalism holds primitive attraction in contrast with the ideas of civil society. Both ethnic nationalism and economic corruption are held at bay by constitutional protections and public regulatory processes.
Londongrad has laundered many billions of dollars of Russian money from systemic corruption and organized crime. The investment of corrupt assets in its economy has made the UK complicit with patterns of systemic corruption in Russia. The “City,” London’s Wall Street, and professional advisers are complicit in laundering questionable Russian money: by failure of due diligence and even worse, by actively assisting in exchange for lucrative profits.
There are stunning indications of the scale of capital flowing from oligarchs into the British economy. Last year five percent of the purchases of prime London property were by Russian citizens. As Elena Panfilova, head of Transparency International’s Russian branch explains, Russian activists for civil society and the anti-corruption NGO’s have long questioned why the UK has pandered to the oligarchs and accepted their money. Due diligence in the consideration of the sources of money from suspect individuals over the last ten years would have impacted systemic corruption in Russia.
Better policy in the future requires enforcement of regulatory mechanisms for due diligence, ensuring that those doing business with and earning profits from Russian individuals or entities investigate the sources of funds. Regulatory mechanisms ensure that law firms, accountants, banker, real estate brokers and others who serve Russians with big money, are vigilant in searching for tainted Russian assets and avoid complicity in complicity in money laundering.
The dependence on Russian money may be too big for the UK to resist and may limit support for sanctions, experts fear. Due diligence or complicity are the two ethical paths. Civil society advocates note the important distinction between sanctions– directed against all of Russia– as distinct from the pursuit of corrupt funds and their holders, and the iterative process of examining suspect individuals. Given the fears of big economic pain, sanctions against Russian money may be too big a pill for the UK to swallow.
Commentary by Lawrence M. Shapiro
Council on Foreign Relations