18.03.2014 | Yanukovych’s Ouster: The Financial Fallout

On 17th March 2014 the European Union and United States imposed travel bans and asset freezes on past and present Russian and Ukrainian officials and politicians. The imposition was a response to the events surrounding the referendum vote held the day before in Crimea. Included on Washington’s list, though not named by Brussels, is Viktor Medvedchuk, the politically active oligarch who bitterly opposed the protests that culminated in President Viktor Yanukovych’s ouster.

The European and American actions followed similar measures already adopted by Austria, Liechtenstein and Switzerland.  On 28th February, they announced their intention to freeze the assets and bank accounts of up to 20 Ukrainians, believed to comprise Yanukovych and members of his inner circle.  Swiss prosecutors announced a money laundering investigation into Yanukovych and his son Oleksandr.  These actions answered a call by Ukraine’s acting Prosecutor General, who on 26th February announced that Kiev would seek help from international organisations to trace assets and bank accounts controlled by Yanukovych and his allies. 

While financial sanctions have so far mainly focused on officials close to Yanukovych and those deemed to have played a prominent role in the referendum, the arrest of Ukrainian oligarch Dmytro Firtash in Austria on 12th March raised the prospect that the scope might be extended more broadly to Ukraine’s business elite.  Apparently arrested on a warrant issued by the FBI on suspicion of involvement in creating an organised criminal group, Austrian authorities claimed the arrest was not linked to political developments in Ukraine.  It is hard to believe, however, that the move against Firtash was not taken forward in light of recent events in Kiev and Moscow.    

In the short-term though, Ukrainian oligarchs with links to the old regime are unlikely to be targeted en masse with financial sanctions.  As John Herbst, former US Ambassador to Ukraine, put on the record at a recent Chatham House event, Kiev has so far sought to counter Moscow’s actions by uniting Ukraine.  This strategy has involved Ukraine’s new government reaching out to elites in the east of the country and bringing the oligarchs into the fold.  Ukraine’s richest individual, Rinat Akhmetov, has pledged to protect his homeland, and Igor Kolomoisky and Serhiy Taruta have been invited to head regional administrations.  All have faced serious controversy in the past. 

Longer-term the response to Crimea’s referendum has demonstrated that the potential for further escalation remains.  If the crisis deepens, the risk to Russian businessmen will escalate too. As the Financial Times reported on 14th March, Russian companies have pulled billions of dollars out of Western banks in anticipation of possible financial sanctions.  International capital markets activity in Russia is down. Soundings from Western financial institutions suggest that the mood is “wait, watch, but do not engage”.