In the dark of night on March 4, Italian police in the Ligurian port of Imperia encircled a 215-foot superyacht belonging to Russia’s fourth-richest person, Alexey Mordashov.
The European Union had sanctioned the billionaire on Feb. 28, days after Russia’s invasion of Ukraine. His extensive holdings in Europe — including “Lady M,” with its swimming pool and beauty salon — were seemingly frozen by authorities.
Mordashov, however, had already made moves of his own.
The same day the steel tycoon was sanctioned, he shifted control of a roughly $1.1 billion stake in London-based mining company Nordgold to his wife, Marina Mordashova. He also moved a chunk of his $1.7 billion stake in holiday tour-business TUI AG from a Cyprus holding company to one incorporated in the British Virgin Islands.
As lawmakers worldwide ratchet up pressure on some of Russia’s elite as a way to pressure President Vladimir Putin, they’ve often pointed to blocked superyachts, luxury real estate and sports clubs as signs their efforts are working.
But the truth is murkier — revealed in arcane corporate filings that can take days before becoming public. They show Russian billionaires shifting ownership stakes, ditching board roles and giving up control, all part of a race to get ahead of officials in the U.S., U.K. and EU and restructure their assets while they still can.
One example is Mikhail Fridman, who was sanctioned by the EU alongside Mordashov and his business partner Petr Aven. Filings show he ceded control two days later of at least three companies in the U.K., where he’s not sanctioned. He transferred those shares to a former employee at LetterOne, the investment firm he co-founded.
Vadim Moshkovich cut his stake in agricultural conglomerate Ros Agro Plc to below 50% before the sanctions hit. Andrey Melnichenko withdrew as a beneficiary of his roughly $17 billion stake in fertilizer producer EuroChem and thermal coal supplier Suek effective March 9 — the day he and others were sanctioned.
That didn’t stop Italian authorities from seizing Melnichenko’s $580 million-euro superyacht in Trieste, Italy. There is no justification for Melnichenko to be on an EU sanctions list, and he will be challenging the measures, a spokesman for Melnichenko said in an email Saturday after the seizure was announced.
Sanctions require compliance from industries, and companies have to quickly dig through corporate ownership layers to find, freeze and report relevant accounts. In the U.S., they share findings with the Office of Foreign Assets Control, or OFAC.
It may take time for financial institutions to identify associated accounts of a sanctioned individual that aren’t already widely known, said Howard Mendelsohn, chief client officer at Kharon, which uses technology and experts to construct the network of relationships around sanctioned parties.
“They might be thinking, ‘I might have a little time here before anyone figures out what all my companies are, especially those that are majority-owned,’” Mendelsohn said. “I’m going to shuffle. I’m going to take my daughter, my wife, my employee or employees, and I’m going to put this stuff in other names. It’s going to show up and it’s going to be documented that I’m not the majority owner.”
In the U.S., there’s a clear incentive to drop majority control: OFAC’s so-called 50% rule.
It states that property or interests owned by sanctioned individuals must be blocked if people named on the government’s list have a 50% or greater aggregate stake. That makes divesting shares a popular maneuver to get under that threshold.
The U.S. Treasury 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 shuffling assets. Oil mogul Gennady Timchenko sold an almost 50% stake in a Finnish petroleum distributor days before being sanctioned following Russia’s annexation of Crimea in 2014.