Capitalisn’t: Ukraine—Sanctioning the Oligarchs’ Enablers

Bill Browder: I’m not a scholar of sanctions. I’m a scholar of Vladimir Putin. Whatever studies have been done of different countries don’t take into account, first of all, the criminal nature of this regime. And they don’t take into account the psychology of Vladimir Putin himself, which may not have applied in other situations where we’re judging sanctions.

Bethany: I’m Bethany McLean.

Phil Donahue: Did you ever have a moment of doubt about capitalism and whether greed’s a good idea?

Luigi: And I’m Luigi Zingales.

Bernie Sanders: We have socialism for the very rich, rugged individualism for the poor.

Bethany: And this is Capitalisn’t, a podcast about what is working in capitalism.

Milton Friedman: First of all, tell me, is there some society you know that doesn’t run on greed?

Luigi: And, most importantly, what isn’t.

Warren Buffett: We ought to do better by the people that get left behind. I don’t think we should kill the capitalist system in the process.

Bethany: So, as listeners of our podcast know, we’ve been focused on Ukraine, where the eyes of the world are, and who better to talk about Vladimir Putin, the usefulness of sanctions, and what we should be doing and what we should have done, than Bill Browder, the author of Red Notice, a true story about his attempts to deal with corruption in Russia and has a new book coming out soon called Freezing Order which I’m sure, like Red Notice, will be a page-turner.

Luigi: Now, Bill Browder is not known to the broad public, but he is a very important person in the US-Russia relationship. He was an early investor in Russia in the late ’90s. He was a fighter for the rights of investors in Russia. In doing so, he started to cross paths with Putin very early on. At some point, he was forced to run away from the country, because he had discovered some of the money that Putin had stolen from Russia.

As a result, he became a personal target of Putin, and his lawyer, Magnitsky, was arrested, tortured in prison, and unfortunately died. And Bill after that has dedicated his life to the memory of Magnitsky and to fight for exposing the money stolen in Russia by Putin and other oligarchs. And so, he went around most Western countries and succeeded in passing a law that has the name of Magnitsky, the Magnitsky Act, which gives a country the power to freeze the assets of a selected list of people who are considered criminals. This has been an important step introduced in the United States that now also applies to countries other than Russia.

Bethany: I was listening to your podcast that you did on Intelligence Squared. And you had a wonderful line, which you said, “Sanctions will stop Putin if done correctly, and they’ll not stop him if they’re not done correctly.” And so, I thought maybe to start, setting the stage for our episode, what’s being done correctly at this point and what is not being done correctly?

Bill Browder: I have to say that I’m starting to see something which is resembling a really pretty impressive sanctions program that I think will work if they continue to roll it out the way it’s being rolled out. So, one of the things that nobody had thought about before, I hadn’t thought about, is the Central Bank’s money. And so, $350 billion of Russian government money is no longer available to the Russian government, which is pretty impressive and very good. And immediately, when that happened, the ruble went into a free fall. So, that’s a good sanction.

The US and its allies cut off 70 percent of Russian banks from SWIFT, which is not ideal. First of all, if you’re a Russian bad guy, and the banks you normally use are cut off from SWIFT, what do you do? You switch to the banks that aren’t cut off from SWIFT.

And so, what needs to happen is that all Russian banks are cut off from SWIFT. Apparently, that hasn’t happened because the Europeans were fudging the issue at the last minute. I understand that the US, UK, and various other countries want to do that. One of the reasons that Iran ended up at the negotiating table on the Iran nuclear deal was that after decades, literally decades of defiance, the US cut Iran off from SWIFT. That knocked them back to the economic dark ages, and that’s when they showed up to these negotiations. I believe that if Russia were properly disconnected from SWIFT, that would be a really important sanction.

And then the other main sanction is going after Putin’s offshore money. How do you go after Putin’s offshore money? You go after the people who hold it for him. Who holds it for him? These people known as the Russian oligarchs. When you see an oligarch listed on the Forbes list with a $20 billion net worth, the reality is they only have $10 billion, because the other $10 billion is Vladimir Putin’s. There’s about a dozen what I would call high-value targets already on the list, maybe a little bit more than a dozen. There are a hundred oligarchs in reality. And so, in order to properly cut off that source of money from Vladimir Putin, the US and its allies need to sanction a hundred oligarchs, and that still needs to be done, but it looks like we’re on the trajectory of doing that.

There are so many different initiatives going on to identify these people, to come up with a legal rationale for sanctioning them, that I believe that is going to happen. And if we put all this together, you pretty much put Russia in a position where they only have two sources of money left. One is they do continue to sell oil and gas. The other is that even though they can’t borrow from any Western banks, they can still borrow from the Chinese. And so, the other two places that we need to stop are the Chinese lending to them, which is going to be hard, because we have no direct leverage over China, and two, stopping the billion or half a billion dollars a day, depending on the day, of revenues from oil and gas sales going to Russia.

