Stephanie Baker | Oligarchs, Sanctions & The Global Economic War With Russia

Stephanie Baker is a journalist whose been writing between the intersection of business and politics for almost 30 years with Bloomberg. 

Stephanie's just published her first book and it is just amazing and the consequence of covering these topics for a lifetime. The network, the knowledge, the weird language of sanctions of financial opacity. 

It’s a book about the global economic war with Russia post Ukrainian invasion. The fallout of the sanctions, why it has and hasn’t crippled the Russian economy as intended, and everything in and around Russian capital flight, Russian sanctions and the global economic war underwriting Russia's physical threat. 

We start with Stephanies experience covering Russia from Moscow in the 90s, her stumbling across a murder scene and then between that and the book, Stephanie working as Christopher Hitchens fact checker at The Nation, the details behind putting a book like this together then the details about western businesses who withdrew substantial Russian operations, the oil markets chicanery to skirt sanctions, Oligarchs, Minigarchs, Euroclear and frozen Russian capital, what the sanctions did where they've been effective and where they haven’t and a whole lot more.

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Stephanie Baker - Punishing Putin

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00:00 - Who Is Stephanie Baker
03:21 - Moscow In The 90s & Fact Checking Christopher Hitchens
09:01 - How Oligarchs Were Created
17:07 - Hermitage Capital & Bill Browder
19:00 - Debut Book After 30 Years Of Journalism
27:46 - Economic Chaos From Sanctions
31:21 - Commodity Markets & Oil Chicanery
36:26 - Cannibalising Goods For Repurposing As Weapons
38:45 - McDonalds, Renault & Unilever Huge Russian Operations
54:50 - Euroclear's Role
1:00:11 - Capital Flight, Offshore Plumbing & Financial Opacity
1:20:16 - Liquid wealth of Putin
1:21:36 - The Role Of Serendipity In Stephanies Life

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Transcript

SPEAKER_00 0:00

Stephanie Baker is a journalist who's been writing between the intersection of business and politics for almost 30 years. She's just published her first book, and it is just amazing. And the consequence of covering these topics for a lifetime. The network, the knowledge, the weird language of sanctions and financial opacity. It's a book about the global economic war with Russia post-Ukrainian invasion. The fallout of the sanctions, why it has and hasn't crippled the Russian economy as intended, and everything in and around Russian capital flight and the global economic war underriding Russia's physical threat. We start with Stephanie's experience coming Russia from Moscow in the 90s, her stumbling across a murder scene, and then between that and the book, Stephanie working as Christopher Hitchens fact-checker at the nation, the details behind putting a book like this together, and then the details about Western businesses who withdrew substantial Russian operations, the oil market's chicanery to skirt sanctions, oligarchs, minigarchs, Euroclear, the frozen Russian capital, and what the sanctions did, where they've been effective and where they haven't been, plus a whole lot more as well. It was a thrill to have gone to record this with Stephanie in person, and to allow for more episodes like this, where I get to fly and meet the guests to record in the same room. Do leave behind a five-star review on Spotify and Apple. There is no bigger needle mover than these reviews towards attracting the guests that I want to speak with. And with absolutely no further ado, here she is, Stephanie Baker.

SPEAKER_04 1:22

Stephanie Actually, the police had just arrived. I was in Moscow. I had uh arrived in Russia, moved there a few months before, in May roughly of 1996. And at the time I was working at Radio Free Europe, Radio Liberties office, offices in Moscow, and I walked home. It was a fairly easy 20-minute walk home, and part of the walk took me through a small garden park area. It was at night, um, but I felt safe, uh, and I probably shouldn't have, because there splayed out uh on a light dusting of snow was a man who'd been shot and was bleeding out, uh, and the police had just arrived and shooed me away, and I scurried home with my heart racing, terrified. And it only occurred to me later that it would was a close call if I had perhaps left work 20 minutes earlier. I might have seen it happen. Uh and I saw on the news later that night that he was just one of these many, what they thought at the time was one of these many gangland shootings that was plaguing Moscow at the time. Um and you know, not a not a big figure, uh uh one of a no-name uh guy, uh pret potentially uh subject of a hit.

SPEAKER_00 2:45

If the environment had been such that you were aware of these ganglang shootings happening, uh why did you feel so confident and safe to just walk around at night?

SPEAKER_04 2:54

Uh well we I there were these there were these shootings, but it w I'd never seen anything myself. Uh and Moscow did feel safe at that time. Uh it didn't feel like a dangerous place despite that environment. I mean, obviously, I'd done a lot of traveling, listen, up until that point. That was Moscow seemed quite easy. I'd I'd spent six, seven months in East Africa when I was 19 and much rougher places. So Moscow seemed, you know, easy.

SPEAKER_00 3:24

If you'll allow a tangent, uh, what were you doing there?

SPEAKER_04 3:27

I was a student. I had studied abroad in Kenya, and then I backpacked around East Africa afterwards solo, including through the Congo and Uganda and Rwanda, doing very stupid things. That I really should not have done. Um, but uh yeah, I had a real taste for travel and adventure and wasn't scared, probably when I should have been.

SPEAKER_00 3:51

When you were solo adventuring through the Congo, for instance, what year was it?

SPEAKER_04 3:57

It's 1988.

SPEAKER_00 4:00

In the in the late 80s. Did you have in your heart this ambition to be a journalist at the time and you were maybe scouting out a sense for how the world works?

SPEAKER_04 4:09

I think it fed into my desire to be a journalist. I wanted to be a writer of some kind. Um, and uh for sure when I my first job out of college was as an intern at The Nation magazine, which is a left-wing Christopher Hitchens. Yeah.

SPEAKER_00 4:26

Did you know him?

SPEAKER_04 4:27

I fact-checked him.

SPEAKER_00 4:29

Nice.

SPEAKER_04 4:29

Which is not a very easy experience, let me tell you.

SPEAKER_00 4:32

I can imagine.

SPEAKER_04 4:33

He does not like to have his facts questioned. Um anyway, he got most of his facts right, so I didn't have that hard of a job. Um, but when I started there, when I told my editors about this experience, they said, Why didn't you write this up? And I just didn't have that vision at that point. I was too young and naive.

SPEAKER_00 4:51

Do you know how John Lee Anderson got into uh journalism?

SPEAKER_04 4:54

No.

SPEAKER_00 4:55

He was himself an extraordinarily vagabonding youth. I think his family sent him away to some distant relatives, I forget the country, forgive me, but somewhere in Africa as a teenager. And he ended up uh guiding exhibitions throughout the Amazon when he was about 19 or something. And one day he walks into the Lima Times, tells uh through various routes of serendipity had landed in the office of the Lima Times, and they said, you know what, just jump into that conference room there and write a little bit about you know what you've been doing so far. And the first four or five stories John Lee Anderson ever published was just memoirs of his experiences in adventure as a very young guy.

SPEAKER_04 5:34

Wow, incredible.

SPEAKER_00 5:36

Uh forgive me, but Christopher Hitchens holds a particularly soft spot in my heart. You for fact-checking him, so presumably you knew him quite well.

SPEAKER_04 5:43

I wouldn't say I knew him well. I was very young. He was a big star, and I I think I met him in person a couple times, dealt with him mostly over the phone. I'd get a pack, a fact-checking pack, from one of his articles that I'd have to go through. I mean, it was fantastic training as a reporter to be a fact-checker. Um, and then I went on to direct the interns for three, four months after that. Um, so kind of ran that program. Um, but it was a very good way to start out. And yeah, Christopher Hitchens was just phenomenal.

SPEAKER_00 6:15

Was he as witty and charming in person as he was on the stage?

SPEAKER_04 6:19

Yes, he was. I mean, such an intellect. Uh as a recent college graduate, I was incredibly intimidated, let's tell you. Yeah, clear about that.

SPEAKER_00 6:30

Okay, back to the book. Um, you are reporting for the Moscow Times during perestroika, during the consolidation of this incredible amount of power and wealth that the oligarchs went through. How abundant were the stories to you whilst you were working this beat?

