Italy Is Leading the World in Seizing Oligarchs’ Assets

Italy Is Leading the World in Seizing Oligarchs’ Assets

17 Aug 2022 (FP NEWS)

“Designed by the illustrious Italian design firm Nuvolari Lenard, the Lady M II sports a spectacular Art Deco prow figure in the form of a giant Jaguar,” the website notes in an article on the roughly $60 million megayacht belonging to Russian oligarch Alexei Mordashov. Or rather, it used to belong to him.

Less than two weeks after Russia’s invasion of Ukraine, Italy’s financial police, the Guardia di Finanza, seized the yacht, which features wave runners, a Jacuzzi, a gym, and a helipad. And lots of Russian oligarchs have encountered a similar fate at the hands of the efficient Guardia di Finanza. Other countries could learn from the unusual police force, which has a military structure but operates under the Ministry of Economy and Finance and investigates all manner of financial ill-doing.

Don’t feel too sorry for Mordashov, the billionaire majority owner of Russian steel giant Severstal. He also owns a much bigger yacht, the 464 feet, six-deck, $500-million Nord. It was completed by German shipbuilder Lürssen only last year, and Mordashov had not been able to enjoy the vessel for very long before Russia invaded Ukraine. Fortunately for Mordashov, his crew then managed to sail Nord from Seychelles to Vladivostok, Russia, from where Mordashov can enjoy the chilly delights of Golden Horn Bay.

But like many other yachts owned by Russian oligarchs, the Lady M II was docked along Italy’s seductive shores when Russia invaded—and to Mordashov’s surprise, the Guardia di Finanza struck quickly. Barely a week had passed when it seized the Lady M II—which was docked in Imperia, Italy, close to Monaco—and Russian oil and gas billionaire Gennady Timchenko’s superyacht Lena, which was docked in Sanremo, Italy. German authorities seized metals magnate Alisher Usmanov’s $600-million megayacht Dilbar while Rosneft CEO Igor Sechin’s superyacht, Amore Vero, was seized by French police. (Russian President Vladimir Putin moved his three yachts to Russian waters before the invasion.)

Since then, various European countries have seized or frozen (a softer step) Russian oligarchs’ assets. The United Kingdom, home to a host of Russian bank accounts and properties, has frozen billions of dollars in assets but made only modest seizures. In April, when the European Commission compiled European Union member states’ frozen assets, France topped the list at 24 billion euros (around $24.4 billion); 22 billion euros of that, though, were Russian Central Bank funds. Frozen assets are—theoretically—easier to get back, but the prospects for that aren’t great for Russia’s billionaires for now.

It’s easier to hide the property in the first place, and Italy has emerged as a leader in tracking down ill-gotten gains. In the freezing or seizing of oligarchs’ various assets, Italy has emerged as the leader. Doing so is a tricky art since most oligarchs hide their assets well, and even when an asset is well known—a villa, say, or a yacht—the ownership structures can be so complex that authorities struggle to prove the item is, in fact, owned by the sanctioned person.

The Guardia di Finanza was made for this moment. Or rather, it was made for the moment when, in 1774, King Victor Amadeus III of Sardinia decided that he needed a military border force that could also surveil the money entering and leaving the kingdom’s two parts—the island of Sardinia and the region of Piedmont. After its unification, Italy kept Sardinia’s unique border force.

During both world wars, the force—with its unique combination of military and financial skills and commanded by a military officer—fought with Italy’s traditional military units. Today, it’s known as the Guardia di Finanza, and like its sister force the Carabinieri, it operates nationwide but under the Ministry of Economy and Finance rather than the defense or interior departments, as the Carabinieri does.

Having a specialized financial crime force has certainly been useful for the Italian government, not to mention the Italian taxpayer. A selection of news items from the past couple of weeks: In Padua, Italy, Guardia di Finanza officers seized around 9,000 counterfeit T-shirts, and in the Italian province of Lecce, officers seized 80,000 counterfeit goods, including iPods. (Italy treats counterfeiting as a criminal offense.) On Sardinia, the force documented 24 illegal bars. Off the coast of Italy, force divers chased mussel poachers. In Salerno, officers uncovered and seized 1 million euros (just over $1 million) hidden by mafiosi. And in Catania, its officers established that a Mafia member was skimming the public purse by getting contracts for a bankrupt company.

Indeed, over the generations, Italian organized crime’s clever financial machinations have pushed the Guardia di Finanza to investigative brilliance that financial investigators in other countries would struggle to match. “Mafiosi are not afraid of going to prison; it’s like a promotion within their organizations,” Brig. Gen. Salvatore Russo, a former commander of the force’s organized crime squad, told FP. “What they’re frightened of is losing their wealth. That’s why seizing assets is always the first goal in our investigations.”

