U.S. Prosecutors Target Russian Assets, but Legal Hurdles Loom
Federal officials seek business records to help uncover assets of President Vladimir Putin’s allies
WASHINGTON—Federal prosecutors have issued a stream of subpoenas in recent months in an effort to uncover Russian oligarchs‘ assets hidden in the U.S., laying the groundwork to seize real estate, cash accounts and trust funds, say people familiar with the matter.
Many of the subpoenas seek business, bank and trust records they say would help prosecutors cut through layers of complex ownership structures meant to obscure oligarchs’ holdings.
The actions across several federal courts, including in New York and Houston, are part of a broad Western effort to coerce Russia into pulling out of Ukraine and find new sources of funding for Ukraine’s war effort and eventual reconstruction.
Since February, Western authorities have frozen more than $330 billion Russian assets, Western officials say. About $300 billion of that are reserves held by Russia’s central bank in foreign bank accounts. Much of the rest includes oligarchs’ companies, bank accounts, trusts, yachts, jets, real estate and jewelry.
But administration officials are running into a thicket of investigative and legal difficulties, from finding assets hidden by sophisticated lawyers, accountants and financial planners, to seizing and handing them over to Kyiv. Seizure transfers ownership of assets to the government, whereas freezing only blocks the owner’s use of them.
The administration has asked Congress to pass legislation expanding its authority to seize Russian assets and establishing a legal channel to send captured funds to Ukraine. The European Commission has proposed similar legal changes.
“We have no dedicated mechanism to transfer the proceeds of seized oligarch assets to the Ukrainian people,” Sen. Sheldon Whitehouse, a Rhode Island Democratic member of the Senate Judiciary Committee who is sponsoring a bill to address the issue, said in a September Senate Banking Committee hearing.
While the U.S. effort has bipartisan support, some lawmakers have said Congress needs to take a closer look at the measures and their potential legal impacts.
The European Commission, the Ukrainian government and the World Bank said recently that the current cost of reconstruction and recovery in Ukraine amounted to $349 billion and was likely to grow in the coming months. Western officials have said the effort to rebuild Ukraine could take generations, while Kyiv has stepped up its requests for economic and military support.
To help cover those costs, the U.S. and its allies launched what they called the Russian Elites, Proxies and Oligarchs, or REPO, task force to track down assets they say represent ill-gotten gains that help prop up President Vladimir Putin ‘s rule.
“Governments are starting to get nervous about growing demands on their budgets,” said Camino Mortera-Martinez, head of the Brussels office at the Centre for European Reform, a London-based think tank.
U.S. officials say among the many challenges in expropriating oligarchs’ assets for rebuilding in Ukraine is just finding the holdings in the first place.
Oligarchs transfer assets out of their direct ownership and control into trusts, to family members and associates, or into shares held in layers of companies in multiple jurisdictions, said Cari Stinebower, a former senior official at the U.S. Treasury Department’s Office of Foreign Assets Control.
Andrew Adams, the head of the Justice Department’s KleptoCapture task force, which issued the subpoenas, said merely locating the assets could require years of investigation.
“The difficulties of conducting transnational investigations, of piercing often opaque jurisdictions that have an interest in concealing, or providing a harbor for those who would conceal illegal activity, is a tall order,” he said in the September hearing.
The U.S. Treasury Department has rolled out a series of new anti-money-laundering rules that could help trace those assets, including requiring companies to disclose the identity of their owners and expanding real-estate reporting requirements for cash deals in several metropolitan areas.
Some industry analysts and former officials say that may not be enough. The ownership reporting rules—which don’t go into effect until 2024—don’t include some investment vehicles or require naming the ultimate beneficiaries of trusts, only trustees.
Current U.S. law provides limited authority to seize the frozen assets, officials say.
For the U.S. to expropriate the $300 billion in Russian central-bank reserves, which are held in foreign accounts, Congress would have to pass a new law, say Western officials. Some Western authorities say they are wary of setting a precedent that would contravene longstanding international monetary principles.
In the absence of statutory authority, courts may question prosecutors’ legal basis for seizing oligarchs’ assets, said Ms. Stinebower, now at the law firm Winston & Strawn.
“It’s challenging to move from frozen assets to forfeited assets,” said Elizabeth Rosenberg, assistant U.S. Treasury secretary for financial crimes in the September hearing.
And considering the scale of Ukraine’s needs, it isn’t clear that all the yachts, expensive apartments and houses, securities and other holdings would do much.
“Confiscating the assets of Putin’s elite would be a fraught process—and insufficiently lucrative to make much of a dent in Ukraine’s reconstruction bill,” said Ms. Mortera-Martinez.