SPEAKER_04 6:48

So, to be clear, perestroika was the Gorbachev era reforms during the Soviet Union. When I that got to Russia in 1996, it was in the throes of an economic crisis as well as uh rapid privatization. Uh and yeah, I'd look back on that time and I realize how I wasn't seeing the big picture. Um you get stuck into your lane and you're trying to figure out what's going on and trying to uh you know see the how every story fits into a larger narrative, and it's very hard to do as things are unraveling. Um but it was a front row seat to the most massive transfer of wealth uh probably in history. Uh and I I covered privatization broadly speaking, I covered the finance ministry, I covered the central bank, and in particular, I covered the financial crisis leading up to the ruble devaluation uh and debt default of 1998. Um so that was my first financial crisis, so to speak. And watching that unfold and understanding how it was um how it was unraveling was really fascinating to see. Um I had unfortunately left Moscow on the Saturday before the Monday that Russia defaulted. And then to start a job at Bloomberg, actually, and I asked them to put me back on a plane to go back to Moscow to cover what I'd been covering all the lead up to.

SPEAKER_00 8:25

It must have been quite a good start of Bloomberg, though, issuing all these great stories.

SPEAKER_04 8:30

Yeah, no, it was good, and it was good to be back uh in Russia to watch this. Obviously, it was a horrible thing that happened and impoverished millions. Um, and I go into that in the book, that in order to understand present-day Russia and economic war and the sanctions, you have to look at what happened in the 90s, the West's response and strategy for dealing with Russia, and how that led to the rise of Putin.

SPEAKER_00 8:58

Particularly around the single biggest windfalls and those individuals who consolidated the most power during that time. What stands out to you as an emblematic example to explain that?

SPEAKER_04 9:11

Um there's so many different examples, it's hard to um focus on one. Uh obviously, Russia is a very resource-rich country, and so the crown jewels were the companies that were producing uh metals, critical minerals, uh, and oil. Those were the big battlegrounds. So whoever was able to maneuver to uh privatize to bid for, even in these rigged uh privatization auctions, those assets won big time, long term, because they were uh they were able to consolidate these fortunes um and then ride that commodity boom that we saw under Putin starting in the mid-2000s and and following that.

SPEAKER_00 10:02

So the voucher system consolidated loads of power and money, but it was the loans for shares scheme that really created these oligarchs. Is is that the case?

SPEAKER_04 10:11

Aaron Powell Well, yeah, the voucher system had been tried in the Czech Republic, another place where I lived for several years. Um, and that was a comparatively democratic way of doing it, but the way it was regulated was very poor, and that led to a lot of abuses. Uh basically they would give out vouchers to everyone, and then others would come and buy up those vouchers.

SPEAKER_00 10:32

Uh just mafia style.

SPEAKER_04 10:35

Mafia style, but there were a lot of people who didn't understand what they had and who was buying them, and you know, whether or not that they didn't understand that holding on to them would have been a better play. A lot of Russians were very, very poor at that time and so quickly traded them in. Um and there was a lot of financial institutions set up to buy them that were very unregulated. Um and that led to a lot of abuses as well. But then the loans for shares uh program started, and that's where you get the rise of what we call the the first wave of oligarchs that made their money through most of those auctions, um, including people like Vladimir Patanin, who actually came up with the idea for loans for shares, and he was went on to eventually control uh a major stake in Norilsk nickel, which is a major producer of um nickel, obviously. Uh and he later then took a uh a job in government and was able to influence the Yeltsin government. Um but of course there were others. There was Michael Chorakovsky who gained uh a stake in what became UKOS, and we know how that ended. We don't need to get into that, but um yeah, there was so there were several that uh amassed these incredible fortunes by essentially uh loaning uh amounts to the government in exchange for holding these shares. And if um if the government didn't repay those loans, they would be able to buy those shares and hold them permanently. And uh and of course the government was bankrupt, uh, so they never that's the collusion, they knew the whole time that would be the outcome. Um I there are various various interpretations of that, but yeah, um that's one that's one way of looking at it. Um the the government was broke, and by that point these businessmen had such a control over the economy. Uh, they could have easily turned around, and I say this in my book, the government could have easily turned around, um, paid off the loan and sold those stakes for much higher prices because the doubt had fallen away at the the election had happen, the re-election of Yeltsin had happened. There was some doubt as to whether or not the communists would win. Once the communists had been defeated, uh, those shares were in in theory worth a lot more because there was political stability ahead. So the government could have turned around and sold them, but it didn't, partly because of incompetence as well as corruption. I mean, it is a combination of things, obviously.

SPEAKER_00 13:24

I don't think I fully understand that. So there was an opportunity for these oligarchs who had since consolidated the power and money via the benefit of the loans for share scheme, where they could have sold those shares they now had at a significantly higher valuation than they were before.

SPEAKER_04 13:41

No, what I'm saying is the government could have repaid the loans, took back the shares, and sold them to others uh for a much higher price. Uh instead, they let the oligarchs take those shares and uh and confirm it through a series of rigged auctions, basically.

SPEAKER_00 14:02

When people refer to the oligarchs, how many individuals could you say put a finger on? How many oligarchs are there?

SPEAKER_04 14:11

So, in a way, the term oligarch is somewhat problematic. Um I think it implies that they have greater sway over the government than they do or over Putin than they do. Um, it is an oligarchy. Uh, I have no question about, there's no question about that. Um and you can define it under any number of ways. I tend to call them the the powerful ones, are the ones that are we know are billionaires, right? Right, who control major companies in Russia. Um now, some of those, like Igor Sechin, who runs state-controlled, the state-controlled oil oil giant Rosneft, we don't really know how much he uh he has personally. Um, but he I would call him an oligarch because he's certainly enriched himself given his position, and he's very powerful and does have influence uh to some degree over the Kremlin. Um but there are other figures who are made their money in the first wave that I would say um have survived, and some are closer to the Kremlin than others.

SPEAKER_00 15:24

Yeah, it is problematic if you can't give it like a descript definition of what is an oligarch and what is not an oligarch, because then you could be an extremely powerful multimillionaire Russian executive, and it's like, hey, I'm not an oligarch, you know, I'm not like these guys, but you might still have that power.

SPEAKER_04 15:43

Yeah, I mean there's there's uh there's one example, and I go into him to some in some detail in the book. He's a guy that no one had ever really heard of before 2022, or he was very he definitely flew under the radar a guy called Edward Kudanatov. And he emerged as the owner, on paper at least, of several super yachts, uh one of which um the US government seized and sailed to San Diego. Now he, I would call him an oligarch, but he would not be, he was not one of the ones that we always thought of. But he used to be in charge of Rossneft. He left and started his own oil company, amassed huge assets, and is incredibly wealthy. Probably we we don't, we haven't seen a a good assessment of his wealth, but uh he is one of these wealthy, connected men who I would I would term uh an oligarch, or as I might have called him in the book, a mini-gark, because we didn't know much about him before he emerged on the the stage.

SPEAKER_00 16:55

Is that your official IP, a minigark?

SPEAKER_04 16:57

Uh I wouldn't call that. No, I'm not claiming that one.

SPEAKER_00 17:00

Um just back to your time very briefly in Russia. Were you covering Hermitage Capital and Bill Browder?

SPEAKER_04 17:07

So I knew Bill back then, um, as a lot of journalists did. And so I'd I've known him since then and spoken to him because he was uh he was doing a lot of um and he was had invested in Gazprom and he was trying to expose a lot of the corruption. Yeah, he was exposing a lot of the corruption, and his understanding of Gazprom in particular was very, very useful for journalists who were trying to figure out uh the these opaque companies and how they were organized and managed. Um so uh I I did know him, and then when he was prevented from going back to Russia, I did do a deep dive story on on that whole case and explained what happened. So yeah, I've I've known him for a number of years.

SPEAKER_00 17:51

And he features all throughout the book, from I think the very first chapter in through to the epilogue.

SPEAKER_04 17:58

Well, part of that is because Bill has played a very crucial role in terms of advocating for sanctions against Russia through the Magnitsky Act. So these were he was focused on these human rights sanctions um and but really was one of the first to um advance the whole idea of sanctions against uh Russians for corruption and human rights abuses. So I I couldn't really tell the story of Russia and these sanctions without including him at these crucial turning points, both when he was blocked from entering Russia, run out of the country, um, as well as his efforts then to introduce the Magnitsky Act, and then later his uncovering of huge corruption in in Cyprus.

SPEAKER_00 18:46

Yeah. And now everything he's doing with the Magniski Awards, it's gone international.

SPEAKER_03 18:51

Yeah, it's great.

