“You might think I’m going to take my daughter, my wife, my employee, or my employees, and I’m going to go by different names for this stuff. It will come up and be documented that I am not the majority owner.”
Howard Mendelsohn, chief client officer at data analytics firm Kharon
Sanctions require industry compliance, and companies must quickly dig through corporate ownership layers to find, freeze, and report relevant accounts. In the US, they share their findings with the Office of Foreign Assets Control (OFAC).
It can take time for financial institutions to identify associated accounts of a sanctioned person that are not yet widely known, said Howard Mendelsohn, chief client officer at Kharon, which uses technology and experts to build the web of relationships around sanctioned parties.
Someone who is sanctioned can use this as a window to hire lawyers, consider property changes and move assets elsewhere, he said.
“You might be thinking, ‘Maybe I’ll have a little time here before anyone finds out what all my companies are, especially the majority-owned ones,'” Mendelsohn said.
“I will shuffle. I’m going to take my daughter, my wife, my employee or employees and rename this stuff. It will come up and be documented that I am not the majority owner.”
In the US, there is a clear incentive to give up majority control: OFAC’s so-called 50 percent rule.
It states that property or interests of sanctioned persons must be blocked if persons on the government list have an aggregate interest of 50 percent or more. That makes selling stocks a popular maneuver to get below that threshold.
The U.S. Treasury Department has the power to name and sanction spouses or adult children of sanctioned individuals under a 2021 executive order.
It’s not the first time Russian tycoons have resorted to asset shuffling. Oil mogul Gennady Timchenko sold a nearly 50 percent stake in a Finnish oil trader days before he was sanctioned after Russia annexed Crimea in 2014.
Oleg Deripaska was sanctioned by the US in 2018. To ensure aluminum company En+ Group International’s PJSC was delisted from OFAC, he shrank his stake from 70 percent to 45 percent through a complex series of transactions, including a share offering to a state-owned bank, share transfers and charitable donations.
OFAC lifted sanctions against En+, citing that the majority of board members are independent.
“For example, if you talk about a Russian oligarch and Oleg Deripaska still has 33 percent of the voting power, would you vote against him?” said Eric Sohn, director at Dow Jones Risk & Compliance.
Transactions have multiplied in recent days as Russia’s richest feel a closing window. For some it may be too late.
Roman Abramovich, the billionaire owner of Chelsea Football Club, said on March 2 that the legendary sports franchise was up for sale. But a week later, Britain sanctioned him and six other Russians, leaving the team in limbo.
Mordashov, the majority shareholder of one of Russia’s largest steelmakers, has called the Ukraine conflict a “tragedy” and said he doesn’t understand why the EU imposed sanctions on him.
A spokesman for Mordashov confirmed the recent share transfers and declined to comment further. According to the Bloomberg Billionaires Index, he is worth $19.6 billion.
Russia’s ultra-rich have lost more than $90 billion as a result of the invasion of Ukraine. With no let-up in sight, wealthy and connected Russians are likely looking to protect and shield their interests as authorities’ targets become broader, Kharon’s Mendelsohn said.
“If they’re not listed now, they’re definitely worried,” he said.