The rise of nationalist sentiments, global conflicts, and disunity within international bodies such as the United Nations, and the erosion of influence of once-accepted global norms such as those that govern the use of nuclear weapons are only some of the signs of a declining rules-based order. The 2014 Russian annexation of Crimea and the 2022 full-scale invasion of Ukraine are further evidence of the decline of the rules-based order. These examples point to a returning multipolar international order, challenging American hegemony and tilting the balance of influence away from liberal democratic rule.
In their responses to the Ukraine crisis, the West’s instruments of engagement have consisted of supporting Ukraine through military and humanitarian aid on the one hand while containing Russia through economic sanctions on the other. Indeed, the G7 and their major allies have relied on unprecedented measures geared towards deterring Russia militarily by clamping down on Russian President Vladimir Putin’s financial resources, which are tied to the global financial system.
The war in Ukraine prompted recognition of the need to address grand corruption as a matter of global security. It put the spotlight on the vulnerabilities of Western financial systems, which for decades were exploited to accumulate and store kleptocratic wealth, as evidenced in financial data leaks such as the Panama Papers, the Pandora Papers, and the Troika Laundromat. Through Russian kleptocratic wealth, Vladimir Putin was emboldened to wage his war on Ukraine in early 2014. While the transnational nature of grand corruption requires multilateral cooperation, it is important to account for the alignment and effectiveness of current measures targeting Russia vis-à-vis Ukraine’s long-term national security needs. These efforts carry implications for the stability and trajectory of the international order.
Revitalizing Multilateralism or Playing Power Politics?
It is difficult to evaluate the effectiveness of broad economic sanctions as foreign policy tools. Experience shows, however, that the viability of economic sanctions is contingent upon the scope of their multilateral enforcement, proper coordination, and monitoring. While current sanctions against Russia have mostly been issued unilaterally, the severity of sanctions and governments’ commitments vary due to changing conditions in the global economy, which impact governments’ domestic and foreign policy interests and their cost-benefit analyses. Indeed, following Russia’s February 2022 attack on Ukraine, the G7 member states formed a unified front to coordinate and implement broad sanctions against Russia. Several ally governments, including NATO members, also issued sanctions unilaterally. These sanctions included targeting technology exports and imports of Russian oil and gas, blocking much of the Russian central bank’s foreign exchange reserves and transactions by designated Russian banks, and freezing assets located within Western borders of individuals and firms linked to Putin.
While the West’s unremitting financial and economic sanctions have accelerated Russia’s economic downfall, they came at a cost. Indeed, they were met with an escalation of attacks on Ukraine and a militarization of critical resources such as wheat and oil, giving rise to global economic and food security challenges. In addition, there is a growing awareness that the reliance on military deterrence and economic sanctions in the long-term risks alienating Russian citizens on the ground and undermining Putin’s oligarchs, fuelling threats of nuclear war, and diminishing the Kremlin’s willingness to engage in meaningful negotiations.
Furthermore, Europe’s dependence on Russian gas and its trade and investment ties with the country have forced European leaders to diversify the continent’s weakened economy and import natural gas from the U.S. However, perceptions of distorted competition in the selling of American gas (in addition to the increased selling of weapons) to the benefit of the U.S. point to increasing dissatisfaction in the E.U. This situation echoes an attitude of U.S. exceptionalism, a documented pattern whereby the U.S. engages multilaterally alongside allies, however its actions reflect a strong desire to gain the most economically and politically, even at their expense. Such behaviour contributes to the unintended negative effects of waning the Western alliance against Russia while prolonging the war in Ukraine.
Limitations to the West’s Enforcement Capacity to Counter Kleptocracy
While much of the assets that Western governments are trying to sanction are sheltered in their own countries’ banks, businesses, and real estate, Western authorities may face challenges in recovering and repurposing them. Indeed, individuals targeted by sanctions often use “a combination of layering and direct ownership chains, as well as professional intermediaries and third parties exercising control on their behalf”, which makes it harder to track down and freeze illicit assets. In this respect, Western governments need to reassess the legislative and regulatory mechanisms governing their national financial systems, including the regulation of private sector intermediaries, and address vulnerabilities and gaps that potentially dilute the effectiveness of sanctions imposed on Russia and render them subject to circumvention. Accordingly, while some governments (including Germany, the Netherlands, and the U.K.) have set up beneficial ownership registers to uncover the direct owners of illicit assets, these measures are insufficient. Western governments need to address loopholes within their beneficial ownership register mechanisms to make it harder to use secretive corporate structure companies or select nominees to manage assets on individuals’ behalf.
Moreover, most governments may face challenges when attempting to confiscate and repurpose illicit assets due to the lack of legal mechanisms that control the use and distribution of assets linked to international human rights violations and corruption. In this respect, France and Switzerland are equipped with legal mechanisms that empower their governments to repurpose illicit assets and operate extra-territorially while adhering to rule of law, due process, and human rights principles. Canada’s Bill S-217, the Frozen Assets Repurposing Act, also provides a legal formula to confiscate and repurpose assets frozen under sanctions. These laws are examples that can inform legal thinking on how to reuse illicit Russian assets in an open, transparent, and accountable way and provide reparations to victims of Russian aggression.
Despite capacity gaps and variations in the Western response to Russia’s invasion, Western governments’ commitment to support Ukraine and counter kleptocracy at the international level is reinvigorating concerted action towards greater transparency of the global financial system. Nonetheless, Western efforts must be further calibrated with Ukraine’s long-term policy needs. In this respect, foreign policymakers will need to rethink how to create room for a diplomatic resolution while systematically strengthening the rule of law domestically and abroad and investing recovered Russian assets in Ukraine’s potential reconstruction in a transparent and accountable manner.
Asma Zribi is an M.A. candidate in the Norman Paterson School of International Affairs at Carleton University, specializing in Diplomacy and Foreign Policy. She has a bachelor’s degree in Criminology and Law from the University of Ottawa. She is currently working on a research assistantship on diaspora engagement policies in fragile and conflict-affected countries.
Photo Credit via armyinform.com.ua.