This is what happens after they are seized

The seized Lady M superyacht, owned by Russian billionaire Alexey Mordashov, at the port of Imperia, Italy, Monday, March 7, 2022.

Julien Berti | Bloomberg | Getty Images

European governments that have seized the yachts and villas of Russian oligarchs now face a more difficult question: what to do with them?

Sanctions against Russian oligarchs imposed by the European Union, the United Kingdom, the United States and other countries have sparked a wave of asset freezes across Europe. Authorities seized a 213ft yacht belonging to Alexei Mordashov in Imperia, Italy, Igor Sechin’s 280ft yacht in the French port of La Ciotat and Alisher Usmanov’s $18million resort in Sardinia .

President Joe Biden warned the oligarchs in his State of the Union: “We join our European allies in finding and seizing your yachts, your luxury apartments, your private jets. We come for your ill-begotten gains. “

Alexey Mordashov, billionaire and chairman of Severstal PAO, pauses during a panel discussion on the third day of the St. Petersburg International Economic Forum in St. Petersburg, Russia, Friday, June 4, 2021.

Andrei Rudakov | Bloomberg | Getty Images

Still, sanctions experts say freezing assets is the easiest part. Deciding what to do with it — and who receives the benefits — will likely be more difficult and could spark years-long court battles.

Laws vary by country. And the latest round of sanctions, which goes further than any other coordinated global round of sanctions against individuals, creates new legal questions that have yet to be answered.

“We are in uncharted waters,” said Benjamin Maltby, a partner at Keystone Law in the UK and an expert in yacht and luxury asset law. “The situations we are seeing now have never really happened before.”

Legal experts say that in general, the sanctions themselves do not allow countries to simply appropriate the boats, planes and homes of the oligarchs. Under the sanctions announced by the United States and Europe, members of the Russian elite who “got rich at the expense of the Russian people” and “assisted Putin” in his invasion of Ukraine will see their assets ” frozen and their property prohibited from use”. “

Under US law and most European laws, frozen assets remain the property of the oligarch, but they cannot be transferred or sold. Sechin and Mordsahov, for example, will continue to own their yachts, but they will be tied to docks by authorities and prevented from sailing to safer shores.

To seize and take possession of an oligarch’s yacht or villa, government prosecutors must prove that the property was part of a crime. Under US civil forfeiture law, property “used in the commission of a crime” or that “represents the proceeds of unlawful activity” can only be seized with a warrant.

A photo taken on March 3, 2022 at a shipyard in La Ciotat, near Marseille, in southern France, shows a yacht, Amore Vero, belonging to a company linked to Igor Sechin, managing director of the Russian giant Rosneft energy.

Nicholas Tucat | AFP | Getty Images

“The government needs to prove both the crime and the nexus,” said Stefan Cassella, former chief of the asset forfeiture and money laundering section at the U.S. Attorney’s Office in Maryland, who now works in private practice. .

Proving a specific crime by the oligarchs and tying assets directly to that crime can be difficult, legal experts say.

“The oligarchs could reasonably argue ‘I acted within the laws of Russia and Europe,'” Maltby said. “There must be clear evidence of criminality.”

Proving criminality in asset forfeiture cases can take years. The United States has helped recover more than $300 million stolen in Nigeria from former military dictator Sani Abacha after more than five years of litigation. A case against former Ukrainian prime minister Pavlo Lazarenko, who was convicted in the United States of money laundering, has dragged on for more than 15 years due to Lazarenko’s well-funded defense.

Russian billionaire Alisher Usmanov pictured in Moscow, Russia, March 19, 2015.

Sasha Mordovets | Getty Images News | Getty Images

The oligarchs are also masters in the dark art of global asset protection. They use shell companies, trusts, offshore jurisdictions and a network of family members and associates to hide their true ownership. Super yachts are almost always owned by separate legal entities rather than individuals, and they are usually registered in countries like the Cayman Islands, British Virgin Islands or Panama, which have favorable data privacy laws. Usmanov’s 512-foot yacht, “Dilbar”, for example, is registered in the Cayman Islands through a Malta-based legal entity.

“The identity of the true owner is not publicly known in many of these places,” Maltby said. “So you have to cut through this Gordian knot of offshore structuring to figure out who the beneficial owner is.”

A government can only potentially become an owner if a prosecutor can prove a crime, prove the link between the asset and the crime, and the identity of the owner. If the state decides to sell the asset, the proceeds typically go to law enforcement. A bipartisan bill taking shape in Congress called the “Yacht Law for Ukraine” would allow authorities to seize any property valued at more than $5 million held by Russian elites in the United States and allow the government to sell the assets and send the money to help Ukraine.

In the United Kingdom, parliamentarians are launching the idea of ​​a new accelerated way to freeze the assets of the oligarchs who are not yet sanctioned but in the process of “review”.

Meanwhile, the yachts and villas that have been seized remain in limbo, with disputes likely over who will pay to maintain them. The oligarchs are technically responsible for paying the crews, personnel, maintenance and costs of seized assets. Yet the oligarchs can refuse to pay. Or the authorities who hold the ships or houses may find it impossible to collect funds from the oligarchs since they are not authorized to conduct financial transactions with sanctioned persons.

A file photo dated September 10, 2018 shows a mega yacht named ‘Dilbar’ belonging to Uzbek-born Russian business tycoon Alisher Usmanov as it refuels from an oil tanker in Mugla, Turkey. Germany seizes Russian billionaire Usmanov’s yacht in the port of Hamburg.

Sabri Kessen | Anadolu Agency | Getty Images

Maintaining a yacht is particularly important as it can deteriorate and lose value quickly if it is not constantly cleaned and repaired.

“You might see a situation where debts are piling up and the value of the ship is deteriorating,” Maltby said. “And then there comes a time when enough is enough, there are massive debts and the yacht is seized and sold to pay the debt.”

The future of the yacht’s crew and household staff is also in question. Maltby said he expects the crews of seized Russian yachts to quit or simply walk away and try to return to their home countries. Forbes reported that the company that employs the crew of 96 on Usmanov’s superyacht informed the crew via email that “normal operation of the yacht has ceased” and the company can no longer pay them. .

The email said a small crew from German shipbuilder Lurssen, which built the yacht and was overseeing repairs at its shipyard, will keep the boat “safe and secure”.

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