The author is Director of the Center for Financial Crime and Security Studies at the Royal United Services Institute think tank
As Russia’s war in Ukraine enters its second month, the British Foreign Secretary faces the looming challenge of putting financial pressure on Moscow. With the UK already using its most powerful sanctions tools, Liz Truss is now scratching the barrel for new targets. A more imaginative approach to economic statecraft is required.
So far, the imposition of sanctions has been the main way in which Western allies have responded. Over the past eight weeks, they have been used in three main categories: against Russia’s economic infrastructure, including asset freezes at banks and foreign exchange reserve freezes; those against persons who benefit from or support the Russian government; and on activities that boost the country’s economy, particularly the purchase of energy, profits from which fund the Kremlin’s war in Ukraine.
The UK has made an active contribution to the first two. But, as Ukraine’s President Volodymyr Zelenskyy has repeatedly noted, the latter will need to be addressed by Western allies if they are to defend themselves against accusations of trafficking in blood money. For the UK, which has already committed to ending all imports of Russian coal and oil by the end of 2022, this third category presents limited opportunities. So how could it increase the financial pressure?
The key priority must be an expansion and deepening of the UK’s finance-oriented diplomatic dialogue and influence at posts around the world, through operational and political relations led by the National Crime Agency and political experts at SOCNet. Initiatives like the illicit financial partnership between Britain and the United Arab Emirates – who work together on mutual economic crime threats – should be leveraged and replicated with other major financial markets to build a networked response to dirty Russian money.
Existing capacities such as the International Corruption Unit and the International Anti-Corruption Coordination Center should be used to strengthen the UK’s role as organizer of international responses to illicit finance.
Britain should also do much more to capitalize on its invaluable access to information provided by Crown Dependencies and Overseas Territory business registers. Examples of this potential include the role of the British Virgin Islands in identifying yacht ownership and the headline-grabbing action in Jersey that froze $7 billion in assets linked to Russian oligarch Roman Abramovich. British officials who have access to this information have a unique perspective.
Finally, we need to focus on enforcing sanctions. As Britain and its allied governments are realizing, economic restrictions are much easier to announce than to implement. Success depends on cooperation from the private sector. The names of affected individuals or entities need to be linked to companies and ownership structures – as Jersey authorities have successfully done – so banks have information to act on. Governments must monitor circumvention by those who sanctioned it to ensure restrictions are maintained. When the private sector fails to meet its obligations, guidance and enforcement are needed.
Part of the problem is expertise and manpower. Compared to the US Office of Foreign Assets Control, which specializes in making sanctions effective, the European allies have few necessary skills. The UK’s Office of Financial Sanctions Implementation, understaffed when its role is most important, has only just begun a recruitment drive. And the Foreign, Commonwealth and Development Office needs access to detailed policy analysis and information to understand if its sanctions are having the desired effect, if the right people are being sanctioned, and if the Kremlin is actually feeling the economic pressures.
After a rocky start – and through its central role in global finance and some legal sleight of hand in “copying and pasting” allies’ sanctions labels – the UK has made a significant contribution to the response against Russia. But with partner countries like Germany still effectively funding Moscow’s military operations through their energy purchases, Britain and its European allies will certainly not “decimate Putin’s war machine,” as Truss claims. The western answer can at best be rated four or five out of ten.
While it waits for Germany, Hungary and other EU nations to move forward with overdue energy sanctions, the UK should make better use of its expertise in illicit financing. With that, the foreign minister could finally begin to refill a barrel that has become dangerously empty.
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