SPEAKER_00 18:52

Are you going to cover the Admissi Magnitsky Awards in November?

SPEAKER_03 18:55

I usually go to those, but I don't I don't write about them. Okay.

SPEAKER_00 19:00

There's so much richness in the book, which we're going to get to. There's enough time for it. But something that, at least from my own personal curation of the questions, I wanted to really ask you about was just how exciting it was to undertake a project like this. You've been a journalist for almost 30 years, but this is your first book.

SPEAKER_04 19:15

I was really excited and really wanted to do a book. I felt like I really needed a challenge. I mean, most of my career I've been a long-form journalist. So I've been writing stories of any length between 3,000, 5,000, 6,000 words, 7,000 sometimes when I'm lucky. Uh but I just wanted uh a new challenge to tell stories in a new format. Um so I'd always wanted to write a book on Russia, but it never felt like the right time because the political situation kept changing and I didn't know how to end it. And this book obviously poses a similar challenge, but there is more of an end. And I did see the February 2022 invasion as the end of an era. And I didn't, I I I firmly believed that the sanctions would remain in place for a long time. I got a lot of questions about that. Well, what what happens if the war is over? And I was like, even if the war ends, I don't think the sanctions are going to end anytime soon. Obviously, some of that might depend on who wins the US election in November, but uh we can talk about the side.

SPEAKER_00 20:20

It depends on political appetite, doesn't it? So the details of how you gather this type of reporting is do you rely on this network you've built over an entire career? Are you a master salesman? How do you get people to talk, reveal information which they wouldn't otherwise?

SPEAKER_04 20:38

Right. So I have been doing this for a long time, so I do know a lot of people. Um I I do try to be persistent but polite at the same time. Um listen, a lot of people didn't want to talk to me, uh, people that I thought would and just wouldn't for some reason or another, or um, whether it was because of a book or time frame, what have you. Um, but no, it was it was incredibly hard work. I probably took on too much. But uh there was both rich detail from some of the interviews I did, and also let's face it, there's a limit, right? There's a limit to the number of people you can talk to, and you can only tell the story based on the number of people you were able to get. So you were trying to, I'm trying to tell a narrative through a cast of characters and and tell it as accurately as possible. Um uh but the other thing I I used to tell the story of uh how sanctions are being enforced was the Justice Department indictments, where they did disclose a lot of information. And then I could take that and triangulate it and report things out to fill in the details to make it more of a narrative. Um and I the Justice Department had was very it was I believe it was a more of a new position that they were disclosing much more than they normally would.

SPEAKER_00 22:01

Because they just wanted the story to fly as far as they could to support their agenda?

SPEAKER_04 22:05

Yeah. And I think that in some cases there were indictments against people they knew they couldn't get. So the only the best strategy therefore was to expose the networks to raise awareness for others so that that others didn't get entrapped in this in one way or another. So yeah, there's there is there's a lot of rich detail in there. Um and uh one of the biggest challenges, of course, was knowing when to stop.

SPEAKER_00 22:36

To the point of the narrative, because you're reporting this incredible story, but it has to read well, hence the cast of characters that lift it up. How good did it feel to get Taleb's endorsement saying he couldn't even put it down when he was in the elevator?

SPEAKER_04 22:48

That was fantastic. Yes, yes. Um I had I had written about Nassim Taleb 15 years ago. Oh, okay. Yeah.

SPEAKER_00 22:57

What'd you write about?

SPEAKER_04 22:58

I did a magazine story when he'd come out with his book um during the financial right right as the financial crisis was coming um to the fore. So I did know him from back then. Um, but yeah, no, he was he was and he was very genuine about it. He's like, look, I'm not gonna endorse the book if I don't think it's good, um, just because I know you, because he doesn't endorse many books. Um, but he was genuine and um uh you know I think it it hit a lot of themes that he explored in his books, which I had learned when I was writing about him, the notion of fragility and adaptation. Um and you know, I did say that the slow rollout of sanctions allowed Putin to adapt uh and survive, made him made Russia more resilient, unfortunately.

SPEAKER_00 23:51

Yeah, I mean, may as well get to that point now, but there how do you explain the lag? Is it just uh at the feet of bureaucracy? I'm just gonna get to the exact question. Uh I can remember it. The lag between the bureaucratic institutions coming to a a an agreed-upon point, what do we do about this? And then that additional lag into actually implementing it.

SPEAKER_04 24:18

Right. So uh part of that gets at um the intelligence that they were getting before the actual invasion and the amount of preparation um that happened in anticipation of an invasion. And I think there were various scenarios and beliefs probably differed between the US and certain European countries about what might happen. I think on the the low end was that Russian forces would push out from the Donbass and try to expand the territory they controlled. The worst end of expectations is what actually happened with Russian tanks rolling down from uh down towards Kiev. Um so I I think before the invasion there was debate among G7 leaders about whether or not they should hit Russia with sanctions ahead of time, or whether or not just warning of the economic pain uh uh would do the job. And there's a quote in the book about where I, you know, I I talk about how they Olaf Schulz, the German chancellor, how he told Boris Johnson that there was a need for strategic ambiguity. Um, to which Johnson says, I'm not sure that worked. Uh, but I'm not sure rolling out more sanctions ahead of time would have prevented him from going in.

SPEAKER_01 25:43

Right.

SPEAKER_04 25:44

Um, I think he was intent on doing it regardless. And I think that's one of the themes of this whole economic war. It's just how much Putin is willing to accept in terms of economic loss and damage to the Russian economy for the sake of these imperial ambitions.

SPEAKER_00 26:03

Aaron Powell And the Russian brain drain and labor shortage you touch upon, this is devastating when you think about generations uh to come for Russia.

SPEAKER_04 26:11

Aaron Powell It it's huge. I mean the UK Defense Ministry has put out estimates of Russian casualties at in excess of 600,000. That's lost and killed. Yeah, that's which is just enormous. Multitudes of what the Soviets suffered in Afghanistan. And that on top of the brain drain, a minimum of I think 700,000, maybe closer to a million, depending on what estimates people left.

SPEAKER_00 26:38

Of your highest skilled, youngest, most ambitious population.

SPEAKER_04 26:41

Right. Um so with Russia already having a massive demographic problem on their hands. Um so yeah, I think that that has proven to be one of the worst uh uh fall, the worst fallout from this war. Um and you see that right now. You see Russia suffering from massive labor shortages, both in terms of staffing defense factories as well as being able to recruit for for the meat grinder. It's meat grinder in Ukraine. They've having to offer these increased bonuses uh to persuade people to sign up and go.

SPEAKER_00 27:21

So, Grim, what I want to ask now is touching on some of the great details from the books about different parts of how the sanctions affected whether it's Western businesses in Russia, the oil markets, them getting around it, etc. So we're gonna bleed into it. But I want to open up with a general question. So speaking of the sanctions, obviously, the cornerstone of the book. What economic chaos is created just generally after you sanction an economy as big as Russia the day after?

SPEAKER_04 27:53

Right. So uh a lot of the sanctions were rolled out over a period of days and weeks and months, years actually. Uh within the first two days of the full-scale invasion, the G7 took this enormous step of immobilizing Russia's central bank reserves parked in Western financial institutions, which had been done with small much smaller uh uh economies, much smaller countries, Iran, Venezuela, Afghanistan. Um but with Russia the amount of money was just so enormous that it was really made an unprecedented move. 300 billion? Almost 300 billion. We still don't know the exact amount. So that I think did cause havoc and panic in Russia, caused the ruble to slide, to plummet, really. Um there was panic on currency markets, and then in steps uh the Russian central banker Elvira Nabulina, who before the war was considered a very technocratic, competent uh central banker, monetary policymaker. Um, and she basically saves Putin from economic ruin because she's she's technically competent.

SPEAKER_00 29:14

She seems like a real operator.

SPEAKER_04 29:15

She is. And she introduced, she hikes interest rates and she introduces capital controls, and that steadies the ship. Yeah, Putin starts profiting from the very war he started because oil prices spike, there's concern about Russian supply. A lot of people don't want to touch Russian oil because of how it looks. Uh, and uh he starts earning these record oil revenues that replenish his coffers. Um and that helped that also helps Russia stabilize. There are a number of other measures that they took, kicking banks off of uh Swift, which is this Gmail for financial institutions, their messaging platform that helps them facilitate payments internationally. Um they end up, there was a lot of debate over which banks to kick out of SWIFT, and there was concern in Europe that they wouldn't be able to pay for gas because Europe is so was so reliant on Russian uh natural gas in particular. Uh in the end, in total, I think they kicked out 10 banks, about 80% of Russia's financial institutions were under sanctions, perhaps even more, but they allowed this big carve-out for certain banks to continue using SWIFT, notably Gazprom Bank, um, to facilitate any gas payments.

