Tue. Jul 5th, 2022

FT Alphaville read our colleague George Hammond’s piece on the opaque ownership of Sutton Place with interest, as it spoke directly to something we recently heard from Jay Newman.

There are few people with more hands-on experience of scouring the world for seizable, hidden assets than Newman, a former senior portfolio manager at Paul Singer’s hedge fund Elliott Management.

For over a decade Newman led Elliott’s legal jihad against Argentina over the terms of its 2001 debt restructuring, attempting to seize everything from the president’s official jet and Argentine space satellites to the Libertya three-masted frigate used by the country’s navy as a training vessel.

And, judging by the US government’s vow after Russia invaded Ukraine, asset hunting is soon going to be a growth industry:

Newman is now semi-retired – he still has a few consultancy gigs and has written a timely thriller about dodgy money – but given his experience we wanted to get his thoughts on the fusillade of financial sanctions the west has aimed at Russia and Russian potentates in recent weeks. One of our main takeaways was his cynicism over how much the west can actually do about the wealthy oligarchs:

The government may think it knows where the assets are and who controls them, but I’m not so sure they do. . . Nobody knows. . . There’s a huge industry of facilitators, trust companies, lawyers, the same people that help the drug cartels, the mafia. These people are very effective at maintaining their wealth and keeping it. A lot of it ends up in New York, LA, Miami and London real estate.

George’s piece exploring whether Uzbekistan-born billionaire Alisher Usmanov owns Sutton Place – a Tudor Manor in Surrey – is a good example.

The UK government said he did when they slapped sanctions on the oligarch, but it’s hard to know for certain, given how the two registered corporate owners, Delesius Investments Ltd. and Bacerius Investments Ltd, obscure who the real human beneficial owner is.

This FT feature on the “London laundromat”Also shines a light on the role that, in particular, the UK capital has played for the Russian oligarch class. If you want more, here is a colorful tale of how easy it is to set up an opaque string of offshore companies, by our former colleague-turned-venture capitalist Michael Stothard (yours truly remains a proud shareholder of Stuffed Parrot Inc, the Delaware-registered holding company Michael created).

The industry of facilitators is why Newman is skeptical that the west will actually be able to do much more than dent the wealth of the oligarchs close to Putin. After all, sanctions against individuals are not a new weapon, having been first deployed against some of the Kremlin’s business cronies in the wake of Russia’s annexation of Crimea in 2014.

Newman again:

Since Crimea there’s been almost 10 years of preparation for this kind of event. Some of these people were already under sanction, and it had to have occurred to them that their kids, grandkids and mistresses would be sanctioned as well.

At the margins we’ll look for low-hanging fruit (like yachts), it will add up to lots of billions so people will think it’s important. But it will not be important. . . It’s good theater for the press and the American people. But it’s meaningless.

The people around Putin have vast fortunes, and the bulk of that is safe from western cops. . . There is no effing way we can actually annihilate the oligarch class. Russia is a criminal enterprise masquerading as a sovereign state, and these guys are the capos.

Newman remains a big noir to many in the sovereign debt world, but his success makes him a legend among some investors. Ultimately, Elliott Management managed to force Argentina into another default on its debts in 2014, and eventually compelled Buenos Aires into paying the hedge fund $ 2.4bn in 2016. Other countries hounded by the courts by Newman include Peru and the Republic of the Congo.

The reality is that it is hard to find and seize assets, whether a government or an oligarch’s. The US and European governments obviously have more resources at their disposal than Newman had at Elliott, but he points out that organized crime remains a major global issue.

Moreover, while sanctioned oligarchs and their families may find shopping in New York, London or Paris impossible for the foreseeable future, there are many other “beautiful parts of the world that you can go to and live well” that’ll still be welcoming to them. But Newman is more optimistic about the prospects of bringing the Russian economy to its knees through the barrage of broader sanctions targeted at the country’s financial system.

No question, you can have an impact on a country’s ability to function. I have never seen anything like this before. . . I’m dying to find out how this ends.

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