Serious Sanctions and Asset-Freezing, etc., Against Russia

This is the serious stuff (not canceling Markov Chains, Russian opera, and other crap like that)

obviously, a lot of different sanctions are already in effect, but I wanted to go into one that sounds kind of silly, but has some interesting aspects to it.

This has to do with freezing of assets of the various Russian oligarchs spread about outside Russia, and in particular, some of the Russian oligarchs own sports teams.

From Matt Levine’s newsletter (I’m copying from email as I don’t actually have a Bloomberg account currently):

The U.K. froze the assets of Chelsea Football Club owner Roman Abramovich, as Boris Johnson’s government dramatically stepped up its sanctions against prominent Russians over the invasion of Ukraine.

Abramovich and six others face a full asset freeze and travel ban, and are prohibited from transacting with U.K. citizens or businesses, the Foreign Office said in a statement Thursday. The move effectively derails Abramovich’s plan to sell Chelsea, which plays in England’s highest soccer league, and raises major questions about the future of the club.

Chelsea won’t be able to sell new tickets for matches, including games in the European Champions League, and the club’s merchandise stores will be closed. Player transfers are banned, as are new contracts.

I will put Levine’s commentary behind a spoiler:

getting into ridiculous amount of detail

Here is the general license from the U.K. Office of Financial Sanctions Implementation that allows for a limited set of transactions with Chelsea; here is a summary. “As it is also prohibited to make funds or economic resources available to any individual or entity subject to an asset freeze,” you are not allowed to buy tickets. If you’ve already bought tickets, you are allowed to use them to go to a match. Once you’re there, you are allowed to buy refreshments, even though that involves giving money to a sanctioned entity, I suppose because it is cruel not to let you buy a beer if you’re at the game anyway. You can’t buy merchandise from Chelsea, but you can resell it: “Third parties who purchased or produced Club Merchandise prior to 10 March 2022 are permitted to sell existing stocks of Club Merchandise, on the condition that no funds or other financial benefits are made available to the Club or to” Abramovich. There are other exceptions. If you’ve already got a player transfer agreement or a broadcasting deal with Chelsea, you can make payments. Chelsea can keep paying staff and players. The team can spend money to travel to games, capped at 20,000 pounds per game. But, roughly speaking, no new deals.

Sanctions are a bit of a strange instrument. Chelsea Football Club is a corporate entity in the U.K. that is run by professional executives and employs lots of people, most of them in the U.K., most of them not Russians. It has its own bank accounts. The equity of Chelsea FC is owned by Roman Abramovich, “a prominent Russian businessman and pro-Kremlin oligarch,” according to the U.K. sanctioning notice, but Chelsea existed long before Abramovich; he acquired ownership in 2003. Chelsea is not exactly being sanctioned — Chelsea did nothing wrong — but Abramovich is.

If you wanted to get at Abramovich financially, one thing that you could imagine doing would be taking Chelsea away from him , for no compensation, and giving it to someone else. (Let the equity be owned by the U.K. treasury, or by the Ukrainian treasury, or by the fans, etc.) Then Chelsea could operate normally and Abramovich wouldn’t get any benefit from it. Alternatively you could just shut Chelsea down: dissolve the corporate entity, fire everyone, kick it out of the Premier League, etc.

This is not, however, generally allowed ; governments cannot generally expropriate property from people without some judicial showing that they came by the property illegally. Sanctions are not about taking stuff away from sanctioned individuals, but rather about freezing their stuff. You can’t send money to Abramovich, and he can’t spend the money he has (in the U.K.), but they can’t take his money away from him exactly. In theory this is temporary, and one day the war will end and he should be able to get his stuff back.

Another thing you could imagine would be not freezing Chelsea — letting it sell tickets and buy and sell players and generally conduct itself as a sensible soccer business under its professional management — but just preventing it from distributing money to Abramovich . The barrier would be between Chelsea and Abramovich, not between Chelsea and the outside world; Chelsea could get and spend money but it couldn’t give the money to Abramovich.

But sanctions mostly don’t work that way: “Asset freeze restrictions also apply to any entities that are owned or controlled by Roman Abramovich,” says OFSI. Part of that is about ensuring compliance: In general, if you let Abramovich-controlled businesses operate normally, they might try to operate in ways that benefit Abramovich (e.g. sending him money secretly to get around sanctions, spending money to buy stuff for him that he can’t buy because his money is frozen, etc.), because after all he controls them. I suppose part of it is also about making sure that his position is really frozen: If Chelsea makes a lot of money in his absence and puts it in the bank, and then one day he gets unfrozen and collects the money, then in some sense the money was going to him all along. You don’t want him to accrue wealth, even inaccessible wealth, while he’s sanctioned.

And so you get this weird result where Chelsea is allowed to operate, but badly ; Abramovich is not allowed to take money out of it, but you are also not allowed to put money into it (except for refreshments). It is hard to run a soccer club like this for long. Presumably the expected result of a regime like this, most of the time, is that the frozen business withers and disappears; presumably with Chelsea the actual result will be that Abramovich negotiates a sale, the proceeds do not go to him, and the U.K. government grants a sanctions exemption to allow the sale. (A U.K. “official said the government ‘would consider an application for a licence’ to sell the club but that Abramovich would not be allowed to benefit from the sale while he is under sanctions.”) The sanctions cannot legally take Chelsea away from Abramovich, but they can have the same practical effect.

Hmm, maybe Putin will give Abramovich control of all the McDonalds and other foreign assets in Russia to compensate.

I wonder how the dollars compare if Putin did attempt to compensate the oligarchs in such a manner. (Taking a piece for himself too, I assume.)

Note that “freezing assets” is not the same as “seizing assets.” If Putin decides he’s going to seize Western assets as property of the Russian government, … OK, fine, the West will do that as well. Pretty sure the West can sell those assets and recoup a shitload of money in the process to compensate those who lose assets to Russia, and still have a shitload of assets left over.

Also pretty sure we can do that a whole lot easier than Putin, who’s going to have limited outlets and limited assets that someone else says yeah, I’ve been looking for that stuff, couldn’t find it anywhere else, thanks Russia for getting this for us, that’s stuff that’s really going to help us out!

Putin’s going to seize those assets and … what, sell them to China? Not sure what’s in Russia that China would really want that it doesn’t already have. North Korea? Kim might have whatever money he’s gained from cybercrime, maybe he can shuffle those assets to someone else for military stuff - but again, who really wants that stuff? The Saudis and the Middle East? Maybe, and they might be his financial lifeline right now anyway - but again, not sure there’s a whole lot there they’d really want.

If I’m not mistaken, when Obama sent all that cash to Iran it included the initial amount that was frozen back in 79 along with interest since then up to when it was given back.

Correct, it was money that belonged to Iran. The key part is “he sent it all in cash.”

I know, the right flipped the fuck out over that like it was some giant conspiracy and we were out all that cash [ignoring the Fed’s daily printing of cash to finance the economy]. It was a massive PITA for Iran, though. It would have been far easier for that money to be electronically transferred into some account that Iran could then flip to whatever currency it wanted with the push of a button. Instead, it had to do all that converting with physical bills.

Try taking $500K U.S. and going to a currency exchange and getting similarly-valued Canadian currency. Then imagine having to do that with all the U.S. currency Iran got.