SPEAKER_00 30:37

Aaron Powell Because that weeds into how the sanctions mess with the commodity markets. Is that why? Or no?

SPEAKER_04 30:45

Well, yeah, that the Europe did not want to have friction, that gas prices were already very high, that they wanted to be able to uh pay uh for Russian gas in order to keep the lights on, basically.

SPEAKER_00 30:58

Aaron Powell And that's mostly coming from Germany.

SPEAKER_04 31:00

Germany was a big one. Uh but there were others for sure. Um Hungary.

SPEAKER_00 31:06

Right. There were great details uh in the book about what happened in the commodities markets and then as well the chicanery of these oil companies sidestepping the sanctions.

SPEAKER_04 31:17

We can take the oil oil challenge in one go. Um initially, Europe did not want to touch energy and did not want to go after Russian energy supplies because of their dependence. And then bucha happens and the atrocities just cause a sea change. And European leaders are so outraged by the images of uh basically war crimes, what was you know, what looked like war crimes and has since been confirmed as war crimes, um, that they went in the other direction and tried to impose an embargo on Russian oil. Um that had Biden administration officials panicked and worried that that would cause a massive spike in oil prices and a potentially a global recession. And so they were trying to persuade the Europeans to change TAC, and that's when they came up with this out-of-the-box policy called the oil price cap. Western services like insurance would be barred uh to Russian ships unless they were transporting oil at uh under$60 a barrel.

SPEAKER_02 32:28

Okay.

SPEAKER_04 32:29

And that was agreed in an incredible series of negotiations over several months, uh, and an idea that everyone thought was completely insane and unworkable. Nothing had ever been attempted like that before. Um, but finally they agree it, and then they they agree what price to set it at, and that was extremely difficult to get consensus on. Uh it was agreed December 2022, and the few months that followed, it was working. Russian oil prices were down, Russian oil revenues did go down. But then by the spring of 23, Russia has assembled its shadow fleet of oil tankers, these rusty vessels that were transporting oil mostly to Asia outside of Western services, uh, and Putin started earning, you know, hundreds of billions again from oil.

SPEAKER_00 33:22

And one of the details from the book is that these old rusty tankers would sidle up alongside another oil tanker and then have that oil dumped into there.

SPEAKER_04 33:31

Ship-to-ship transfers.

SPEAKER_00 33:32

Yeah.

SPEAKER_04 33:33

Yeah, exactly.

SPEAKER_00 33:34

As as a way to get around the you know, bureaucratic checks and balances. Where's it all coming from? Where's it going to?

SPEAKER_04 33:39

To hide the the origin of it. That's right. Yeah. And it would often happen uh off the coast of Greece in the Gulf of Laconia.

SPEAKER_00 33:48

Yeah, and you dedicated a chapter to this fella. I forget his name, sorry.

SPEAKER_04 33:52

Who was what tracking these tankers? Um yep, that that chapter goes into this um this some of these trades. Um it's there's a guy uh who uh I use as a vehicle for telling the story because otherwise it's kind of dry, but if you you're telling it, and this is what I've tried to do elsewhere in the book is Narrative style. Narrative style, try to find a a figure who can help you tell the story through his eyes, his or her eyes. Um and I do that elsewhere in the book. And yeah, he he's tracking all these tankers and what they're up to. Yeah.

SPEAKER_00 34:29

What other hidden practices, illegal practices, but uh would be known to say the oil commodities traders around the world is happening with oil?

SPEAKER_04 34:41

Well, one thing is um, of course, India's role. India went from getting about 1% of its oil from ru from Russia to almost 40% goes up and down, but roughly that. Um and then what they're doing is a lot of Indian refineries are taking Russian oil, refining it, and then selling it back to Europe.

SPEAKER_00 34:59

Aaron Powell Okay. And not saying that the source of the oil was Russian.

SPEAKER_04 35:05

Right. Once it's refined and it's mixed with other sources, it's it's it's it's basically washed.

SPEAKER_00 35:10

Yeah.

SPEAKER_04 35:11

Um there's that. And then of course, Dubai has emerged as uh a central trading point for Russian oil. A lot of the new oil traders have set up shop in Dubai, uh, you know, where there are very few restrictions and very little regulation and almost no taxes on in any of their free zones. Um so that has been where actually a lot of people have made a lot of money off of this. Uh and my colleagues have reported on some of the people that have made money. We know the names of the companies. Um uh and you know, now there's some reports that the US Treasury is looking into some of those companies for violating the price cap and sanctions.

SPEAKER_00 35:57

I've got a series of questions diverted to the financial opacity, offshore plumbing, etc., which Dubai will wrap into. But two great details uh from the book regarding the sanctions that stood out to me. Russia was purchasing cheap electric goods to catalize its parts specifically for the chips so it could be repurposed for missiles and military use. And so breast pumps from Europe have never been in high demand.

SPEAKER_04 36:20

Yes, yes. Um that is part and parcel of this vast effort by Russia's defense industry to get its hands on Western technology it needs for its its precision-guided weapons. Um, and uh a whole series of middlemen have emerged to facilitate that trade, to buy semiconductors and electric components and ship them on um to Russia in violation of export controls that they are getting into the hands of the Russian defense industry.

SPEAKER_00 36:55

Aaron Powell Because any single piece of this machinery might have, say, 10%, 20%, even 90% of its parts coming from Western countries. And therefore, if those if one individual part was sanctioned within the final good, it couldn't be sold to Russia, hence them cannibalizing all of these other materials to try and get around that.

SPEAKER_04 37:16

Aaron Powell Right. Well, uh the way the rules and they're devilishly complex. These export control rules are just um uh really, really complicated. Uh but what they did was they tried to ban Russia from a whole class of semiconductor of importing a whole class of semiconductors, and that they ratcheted up those controls over the past two and a half years to include more and more components, um many of which are dual use, so-called. They can be used for civilian purposes as well as military purposes. Um but uh the export controls that the US and Europe the the US has imposed uh cover anything that is uh made with US design, even if it's produced in China.

unknown 38:04

Right. Okay.

SPEAKER_04 38:06

So if it's a US designed semiconductor or it uses US design machinery to make that chip, that would still be technically covered under export controls. Very, very hard to enforce because you have these middlemen that are buying up these chips in China and and Hong Kong and shipping these uh components to to Russia. Trevor Burrus, Jr.

SPEAKER_00 38:29

Even if it was a Dutch ASML machine operating in Taiwan, that's all falls under it as well.

SPEAKER_04 38:35

Yeah, and I think the Dutch are part of the export control coalition.

SPEAKER_00 38:39

And then these Western businesses, how they've been affected. So I'd like you to explain the differences in outcomes for them using the examples of McDonald's, Unilever, and Renault. Because I think they broadly capture the three different outcomes for the Western businesses that had huge operations in China, Russia.

SPEAKER_04 38:57

Right. So um, yeah, I do go into what happened to these Western companies and their decision making after the full-scale invasion. It was interesting because when I was in the night when I was in Moscow in the 90s, I covered some of these companies coming in and really hungry for a slice of the Russian consumer market. Um and then, you know, many of them had spent decades since the 90s building up not only uh market operations but physical assets where they were producing a lot of this stuff within Russia. Um and I kind of draw uh case studies out of some of them. McDonald's is the one I lead with because I do think that after they recovered from the initial shock of the invasion, remember they were one of the first to get in into Russia. They opened actually during the Soviet Union in 1990, their first um restaurant on Pushkin Square. Um, after they recovered from their initial shock, they did finally pivot and suspend operations and then quickly realized that it was time to get out. And they were one of the first to get out and get out probably um most closely on their own terms, even if those terms might be unenforceable in Putin's Russia. Um so I kind of do hold them up as an example. Uh there are others. Renault also did get out, just handed over what their factories in Russia for symbolic sum.

SPEAKER_00 40:29

But a crucial detail separating McDonald's from Renault was that the car industry within Russia uh totally collapsed.

