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How To Mess With Putin
Hit Him in the Pocketbook

While Putin consolidates his gains in Crimea, the West is flailing about for a way to respond beyond harsh language. If a secret Downing Street briefing memo glimpsed at by UK journalists yesterday is anything to go by, we certainly shouldn’t be holding our breath for anything more substantial. A couple of juicy bullet points:

• Not support, for now, trade sanctions … or close London’s financial centre to Russians.” […]

• “Discourage any discussions (eg at Nato) of contingency military preparations.” […]

• Specific threats to Russia should be “contingent and used for private messaging” while public statements should “stick to generic” point.

Lovely. And predictable.

As Politico noted in an excellent piece you should read in its entirety, “Russia thinks the West is no longer a crusading alliance. Russia thinks the West is now all about the money.” Putin’s inner circle has had ample experience for the better part of two decades negotiating and gaming Western financial systems as they squirrel away their ill-gotten nest eggs. They know that if The City and Wall Street stand to lose a lot from a policy, Western leaders will be loath to enact it.

Paradoxically, however, Russia’s economy is the country’s weak spot. Specifically, Russia’s powerful oligarchs are extremely dependent on access to the Western financial system, which would make targeted sanctions particularly effective. The Wall Street Journal:

Some of us pushed so hard in 2012 for the Magnitsky Act to be passed along with normal trading relations with Russia precisely because we feared this kind of Kremlin power play. President Obama resisted the bill until it was forced on him, and then he limited the names on the sanctions list. But now he may be glad to have this foreign-policy tool.

Asset freezes and other sanctions could target the Russian elite and their financial links to the West. Call this the “Banco Delta Asia” approach, after the U.S. Treasury’s 2005 money-laundering crackdown against a small Macau bank that held accounts for North Korean companies and the ruling Kim family. Washington discovered that making the bank a pariah institution had a huge effect on Pyongyang’s ability to conduct trade.

This may not be enough to convince Putin to reverse course. There are arguments that in the short term these moves could help consolidate power around Putin by convincing the Russian oligarchs that they have nowhere else to turn. But the mere fact that Putin fought so hard against the Magnitsky Act shows that it worries him. As William Browder, one of the key players who helped push the bill through Congress, told TAI Publisher Charles Davidson in a must-read interview, preventing oligarchs from safely taking their money out of the country is one of the easiest ways to hit Russia’s power players where it hurts:

Because all this money was effectively stolen in Russia—either stolen from the government, or stolen by Putin from the oligarchs who stole it from the government—no one feels safe keeping their money in Russia, because at any point it could be stolen from them. As a result, most of it is in the West, where it is protected by the rule of law and can’t so easily be taken. […]

It used to be that the only tool human rights advocates and activists had was to be had through the voice of a Western government condemning an atrocity. What we found was that, if autocrats and dictators want to commit human rights abuses, they don’t care what the U.S. government or the European Union says. But if they’re not able to travel, if their children aren’t able to attend Western schools, if their bank accounts are getting frozen, there are personal consequences that make them very scared. It raises a question, every time there’s a choice, these new consequences effect the motivation to carry out potential abuses.

This kind of approach may not be the only way to go about confronting Putin, and it might not be immediately effective. But it’s certainly worth considering carefully.

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  • qet

    Wasn’t the West always about the money? Isn’t Russia today all about the money? Isn’t that why the financial strategy is recommended? Besides, capital, even ill-gotten capital, creates jobs, right? If a financial squeeze on Russia further depresses a European (or the US) economy, in an era when the entire global economy is depressed at all levels below the 1%, should we in fact pursue such actions? Back in the 80s the answer was easy, but today? If squeezing Russia makes life worse for the Russian 99%, who don’t seem to have it too good now anyway, and if that leads to more Caesarism there, then is it a good strategy? Some banks are too big to fail, and some countries, are, too.

    • Corlyss

      “Wasn’t the West always about the money?”

      • Jim__L

        At some points it was about spreading the Gospel to every corner of the world, which happened to net the places some pretty significant material benefits as well.

  • Corlyss

    Fanciful delusions all. Color Ukraine gone.

  • rheddles

    Fast track Atlantic LNG terminals.

    Free drilling on the Atlantic coast

    Build the XL pipeline.

  • Jim__L

    If Putin’s going to go all in to keep Ukraine, is there somewhere else we could make him lose?

    Seriously. Ukraine is close, so he’ll fight hard. He’s also got some advantages there. Deep business connections with the industrial eastern Ukraine, plus a non-trivial amount of Russian sympathy in the regions he’s targeting. If he can make the agricultural boycott stick in agrarian western Ukraine, (if the EU can’t lower its agricultural subsidies enough to counteract that) that could net him the whole country.

    Is there a place that is at least somewhat geopolitically important he wants less badly where our position is stronger, that we could take away, to provide some kind of counterbalance?

    Vladivostok, maybe? We’re not necessarily strong there, but are the Chinese or Japanese? The Kuriles are another interesting spot, but less iconic.

    The problem here is there are too many places (Ukraine, Syria, Iran) where Russia can make us lose, but nowhere glaringly obvious (to me, anyway) that we can make him lose. If we want to win anywhere, that needs to change.

  • gabrielsyme

    So, one of Russia’s major economic problems is capital flight. Would anyone care to explain how making it more difficult for Russians to move capital offshore would hurt Russia?

  • Jim__L

    “[T]here are personal consequences that make them very scared. It raises a question, every time there’s a choice, these new consequences effect the motivation to carry out potential abuses.”

    I can just imagine Putin giving a motivational speech to his inner circle, saying, “Stand firm. What are the Western powers threatening us with, really? No trips to London or Las Vegas? No Politically Correct indoctrination for our children? If our will is resolute in the face of such trivialities, they are giving our military a free hand. They will not stop us. They cannot stop us. They are weak, they love being weak, they have forgotten how to be strong. As long as we are careful enough not to remind them how to be strong, we can do whatever we wish.”

    Yes, I think the sort of limp consequences proposed by the article above will probably effect the motivation to carry out potential abuses.

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