T.he Ukrainian crisis has revived an old debate: how to effectively sanction a state like Russia? Let’s face it right away: it’s time to imagine a new type of sanction centered on the oligarchs who thrived thanks to the regime in question. This will require the establishment of an international financial register, which will not please Western fortunes, whose interests are much more tied to those of the Russian and Chinese oligarchs than is sometimes claimed. However, it is at this price that Western countries will be able to win the political and moral battle against autocracies and to prove to the world that the clamorous talk about democracy and justice are not mere empty words.
We recall first of all that the freezing of assets held by Putin and his family members is already part of the sanctioning arsenal that has been tried for several years. The problem is that the blocks applied so far remain largely symbolic. They concern only a few dozen people and can be bypassed using names, especially since nothing has been done to systematically measure and cross-reference the real estate and financial portfolios held by each of them.
The United States and its allies are now considering completely disconnecting Russia from the Swift financial network, which would deprive Russian banks of access to the international system for financial transactions and money transfers. The problem is that such a measure is very poorly targeted. As with conventional trade sanctions, which after the 2014 crisis were largely exploited by the government to strengthen its grip, the risk would be to impose considerable costs on ordinary Russian and Western companies, with negative consequences for the employees concerned. The measure would also affect a large number of bi-nationals and mixed couples, saving the richest (who would resort to alternative financial intermediaries).
To bring the Russian state to its knees, we need to focus sanctions on the thin social stratum of multimillionaires that the regime relies on: a much larger group of a few dozen people, but much smaller than the Russian population in general. To give you an idea, you could be targeting people who hold over 10 million euros ($ 11 million) in real estate and financial assets, or around 20,000 people, according to the latest available data. This represents 0.02% of the Russian adult population (currently 110 million). Setting the threshold at 5 million euros would reach 50,000 people; lowering it to 2 million euros would reach 100,000 (0.1% of the population).
It is likely that a considerable effect can already be obtained by targeting who has more than € 10 million. These 20,000 people are the ones who have benefited most from Putin’s regime since he came to power in 1999, and all the evidence suggests that a considerable portion of their real estate and financial assets are located in Western countries (between half and three quarters ). It would therefore be relatively easy for Western states to impose a hefty tax on these goods, let’s say at the beginning at a rate of 10% or 20%, freezing the rest as a precaution. Threatened by ruin and a ban on visiting the west, we bet this group will be able to make itself heard by the Kremlin.
The same mechanism could have been used in the wake of Chinese political repression in Hong Kong and could be applied in the future for the approximately 200,000 Chinese citizens who hold more than 10 million euros. Although their assets are less internationalized than those of the Russians, they too would be hit hard. It could destabilize the regime.
To implement this type of measure, it would be enough for Western countries to finally establish an international financial register (also called the “global financial register” or GFR) that would keep track of who owns what in the various countries. As the World Inequality Report 2018 has already shown, such a project is technically possible and requires public authorities to take control of the private central depositories (Clearstream, Eurostream, Depository Trust Corporation, etc.) which currently register the securities and their owners. This public register would also be an essential step in the fight against illicit flows, drug money and international corruption.
So why hasn’t progress been made in this direction yet? For one simple reason: wealthy Westerners fear that such transparency will ultimately harm them. This is one of the main contradictions of our time. The comparison between “democracies” and “autocracies” is exaggerated, forgetting that Western countries share an unbridled and hyper-capitalist ideology with Russia and China, and a legal, fiscal and political system increasingly favorable to great fortunes.
In Europe and the United States everything is done to distinguish the useful Western “entrepreneurs” and at the service of the harmful and parasitic Russian, Chinese, Indian or African “oligarchs”. But the truth is, they have a lot in common. In particular, the immense prosperity of multimillionaires on all continents since the 1980s and 1990s can be largely explained by the same factors, and in particular by the favors and privileges accorded them. The free movement of capital without tax and collective compensation is an unsustainable system in the long term. It is by questioning this common doxa that we will be able to effectively sanction autocracies and promote another model of development.
Thomas Piketty is a professor of economics at the Paris School of Economics. He is the author of numerous articles and books, including Capital in the 21st Century. This article was originally published in Le Monde