SPEAKER_04 40:37

Yes.

SPEAKER_00 40:38

Because they were so reliant on these sort of companies.

SPEAKER_04 40:41

Yes. So why don't we first let's just go back and say end with McDonald's. Unilever was uh the other example. Uh they stayed. They stopped new investment, they stopped importing, but they stayed and continued because they had a lot of physical assets in the country. Um they recently have uh have um announced that they're getting out. They had found a buyer to exit.

unknown 41:10

Okay.

SPEAKER_04 41:10

So, but that's two and a half years later. So that that is a quite a contrast between McDonald's, which quickly pivoted within a couple of months and got out, uh, and Unilever, which stayed. Um Renault obviously is a very different example because uh it it's it involved the car industry in Russia, and the car industry in Russia had transformed to uh create these factories that would were reliant on just-in-time supply networks. Uh they had taken over, they had a major factory in just outside of Moscow, um, which they had invested quite heavily in. Um they ended up basically handing that over to the the Moscow government, the Moscow mayor for a symbolic sum. Um and but the car industry in Russia collapsed because all the Western car makers got out. Uh, and Russia's car industry could not s survive because it had integrated itself into the global supply chain, and once it was cut off from that supply chain, it it just imploded. But then it transitioned and started assembling Chinese vehicles from knockdown kits. Oh, really? Yes.

SPEAKER_00 42:32

So they haven't regressed to lottis, they're now driving BYDs.

SPEAKER_04 42:36

The Chinese uh car manufacturers have moved in in a fairly big way, uh, but m not with the kind of um physical investment. There they are mostly assemblies, assembly kits. Uh and I think there is some degree of concern, we can talk about that a little bit later, that that's that's easy for China to pull out at a whim if they want to, or if there's uh sanctions threatened. Uh, you know, they don't want to be cut off from global markets because they're doing business in China in Russia.

SPEAKER_00 43:09

What do you what do you make of the the moral decision for Unilever particularly? Because these guys are employing presumably thousands of Russians whose jobs are reliant on them. They've heavily invested into the region. They really have nothing to do with the war itself. And so is it just a sort of cynical political reason why they would withdraw? Or do you think morally they've done the right thing, even though it comes at the cost of all of these Russian labor uh this huge Russian labor force who relied on them for their income?

SPEAKER_04 43:44

Well, this is the theme that has come up with a lot of these Western companies that they were concerned about their own employees, which is fair enough. I understand that. Um, and that's why there were efforts by a lot of these by these companies to find buyers to ensure that the Those employees were taken over and taken care of. I do think it's the right thing that they get out. I don't think history will look on them kindly for paying taxes to the Putin regime that's waging war in Ukraine. I feel very strongly about that. And the the chapter goes into some of the unintended consequences of that exit, that there were some Russian businessmen that took over some of these businesses and profited from it. But I do think that's that's a cost worth bearing. And uh that that these companies should not, it's not worth worth it in the globe, given their global footprint, to be paying taxes to the Kremlin in the current situation that is in you know indirectly funding the war. And that long term those those businesses, even uh after they've been taken over by the Russians, will struggle because they will not have the access to Western technology to survive. And you know, even so you've got Starbucks, which sold out to this rapper and this Russian entrepreneur. Um and there's some people who say, ah, the new version, which is kind of a copycat of the Starbucks brand stars, it's not that good. Shocker.

SPEAKER_00 45:14

Um yeah, there was a Russian fella uh who owned many, many McDonald's franchises for himself who ended up acquiring all of Russia's McDonald's business, right? Yes. Yeah.

SPEAKER_04 45:25

He was one of the franchise holders uh in Siberia.

SPEAKER_00 45:28

And I guess it's just it's part of the risk management that you take as a global firm when you decide to enter into another country that for whatever the benefits are for going there, you know, there is a long tail, huge political risk that you might end up eating down the line.

SPEAKER_04 45:44

Right. I mean, look, companies like McDonald's do business all around the world in places that are, you know, don't have a high degree of political stability. This one came out of, you know, a lot of people weren't expecting the this full-scale invasion and the way it panned out. Um but in the greater scheme of things that the brand was more important than the balance sheet hit that they took. And um they, you know, McDonald's always had this motto from one of their former CEOs, Fred Turner, do the right thing. And and it would be very hard for them to continue doing business in Russia without doing the right thing. And they did the right thing. And I actually give them huge credit for it because that was, you know, having been one of the first and companies to enter into a changing Russia during the Soviet period to then symbol of capitalism. The symbol of capitalism, then to turn around and get out must have been incredibly painful. Trevor Burrus, Jr.

SPEAKER_00 46:40

Have you or any of your colleagues, journalistic colleagues, not necessarily Bloomberg, done the work to understand what the actual financial loss was that some of these huge Western companies took by withdrawing from Russia?

SPEAKER_04 46:53

Well, you can see it by the write downs they took. Um obviously the biggest write down was when BP got out. Well, it didn't get out. It just wrote down the value of its share, its 19, 20 percent share in RossNeft. Um uh that was 25 billion off the top of my head. Um so but other other companies took multiple multi-billion dollar hits from from getting out. Um and and like I said, the the the problem really is that so many of the companies stayed and attention shifted away from Ukraine and Russia, and through all the corporate PR spin, people lost track of who actually totally followed through on their commitments to get out. So um, you know, that's a huge part of it.

SPEAKER_00 47:38

Do you think that uh as the your readers, maybe not yours particularly, but generally, they still have an appetite for being told this Western company's in Russia, therefore you maybe shouldn't buy them?

SPEAKER_04 47:49

I think some do, given what we're seeing unfold in Ukraine and all the death and destruction that Russian forces are are meeting out. You know, I think it's there the consumer brands should be more sensitive to boycotts, but those are the ones that ended up staying on the argument that they were just selling pet food or diapers. So why is this isn't we're not part of the war. But they are paying taxes to the Russian government.

SPEAKER_00 48:19

Um and indirectly financing the bloodshed.

SPEAKER_04 48:22

Exactly. So um and you know, the the the big problem that Russia faces is it doesn't have Western sources of investment, it doesn't have outside sources of capital now.

SPEAKER_01 48:35

Yeah.

SPEAKER_04 48:36

Um so that that is hitting the Russian economy and its ability to withstand the war, and I think that is key. And I think I couldn't do that for the book because the book is in sort of publishing purgatory for four months, and I wasn't sure if companies might get out in the meantime, so uh it had to be somewhat backward looking by nature, but I think there ought to be much more focus on the companies that stayed and and what they're what they're doing, and are they following through on their promises? Like Pepsi has stayed.

SPEAKER_00 49:05

Right, right. Shit. Because I guess they thought Coke got out, here's our chance to take over a market, you know.

SPEAKER_04 49:11

It reduced it, it reduced the number of things it's selling, but it's still there.

SPEAKER_00 49:18

I'm just trying to triage the right questions. Um right now, today, Russia, is their economic inflows mostly coming from their oil sales, either illegally through the chicanery discussed earlier, or directly to China and India? Is there any other economic inflows that they have?

SPEAKER_04 49:38

Sure, they've got other inflows. I mean, there's plenty of other things that haven't that that sanctions have steered away from.

SPEAKER_00 49:44

Right. Is it all commodities though?

SPEAKER_04 49:46

I mean, mostly commodities, right? So there's certain metals, for instance, titanium. Russia's a big player in the titanium industry, and you the companies like Boeing and Airbus need titanium to build airplanes. Um they did not sanction Russian aluminum, but they put tariffs on Russian aluminum. Um something like 200% tariffs. So uh you know they learned the hard lesson in 2018 when they sanctioned Oleg Darapaska, who controlled this aluminum company called Roussal. When they sanctioned him, it sanctioned Roussal. Now, Roussal was the biggest, uh the world's biggest supplier of aluminum outside China, and that caused aluminum markets to go crazy because it it potentially took aluminum off the market. And then they negotiated this whole deal with him that he would reduce his control of the company to therefore lift sanctions on Roussel and allow the markets to calm down and Russian supply to come back on. So I think they were very careful about taking out big metals and even, you know, certain things like fertilizer, they have they have steered clear of because the world needs Russian fertilizer. Um, you know, already global food prices had skyrocketed after the war, partly because Russia was bombing Ukrainian grain shipments and preventing Ukrainian grain from getting to the market, not because of sanctions per se. Yeah, yeah.

