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The West, and United States, Undermine Sanctions with their Financial Institutions

As Russian troops bulldoze and bludgeon Ukraine, the West has begun implementing one of the few tools in its arsenal: sanctions. The United States blacklisted multiple Russian oligarchs and banks, and the United Kingdom followed suit by blocking Russian banks and barring Russian companies from raising money on British markets. The European Union issued what its foreign-policy chief, Josep Borrell, dubbed the “harshest package of sanctions” in the bloc’s history, targeting energy, trade, and a group of Russian oligarchs long thought untouchable.

The Western response has been far broader than most experts anticipated, and threatens to throw the Russian economy into chaos. Yet there’s a catch. Absent significant domestic reforms in the West—reforms that should have been enacted long ago—sanctions targeted at the oligarchic and official figures close to Russian President Vladmir Putin risk inflicting little more than a flesh wound on Russia’s imperial kleptocracy.

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The U.S. has, in many ways, led this democratic march over the offshoring cliff. With few Americans paying attention, the U.S. transformed over the past few decades into the world’s leading financial-secrecy haven, providing all of the anonymity services kleptocrats in Moscow and around the world needed to continue their transnational money-laundering operations.

States such as Delaware opened anonymous shell companies for whoever came calling, while South Dakota and others invented new financial-secrecy tools that prevented even the federal government from figuring out who’s behind trusts in those states. Along the way, American law firms—operating for decades without basic anti-money-laundering checks—joined real-estate agentshedge-fund managers, and art-market executives in providing all the skills and loopholes necessary for oligarchs and related entities to skirt even the most basic regulations.

Why have Western governments been so slow to take action against this sort of corruption? These offshoring networks are, by design, difficult to understand and disentangle. Purposely obscured, purposely buried, their kleptocratic appeal lies in their anonymity and in their invisibility. Yet complexity alone cannot explain the persistence of these practices. For decades, Western industries have profited from the (anonymous) inflows of this oligarchic wealth. Shell-company providers in Nevada and Wyoming, real-estate agents in Malibu and Miami, white-shoe law firms in New York and private-equity managers in Connecticut, art gallerists in San Francisco, and PR spin doctors in Washington—all took a slice of the money pouring through the offshoring sieves, without any questions asked.

These industries sold, and entrenched, as much anonymity as they could, and took their helping of profit for the trouble. In so doing, they not only transformed places like the U.S. into the titans of the offshoring world but also helped create the kind of national-security threats now on display in Moscow. So long as the policies that enable dirty money to flow around the globe remain in place, untouched even by those Western politicians now railing against Russia, any sanctions-related response will be less than the sum of its parts.

Read entire article at The Atlantic