UK sanctions against Russia have failed

Dame Harriet Baldwin, the Chair of the UK Parliament’s Treasury select committee rightly recognises that UK sanctions are not working. She doesn’t seem to know that the majority of Russia-related sanctions imposed by Britain have no impact at all.

In an interview with the Financial Times, she suggested the intent of sanctions ‘is to cause real problems for the Russian economy,’ but that the IMF is ‘forecasting it’s going to be one of the strongest economies this year.’ Her committee is midway through an inquiry into the effectiveness of the Russia sanctions regime, which is due to report in July.  

Treasury officials were quick to point out that since the start of the war, “the UK has sanctioned over 2,000 people and entities connected with Russia, with the OFSI significantly upscaling its resource at speed to support that robust response.”  I take little pleasure in saying that I authorised a large proportion of those 2000 sanctions while at the Foreign Office; I also led on sanctions policy at the British Embassy in Moscow from 2014-2019.

However, I also know that most of the individuals or entities that I sanctioned had no assets in the UK to freeze.  For every sanction that I authorised, I had to review a detailed form which indicated whether the individual or entity had assets in the UK; the vast majority said nyet! 

I therefore asked HM Treasury recently to tell me the numbers of asset freezes where the individual or entity concern had actual assets frozen.  They indicated that only 8% of individuals and 23% of entities sanctioned had assets frozen. In aggregate, that means almost 90% of UK sanctions have frozen nothing but thin air (NB: there are far more individuals sanctioned than entities).

Bear in mind, too, that most of those individuals and entities sanctioned by Britain will also have been sanctioned by the US, Canada, EU, Switzerland, Japan and Australia.  You don’t need razor sharp skills in maths to conclude that over 14000 of the 16000+ asset freezes imposed are of people and companies with no assets in the west.  Because Russia banned state officials from banking in what it calls ‘unfriendly countries’ several years ago.

So, most of the time, sanctioning a new set of individuals and entities is a completely meaningless gesture. I haven’t asked the Treasury, but I should imagine that the prison guards sanctioned over the recent death of Alexei Navalny had very little money anyway, let alone enough to deposit any in the City of London. So sanctioning them represents nothing more than vacuous virtue signaling.

And of course, the sanctions process is not only meaningless but politically corrupt.  Liz Truss seemingly wanted to sanction every Russian with a bit of cash in the UK while she was Foreign Secretary. Indeed, she is so dense that she even seemed to believe that Londongrad was a real suburb of London.  

I therefore suggested the UK sanction Elena Baturina. She was at one time Russia’s richest woman and is alleged to have gained her wealth through massive corruption, having been married to Moscow’s former (also extremely corrupt) Mayor. That prompted an anxious sucking of teeth in King Charles Street, given Baturina’s previous involvement in Sadiq Khan’s charity and her links with Hunter Biden.  She wasn’t sanctioned.

Foreign Office officials were in deep anxiety about upsetting the White House if the UK sanctioned Evraz, a company formerly linked to Roman Abramovich. Evraz had holdings in the US and Canada and employed several thousand personnel at steel mills there. Sensing a massive dollop of duplicity, I encouraged colleagues to stiffen their sinews and sanction Evraz anyway, just like we were sanctioning other companies. So the UK did eventually sanction Evraz two and a half months after the war started. However, the OFSI issued a licence to allow Evraz North America to continue its operations.

I never really understand why the UK hasn’t sanctioned Mikhail Khodorkovsky, who despite successful efforts to rehabilitate himself as a paragon of western liberal capitalist virtue, originally gained his wealth, allegedly, through acts of the most egregious corruption. And yet we sanctioned Mikhail Fridman and Roman Abramovich who appeared well disposed to the UK (I’m not saying they are pure as the driven snow).

Let’s be completely clear that Russia has undoubtedly endured economic pain since the Ukraine crisis started in 2014 because of sanctions. Financial sector sanctions in particular, led to a big, albeit fairly short-lived, shift in how investment works in Russia, with most of the pain felt in 2014-15. 2014 saw huge capital flight of over $130bn as foreign lending stopped completely in July of that year and Russian capital continued to flow out of the country, until the Central Bank hit the brakes. 

However, the inconvenient truth is that since 2015, the quest for ever more sanctions has represented a hunt for increasingly diminishing marginal returns. And Russia has had the same duo of Central Bank Governor and Finance Minister holding the reins of economic policy since that time.  They have navigated through two oil price collapses and COVID, which were more damaging economically than sanctions.

While there has never been a clear articulation of the purpose of sanctions, the Atlantic Council describes the aims of sanctions thus:

Significantly reduce Russia’s revenues from commodities exports;

Cripple Russia’s military capability and ability to pursue its war;

Impose significant pain on the Russian economy.

Even the Atlantic Council, one of the most hawkish commentators on Russia, accepts that limited progress has been made against each of these measures.  For their part, Whitehall Officials will no doubt try to delude the Treasury select committee further that, with some tinkering and tightening up here and there, we can make sanctions more effective. But it is abundantly clear to me that sanctions against Russia have failed.

And, of course, resentment about sanctions is now so high in Russia, that policy makers in Moscow will do anything to avoid making concessions to the west, including going to war.

Which brings us back to the real foreign policy choice in Ukraine, which has always been whether to commit to war or peace with Russia. The eight Foreign Secretaries since 2014 have wanted neither.  Dame Harriet undoubtedly wants to show she’s doing her bit to support Ukraine through her select committee’s work; she’ll more likely be fiddling while Kyiv burns.