SPEAKER_00 51:20

Do you feel like those trade-offs that were made in, say, not sanctioning the aluminum or the potash were morally the right decision because the cost would have been pretty significant economic turmoil around the world, potentially halting a lot of development that's happening? Or was the price, would it have been worth it, to devastate however dramatically the global economy for a short period of time to truly cripple Russia?

SPEAKER_04 51:49

So this has been the big challenge with the economic war, is that governments haven't been willing to incur the costs of really hitting Russia hard. And that you you the US and European economies would face real costs if they tried to truly isolate Russia economically. Now that was exacerbated by the fact that we were coming out of the pandemic and we were suffering from inflation and supply chain problems all around the world. Um so that made it worse. Uh, you do see with the softening of economies around the world, things like oil prices coming down. And I think there will be now room for the US, Europe, and UK to go harder after some of these Russian oil tankers for violating the price cap. So uh, because the cost that we will incur will be less because oil prices have already come down.

SPEAKER_00 52:51

And the politics is so wild, potentially broadly among the general population, there just isn't an appetite to eat that loss for a country they've never been to and only seen on the news.

SPEAKER_04 53:04

Exactly. And I think that's a it's a it's a delicate balancing act that um politicians had to find what would be the the appropriate cost, what what what would be the political will for incurring that cost? So you saw huge political will for higher uh gas prices and and oil prices in Europe, for instance. Um so uh but I think as the war has gone on the appetite for those for incurring those costs has has gone down.

SPEAKER_00 53:34

Yeah, unfortunately. And even with your most optimistic take, do you think that downward trajectory can be turned around? Does it does it take some devastating photo photographic journalism to you know reignite the sort of vitriol against Russia?

SPEAKER_04 53:52

I think the thing that might reignite uh uh a stronger sanctions response uh is if Russia starts hitting Ukrainian nuclear power stations and causes a nuclear disaster, that would be the next one. Or if, for instance, a Russian oil tanker, a rusty old oil tanker that should have been decommissioned years ago runs aground and there's a massive oil spill off the coast of Denmark or the UK, that would then uh uh elicit outrage again. How are we allowing this to happen? Um But unfortunately, yeah, we're in a news cycle whereby there needs to be sufficient political outrage and public support for strong action, for additional steps to be taken. Um and it's uh it would be it's it's unfortunate that it's come to that.

SPEAKER_00 54:43

Euroclear's role in all of this, accusations of war profiteering. Uh this was a incredible detail, something that I'm sure really no one's listening has ever heard of, that their role at the center of the frozen Russian reserves.

SPEAKER_04 54:59

Right. So after 2014, Putin annexes Crimea and their threats of sanctions, that they're they're just pinprick sanctions. I go into this the history of like how the Biden administration or the Obama administration responded. Um Putin realizes that he needs to reduce holdings in dollars, Russia's central bank holdings in dollars, and and oversees a sort of strategic steering away of the US dollar into the Euro. Um so by the time Russia invaded in 2022, most of the central bank's uh foreign holdings were in Euros at an institution called Euroclear, which is in Brussels. It's a boring financial institution that no one ever thinks about that was caught in this political storm because it was suddenly sitting on uh hundreds of billions. Yeah. And that it did not it's usually just a transit point on the highway of international finance. It's not supposed to be sitting on huge assets like this. Um but when they when they basically banned transactions with the Russian central bank, all this money got caught at Euroclear. Um, and then there was this big debate over what to do with it because it was suddenly earning interest. It was 190 billion, it was what was officially reported at Euroclear, um 190 billion euros at Euroclear. Um and finally the EU gets to an agreement that they will take the interest off that money. They're not going to seize the actual pot of money, but they're gonna take the interest off of it.

SPEAKER_00 56:41

Um for the purposes of rebuilding Ukraine and so forth.

SPEAKER_04 56:45

Going towards Ukraine. Um but that's not enough money. Ukraine needs more money. So in steps the Biden administration in March of 2023, and they say, let's leverage that interest to raise a much bigger pot of money for Ukraine. No the European countries can agree to seize it, all of it. A lot of people are pushing we should just take the$300 billion. All lawyers agree that Russia is legally obligated to pay Ukraine war reparations. That money's never going back unless they agree, so it's really just an accounting issue. We should just take it now. Um Hungary is opposed to that. For what reason? Well, Viktor Orban is very uh aligned with Putin on many issues, uh, but Germany is also opposed, and France has reservations. So it's not just Hungary. The Baltic states and Poland are pushing hard. They want uh the EU to seize the whole pot. Anyway, in March 2023, the Biden administration steps in and says, we've got a solution. Well, we can raise a loan of as much as$50 billion, backed by these interest payments. Um and even that has run into trouble, partly because of Victor Orban, who holds the presidency of the European Council. Um, the US, in order to sign up to this, wanted to ensure that those assets remained frozen for a long period of time. They wanted legal assurances on that. Orban was opposed to that, and so the EU has gotten around it and uh so that it's not it doesn't require uh unanimity, they can do it on a majority vote, and they've uh uh agreed a 35 billion euro loan for Ukraine. Um and uh that will that is somehow tied to those those assets.

SPEAKER_00 58:37

Um what's the what's the strategic play for Orban there being although maybe philosophically, politically he can be as as conservative as Putin as he likes, but he's a member of the European Union, doesn't it make sense to keep the your your friends within the Union rather than the opposition of the country they're all against? Like what are the reasons he gives?

SPEAKER_04 58:59

He has frustrated the sanctions, you sanctions policy uh time and time again. Uh he held up the price cap. Um he has opposed certain sanctions on certain individuals. Um with the price cap he he uh earned this carve-out for Russian oil uh to be piped into Hungary for use in uh Hungarian refineries that are built for Russian oil.

SPEAKER_00 59:28

Okay.

SPEAKER_04 59:28

So it's a bit of a cash cow for him that.

SPEAKER_00 59:30

Um for an otherwise pretty poor country.

SPEAKER_04 59:33

Ah, Hungary's not that poor.

SPEAKER_00 59:35

No.

SPEAKER_04 59:35

No.

SPEAKER_00 59:36

Okay.

SPEAKER_04 59:36

Um it's I think it's more of a I think he has more of an ideological alignment with Putin in terms of being a strong man leader. Yeah. And it's crazy how far that'll get you. Yeah. So uh and uh uh I don't think he believes it's worth the price.

SPEAKER_00 59:57

Yep, sure. The$350 billion USD in capital flight from Russia, how is this being dispersed?

SPEAKER_04 1:00:08

Well, a lot of it's ended up in Dubai. Um you know, we don't know where a lot of it went. Um but I would say a lot in Dubai, Turkey, other parts of the Middle East. Turkey and Dubai are the two haunts of most Russians um and Turkey. Fucking Sweden too.

SPEAKER_00 1:00:29

So go on.

SPEAKER_04 1:00:30

Yeah, Turkey let's be clear, I think uh there were a lot of Russians who left because they didn't want to be caught up in Putin's mobilization in 2022. So these are ordinary Russians who just didn't want wanted nothing to do with Putin's war. So we should distinguish them from the others.

SPEAKER_00 1:00:48

But there's also included in this capital flight, of course, yeah.

SPEAKER_04 1:00:51

Of course, yeah, right? Um so um but there are others who are sanctioned and are operating between the minigarks and oligarchs. Dubai, Turkey, and Tel Aviv.

unknown 1:01:04

Trevor Burrus, Jr.

SPEAKER_00 1:01:04

What are the sort of alternative assets that these minigarks and oligarchs are using to hide their wealth? Well launder it.

SPEAKER_04 1:01:13

As I found out, particularly when I was in Dubai, that crypto is the new way that they're moving money around. It is it is a relatively easy way to do it. Um Dubai has tried to turn itself into a crypto hub. And um the crypto tether USDT is it's tied to the dollar, so it's relatively stable in term in terms of moving money around. So all you need to do is find someone willing to accept that money for say a villa in Dubai. Um so if I want to buy your villa in Dubai, I can just send you 20 million of USDT.

SPEAKER_00 1:01:50

Yeah. And then I can exchange that for USD.