The same skills are eminently useful in investigating tax-dodgers, counterfeiting, and corruption. “The Guardia di Finanza is part of the Italian approach to crime, domestic security and ‘law and order’ in general that in the last three-four decades has yielded significant results internationally,” noted Stefano Stefanini, an Italian former ambassador to NATO and diplomatic advisor to the president of Italy. “It has a military structure aimed at civilian goals. That guarantees military professional standards in training, discipline, command and control.”

When Russia invaded Ukraine, many luxury-loving Russian oligarchs had flashy possessions in Italy, and officers immediately got to work. “Our activity was initiated by European Union Regulation 2022/336 [the EU’s first batch of sanctions imposed on Russian officials and oligarchs] that was issued in February, and within two weeks, we had identified all the villas and yachts,” Russo said. “Because it’s our daily job to go after criminals’ assets, we used the same methods to investigate Russian oligarchs’ assets. Investigating sanctioned individuals is obviously a bit different because it’s not a criminal investigation, so we couldn’t use bugs and similar tools that you would use in a criminal investigation. But the point is that we know how to follow the money in transnational investigations.”

Since then, Italy has frozen a staggering array of oligarch assets. Usmanov’s sister Gulbakhor Ismailova (who is also the Dilbar’s official owner) has lost access to properties worth 50 million euros (or almost $51 million) in the Sardinian province of Sassari. Fertilizer billionaire Viatcheslav Kantor has lost access to real estate for 56 million euros (or $57 million) in the Sardinian municipality of Olbia. Russian aviation firm PJSC United Aircraft Corporation has lost aircraft worth 150 million euros (or almost $153 million). Russian-Belarusian fertilizer magnate Dmitry Mazepin and his race car driver son, Nikita, have lost access to property worth 105 million euros ($107 million) in Sassari. Usmanov lost Sardinian properties worth 17 million euros ($17.3 million). Fertilizer billionaire Andrey Melnichenko has lost access to his 530-million-euro ($540 million) superyacht, whose design he’d entrusted to Philippe Starck, asking the French designer to create a yacht that “didn’t mimick [sic] anything done before.” The Guardia di Finanza’s list continues.

In early May, Guardia di Finanza forces took possession of the jewel in the world’s yacht crown: the Scheherazade, a 670-million-euro—that’s $682 million—vessel featuring two helicopter pads, a swimming pool, and a movie theater. “It’s not always easy to attribute ownership,” a Guardia di Finanza spokesperson told AFP afterward. That and the yachts’ ostentatious flaunting of wealth are why oligarchs like the vessels so much. But the force managed to attribute the Scheherazade’s ownership to “prominent members of the Russian government.”

Other Western countries also have brilliant financial investigators—but none have a military-like organization of some 60,000 officers who specialize in combating financial crime. They might think about learning from the force because globalization has made it exceptionally easy for people to hide and move funds across borders. The Panama Papers, the Pandora Papers, and the Paradise Papers gave a hint of just how much money the taxpayer loses as a result.

For its part, the Guardia di Finanza these days maintains 25 attachés around the world to further enhance collaboration with foreign agencies—because the better financial investigators get, the harder criminals will try to hide their money abroad. “Like the Carabinieri, the Guardia di Finanza has undergone internationalization,” Stefanini said. “It has learned to operate worldwide and has developed cooperation with its counterparts.” Russo is now based at Italy’s embassy in Washington.

Melnichenko’s unique creation remains in the Port of Trieste, where his yacht was detained. The Lady M II also remains where she was apprehended. So do the other yachts seized by the Guardia di Finanza. The Italian government is now the custodian of all of them, including the Scheherazade, which remains in the Tuscan port of Carrara. Paradoxically, the force’s success in tracing assets means that the Italian government now has to maintain a string of oligarch homes and luxury boats. The country even has a specific agency, the Agenzia del Demanio, that maintains such yachts, palazzi, and similar assets.

But Italian legislation, clearly borne out of plenty of asset freezes, also stipulates that whenever the sanctions are lifted, the oligarchs will be able to reclaim their possessions from the Agenzia del Demanio—minus the expense the government has incurred maintaining the possessions. “And if the oligarch fails to take delivery of those assets within 180 days, the Agenzia del Demanio will arrange for their sale at public auctions,” Russo pointed out.

The prospect of oligarchs’ yachts and villas sold at auctions means Russia’s war against Ukraine is certainly different from past generations’ land wars. Never before has a war been fought against a background of almost complete globalization, with one country’s magnates and their families spending lots of time in other countries.

Italy is lucky that Victor Amadeus III saw a need to keep a close eye on financial transactions, including ones crossing borders. Other countries would do well to give the transactions similarly close scrutiny.