March 4, 2022
The question that you are hearing most often about the Russian military invasion of Ukraine is: how effective will the coordinated financial sanctions be in persuading the Russian leadership to back off? Will the Russian oligarchs be stripped of their wealth, and rein in their leader?
The most painful sanctions that have been imposed on Russiaâ€™s leadership include seizure of their assets in Western banksâ€”and there is talk about seizing super-yachts and private aircraft as well. Real estate holdings may be next.
But Russian oligarchs have had a lot of time to prepare, having benefited from inside knowledge that their leader was likely to proceed with the shocking invasion of its democratic neighbor. Yes, they have an estimated $340 billion of wealth that is sitting in sanction limbo right now at various Western institutions. But the wealthy Russian leaders appear to have been quietly squirreling away a nice chunk of their wealth in a place where the West is powerless to touch it.
In fact, the Russian government itself has estimated that its wealthiest citizens have now accumulated $214 billion worth of various cryptocurrenciesâ€”roughly 12% of the global total. Those assets are out of reach of the global banking system. They are not completely anonymous, but some experts have noted that sophisticated crypto holders can set up a web of wallets with different addresses across several exchanges, which make it very difficult to tie transactions back to a particular individual. And several crypto exchanges are not based in jurisdictions that support the sanctions.
Of course, the complicated part of this plan is eventually converting crypto holdings back into fiat currencies, since most business entities still donâ€™t accept bitcoin for their services. Western nations can prevent the exchanges from making these conversionsâ€”or, once they are made, that money can finally be traced and seized. The oligarchsâ€™ plan seems to be to keep the anonymous assets in safe storage and wait for the sanctions to ease a year or two from nowâ€”which might not work if the Russian invasion succeeds and the sanctions become permanent.
Meanwhile, it should be noted, bitcoinâ€”the most visible of the cryptocurrenciesâ€”has seen its value decline by nearly 50% since last November.
We hope that you and your family are safe and well.
Edward J. Kohlhepp, Jr., CFPÂ®, MBA
Edward J. Kohlhepp, CFPÂ®, ChFC, CLU, CPC, MSPA
Founder & CEO
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