SPEAKER_04 1:01:53

Yeah. And no one has to do. Because you're not Russian, let's say I'm Russian, you're not Russian. Um you're you're you can more easily do that. Yeah, you'll there are regulations that the that the UAE has introduced to try to increase reporting requirements on transactions like that, to to be clear.

SPEAKER_01 1:02:10

Yep.

SPEAKER_04 1:02:11

Any transaction of that level should be reported to the UAE central bank.

SPEAKER_00 1:02:19

There may be a thousand smaller transactions that add up to that amount, not necessarily.

SPEAKER_04 1:02:23

Right, but if we do the deal directly, we don't have to. Or if if if you're building a development and it's you're be selling it to me off plan, that those rules don't apply.

SPEAKER_01 1:02:37

Yeah.

SPEAKER_04 1:02:38

So that's one way money's getting in. Um but look, the US government has been warning all these financial institutions in the UAE and Turkey and elsewhere to not do business with sanctioned Russians. And that is scaring some of these um some of these banks away from doing that business. But uh crypto is the alternative way of getting around it.

SPEAKER_00 1:02:59

What's MBZ's appetite for the having the reputation for having protected so many Russian oligarchs?

SPEAKER_04 1:03:07

Right. So they were on the the gray list um for a while, which is a designation uh for countries that need work for their uh financial uh on issues like money laundering and the like.

SPEAKER_00 1:03:21

You're saying the emirates or russia is on the emirates.

SPEAKER_04 1:03:24

No, the UAE was on the gray list of um the it's the Financial Actions Task Force, I believe is what it's called, FATF. Yes. And they got off um about a year after the invasion because they had taken several steps, one of which was these reporting requirements on real estate transactions, for instance. Um so obviously MBZ does not want to be seen as harboring Russian illicit money.

SPEAKER_00 1:03:52

It's trying to modernize his country.

SPEAKER_04 1:03:54

But the fact of the matter is there was a lot of money, particularly in the first year, that got into Dubai and the and Abu Dhabi before they did start tightening controls. And uh, you know, the reports were when I was there that it is harder for Russians to open bank accounts there, and that's why they're turning to crypto. Yeah. But they're hosting a lot of crypto platforms that are very questionable.

SPEAKER_00 1:04:17

Your colleague Zeke Fau wrote the most funny but also incredible book on this entire phenomenon.

SPEAKER_04 1:04:22

Yeah.

SPEAKER_00 1:04:23

And tether was at the core of it. The pig butchering in Cambodia is enabled by it.

SPEAKER_04 1:04:27

Absolutely.

SPEAKER_00 1:04:28

Yeah. What what about the more traditional plumbing of offshore of the offshore world? The lawyers, the accountants, the tax havens, how what role have they played in hiding and as well facilitating the movement of this enormous amount of capital flight?

SPEAKER_04 1:04:44

Right. So what I've seen, and I've done a lot of reporting on offshore finance as well. Um I dug deep into the British Virgin Islands, for instance, in the first story. Um those British overseas territories are supposed to be following UK sanctions. And I think that they are cooperating on investigations and sharing uh financial reports when they're requested. Um I'm sure there's a lot of money getting through. I'm sure it's not all uh sweetness and light. Um but you do see a lot of these outer ring offshore centers getting into the action that were uh in previous times Who are they? Belize, Seychelles, a lot of the tankers are in Cameroon or registered in Cameroon. Oh, really? Okay. Yeah, so there I think there are these new financial centers um that are emerging uh as and playing a a role uh because some of the the British Overseas Territories are at least going through the motions and cracking down on some of this on some at least some of the reporting requirements, and they should be. Following the sanctions.

SPEAKER_00 1:06:03

And uh art, the laundering of a lot of money through art? That that was in the book, correct?

SPEAKER_04 1:06:09

Right. So there were examples of um art being bought and then being caught up in sanctions violations. Um in particular, there's one example I give about Oleg Darapaska, and he had an art collection in the US that he tried to get back, um, and that ensnared him in the crosshairs of the Justice Department. Um, but yes, there have been many cases of uh money laundering through art, of sanctions violation through art, of some of um uh the people around Putin were who were sanctioned were able to buy art through intermediaries and and uh transfer tens of millions of dollars through banks offshore, despite sanctions. Now, I think I think the situation has improved since then. I'll I'll I'll I do want to give credit for where credit is due because we're in a much better position than we were two and a half years ago.

SPEAKER_00 1:07:10

Um in in removing some of the opacity from this world.

SPEAKER_04 1:07:14

Not only the opacity, but there's just a a greater appetite for going after Russian money and trying to identify it. Trevor Burrus, Jr.

SPEAKER_00 1:07:20

Particularly Russian money, though. What if you're a Kazakhstani oligarch?

SPEAKER_04 1:07:23

This is the thing. Right. Exactly. I I think I think the the appetite to go after the Russian money is is still there. Whether or not there's an appetite to go after the Chinese money or the Cossack money in the same way, I I don't I don't think so.

SPEAKER_00 1:07:36

Aaron Ross Powell And we're seated now in the most stunning office I've ever been in, but London. And it has a reputation for a reason, right? When it comes to the hiding facilitation, how much of that capital flight was just parked in big assets here in London?

SPEAKER_04 1:07:58

And right, so the capital flight I've mentioned in the book is post-2022. Um but Russia has suffered from capital flight for years because of concern about seizure of assets and the political situation there. And that's why you had so many of these Russian oligarchs who brought mega bought mega mansions in London, um, kind of based themselves here. Uh now, since the invasion, the UK has frozen something like I think the latest figure is 22 billion pounds worth of assets. And you see a lot of these mansions, particularly in North London, that are frozen. Oh, right, okay. Um and the probab there you there there have been these oligarchs have applied for licenses for security so they're not squatted, uh, so that they're able to pay for security guards. But you know, so there has been a lot of uh progress on that front. I think the status of those buildings remains uncertain. They could be frozen for many, many years. Um are there more? I'm sure there are. Right, right. I'm sure of it because of the opacity of the real estate market here. Even with the changes that they've introduced, I think it's still unclear.

SPEAKER_00 1:09:13

That that's the whole problem of this offshore network. Do you even know who owns this office building that you work from every single day? Do you know how many layers connected you are to potentially bad guys?

SPEAKER_04 1:09:28

Yeah, there still is layering. And that there's another thing that I uncovered in the book is you this the UK's had a problem with setting up companies um for illicit transfers of wealth. And I I came across one example of a company owned by a guy with the director uh was indicted by the Justice Department, and he was still listed in Companies House a year and a half after he was indicted. Right. Um they done nothing to shut him down. Um, so there are definitely gaps there. Um and setting up companies as a sort of transit point for transferring money and money laundering is is one. Um obviously real estate is the other.

SPEAKER_00 1:10:14

That same motivation which withdrew the huge Western companies that were operating in Russia, does that same pressure apply to, say, the law firms here, the PR firms here, the real estate firms here that are facilitating this Russian money? You know, the same sort of pressure of shame or guilt or moral obligation to not do business with these types of people.

SPEAKER_04 1:10:39

Well, you see, most of the Western law firms have gotten out of Russia, and I don't think they want to touch that business. So I do think that there has been a sea change in that that respect, and there has been um restrictions on accountancy services and the like and PR services for Russians. So I that that's kind of the pre-2022 story. I'm not saying it's completely over. I think there are probably examples that we don't know about that are still happening. Sanctioned Russians who still have property in the UK that has not been frozen or identified. There's certainly examples of that. And I'm sure there are enablers helping them hide that. Um, but the whole era of welcoming Russians with a red carpet into London, no questions asked, that has really ended, I would say.

SPEAKER_00 1:11:26

So in your 26 years of being across this particular issue, you are seeing a trend towards it becoming better. Particularly since the year 2022.

SPEAKER_04 1:11:39

Absolutely. I mean, that they've they've staunched the flow and in Russia is Russian money is no longer welcomed with open arms. In the UK, in particular, and I think the UK is quite unique in that sense. The agreement and and consensus across political parties on support for Ukraine and the danger of Russia is unlike what we see in the United States or in some European countries.

SPEAKER_00 1:12:05

Is there any other country or geographical part of the world that has provides as much demand for these services as do the Russians?

SPEAKER_04 1:12:16

The Chinese, for sure. All right, of course. The Indians, I would say. Absolutely. Um Brazilians, these some of these uh countries that uh rapidly growing uh and with a new class of rich people that want that sort of lifestyle and need the the layered transactions uh through offshore entities to move their money around tax-free.

SPEAKER_00 1:12:49

Yeah. What is the world like when you're maybe a mini-gark, Russian multimillionaire, you're swanning around on yachts, you own lots of property all over the world, you know, you're working the Irishman and Abu Dhabi to get a fake passport, you're dodging tax and legal accountability wherever you are. You've lived in these people's heads, reported their lives. What does the world look like to these guys from like a philosophical worldview point of view? You know, are they is it a love of Russia, or are they just cynically in it for the power and the money?

SPEAKER_04 1:13:22

I think it's hard to make generalizations.

SPEAKER_00 1:13:24

Yeah, but I'd like one.

SPEAKER_04 1:13:26

Uh I think um they're obviously in it for the money and not just the money itself, but the status that the money endows. And uh that they are the ones that have been sanctioned and and and blocked from travel in Europe and the UK and other places are obviously very frustrated that they can't lead this life where they're swanning in and out of Moscow and London and Saint-Tropez. And I think that is quite a frustration that this part of the world has been cut off from them. But um I think it's turned some of them quite anti-Western. Uh, but I I do think they're still smarting from having their old lifestyle taken away from them.

SPEAKER_00 1:14:11

That that was a that was a strong point you made in the epilogue of the book. Um, whether it was your own opinion or just reflecting the maybe a popular opinion, but the sanctioning having gone as it has has turned the has proven Putin's point, which is always saying the West hates you, but you've always lived in the West and people have liked you, but now they've taken away your freedom of movement, maybe a lot of your assets, and you're now turning anti-Western as well, maybe consolidating that power within Russia. Did that question make sense?

SPEAKER_04 1:14:46

Yeah, so he Putin has used the sanctions um as well as the military support for Ukraine to convey a message that the West is all against us, the West hates us. Um, and because he has such a control over media, he's been able to control that message quite effectively. And uh and in some senses, um, I think there has been a lack of sophistication in some of the sanctions policy that that has allowed that message to get through. I don't think there's been enough of a uh messaging exercise that you know we're not against the ordinary Russian, we're against the Putin regime. Right. Um so which but I think it's very hard. I let's face it, I think this is a very hard message to get across and very difficult to cut through Putin's propaganda on that front. But could they have given, say, asylum to some Russian who was avoiding mobilization orders? I know that's all I know that's really hard, but I personally, I know that's a controversial thing to say. I think some Ukrainians might differ, but I think anything that you can do to undermine his ability to recruit for the Russian army is a good thing.

SPEAKER_00 1:15:58

Right, right. And then you get presumably an ambitious, high-skilled person to enter your labor force.

SPEAKER_04 1:16:04

Right. I mean, I helped I was trying to help a couple guys like that in that situation that were really worried about being caught up in the mobilization, who are just ordinary tech guys, wanted to get out. And it's it was very difficult to to find a way for them to get visas to get out and work in anywhere but Dubai, really, or or Turkey. So there there is a class of those people who were against the war, didn't want anything to do with Putin's Russia and wanted out.

SPEAKER_02 1:16:33

Yeah.

SPEAKER_04 1:16:33

Um and I know it's hard because Russia is so sophisticated with its intelligence operations that they could be easily kind of infiltrating the West through fake draft dodgers, right? But um, I think there's got to be a way to do that on some level.

SPEAKER_00 1:16:49

And maybe to a very Telebian point, you just allow for some inefficiency for the broader system to work. Right. Um totally devastating anecdote, which was just brought to mind because you mentioned you were trying to help a couple of young tech guys get out of Russia. My uh girlfriend employs a lot of Russian developers. There's one guy in particular, he's 24, he's big and muscular. He hasn't left his house for over a year, except for late at night when he knows he can sort of get out out of fear of being taken off the street and sent into the meat grinder. And it's so, so uh devastating because he is apolitical and is not interested in any of these games that they're playing. And he's a very talented, very ambitious guy who could just by sheer bad luck is in this fucked-up situation. Um and it's you know, you put a face to a story, like the emotion actually becomes real.

SPEAKER_04 1:18:00

Absolutely, and you know, there are Russians that are being um arrested and imprisoned for the slightest offense, giving ten dollars to Ukrainian charity or posting something online that a story that might have been somewhat critical three years ago, they're being thrown in jail. So the situation in Russia is really uh terrifying. Um and I know that there are a lot of people who are continuing to try to get out because the political situation is so um unstable.

SPEAKER_00 1:18:32

Yeah. So the way that we have I know in Sweden, uh a lot of Ukrainian refugees came, Sweden put them up, they've still got them up, they've got short-term working visas. It almost you could definitely make the moral case for the same should be done for Russians, but to the point that you were just making.

SPEAKER_04 1:18:48

I think that's harder to make. I mean, let's fa I I do want to stress, yeah, I was in Ukraine in June, and the situation there is just devastating. I it's the loss of life is just staggering. Um not just Ukrainians who have joined the military to defend their country, but innocent civilians who've been targeted by Russian missiles far from the front line. And the the destruction of Ukraine's energy infrastructure, it means people don't have uh electricity or heating. This winter is gonna be so tough. Tens of thousands of Ukrainians have died. We don't and won't know the true number because we don't know how many died in Mariupol. Um so it's you know, let's not focus so much on the suffering of the Russians, but let's focus on the Ukrainians who are paying a much higher price, in my opinion.

SPEAKER_00 1:19:43

Aaron Ross Powell, or to your point, rather than talking about the Russians, talk about Putin's regime.

SPEAKER_04 1:19:50

That's what I yeah, that's what I've tried to argue, is that there should be more of a focus on the regime. And I would include these businessmen who say they don't have anything involved in politics, but the fact of the matter is they control huge swathes for the Russian economy, so they are part of the war economy.

SPEAKER_00 1:20:06

Exactly. Time is really snuck up on us. Um how much liquid wealth do you suspect Putin has is at his disposal right now?

SPEAKER_04 1:20:15

Oh, as much as he wants. I mean, I think hundreds of billions of dollars? I think it's uh a mistake to think he's got some Swiss bank account. I think he just holds assets through other people. He owns the country. He can tap whatever he wants. He can tap Rossneft, uh, he can tap fellow oligarchs to chip into a kitty if he wants to do X, Y, or Z. So I I think the resources at his disposal are potentially endless given the terror, the reign of terror he presides over in Russia.

SPEAKER_00 1:20:50

Uh you finished the book with this very ominous message. Uh Chinese leaders are stating that our common interests are multiplying. The new Cold War won't play out like the old one did, and historians will be poring over the choices we make now.

SPEAKER_04 1:21:03

Absolutely. Absolutely. It's the choices we make now are so important. Um on that front, I do have some hope that the threats from Washington to sanction banks that do business with Russia's military-industrial complex or anyone that's sanctioned, these so-called secondary sanctions on foreign banks, that that could and is leading to Chinese banks stepping away. It's harder for Russia to make cross-border payments with China. Uh, it is potentially driving a wedge between China and Russia.

SPEAKER_00 1:21:38

Yep. The role that serendipity has played in your life, Stephanie, last question.

SPEAKER_04 1:21:44

The role that serendipity has played in my life. Oh, in so many different respects. Um, I ended up in Russia not wanting to be a reporter focusing on business and finance and money, but the story ended up being centrally about money. And that's when I tr transitioned and became what you might call a business reporter. I've always covered the intersection of business and politics where I think it's the most interesting, but I think that was serendipity, and and thank God it did force me onto that track because I think it's been a fascinating ride, and um I think it's the best kind of journalism to focus on. Follow the money.

SPEAKER_00 1:22:31

And now you've published this book. What sort of serendipity can you anticipate? How will your career change?

SPEAKER_04 1:22:38

That's a really good question. It's early days. Um, it it's gratifying to get some of the attention and re positive reviews that I've gotten so far. Um, I've learned so much. It's been a massive learning curve for me. Um, it's kind of sucked the life out of me, to be honest with you. I don't really know if I have the wherewithal to do it again. Um, but at least now I know what it's all about. And I fulfill my dream of having written a book and particularly writing a book about Russia, which I always wanted to do.

SPEAKER_00 1:23:11

Yeah, absolutely incredible. Thank you so much for your time.

SPEAKER_04 1:23:15

Thank you for having me.