Luigi: You have been fighting Putin for 20 years now, and you know him very well, and I heard you say that he will never back down. My question is, what is the ultimate goal of these sanctions? Because one important role of sanctions is deterrence, but we failed in doing that, because they weren’t prepared, and they were not credible. We are all surprised at how much we’re willing to do now. But now, what do you hope to reach with all these sanctions? Is there a possibility that we’re doing too much, or is there nothing that would be too much?

Bill Browder: Well, you’re right. It would have been nice if we could have deterred him from doing this invasion. We couldn’t deter him from doing this invasion, because we have a history over the last 20 years of him doing terrible things and the West not creating any consequences. After the invasion of Georgia, no consequences. After the annexing of Crimea, no consequences. After the shooting down of MH-17, no consequences. After this poisoning in Salisbury, no consequences.

So, Putin was making a calculated bet that he could invade Ukraine and we would be just as dislocated and narrow-minded as we had been before. And we could have deterred him, had we just sanctioned five of the biggest oligarchs in advance of the invasion. And had we done it together with the allies. So, we could say, this is a little taste of what’s to come. Are you sure you want to do this?

And he might have thought to himself, you know what? I’m going to do some alternate version where I’m going to declare Donetsk and Luhansk, Russian republics, let them vote. And that would have been the extent of his . . . It would have been political violence, not physical violence. And, as you mentioned, what I know about Vladimir Putin—and I’m one of the few people in the West that’s had a one-on-one fight with him for the last decade—what I know about him is that he doesn’t ever back down, and so now that we’re in a conflict that he started, then what do we do with a situation like that? The one thing we can do, excluding our own military intervention, is we can cut off his financial ability to execute this war.

And that is what these sanctions are all about. And they’re obviously much more painful and create lots of innocent bystanders to the Russian people than we would like. I don’t think the Russian people are our enemy. It’s Vladimir Putin. We are not any longer in a position where we can do anything other than this. And the idea is that if all different flows of money and stores of money have dried up, and this war is costing him between a billion and $2 billion a day, then at some point, using the car analogy, he’s going to run out of gas. It’s going to splutter to a stop.

Luigi: The United States in 1914 imposed an oil embargo on Japan, exactly to stop the expansionist policy of Japan in Asia. And the Japanese saw the writing on the wall. They realized that they only had one year to survive with the oil reserves, and the solution was to start a war. And the attack on Pearl Harbor was a consequence of that. So, aren’t you concerned that precisely because Putin never backs down, that by pushing him, we are pushing him toward an escalation? And, after all, we would not like to talk about this, but he does own nuclear weapons. So, can he do something desperate when he is in a desperate situation?

Bill Browder: Well, that’s one side of the argument. Drawing on my own experience, think of Vladimir Putin as a guy in a prison yard. And there’s a lot of other really nasty, mean prisoners all walking around. And in the prison yard, the way you go about doing things is that if you start a fight with somebody, you absolutely obliterate them. He doesn’t just knock his opponent out. He takes his opponent out. He takes his opponents’ colleagues out. He takes his opponents’ families out. He just goes after everybody until there’s nothing left of anybody. And if you fight back, then he’s going to try to do the same thing. And so, it’s not as if we have any . . . It’s not like he’s some gentle flower that if you just tiptoe around him, he’s going to behave himself. And so, our only choice, really, is to fight back and hope that we somehow win in this fight back, because it’s not as if he has any capacity to show any moderation in his attack.

Bethany: Let me try putting what you’re saying in a slightly different way and seeing if I’m getting it right, if you’d agree with it or disagree with it. But it seems to me that a lot of the conversations we’re having about sanctions and whether or not they work are in general, what have sanctions done historically? What have they done in other situations? And your argument is no, no, we’re talking about Vladimir Putin. We’re talking about a very specific individual and how sanctions will or will not work with this very specific individual. And so, maybe the argument is thinking about sanctions in general terms and how they’ve worked historically isn’t necessarily analogous to the situation we’re in, because Putin himself is a very specific individual. Does that make sense?

Bill Browder: Well, it makes sense to me, because I know how this guy operates. So, just to give you some idea, when the Magnitsky Act was passed in 2012, he went out of his mind, and he banned the adoption of Russian orphans by American families, which is a truly cruel thing to do, because these orphans were the sick ones that needed medical attention that would probably die in Russian orphanages. So, he’s effectively sentencing his own orphans to death. I’m not a scholar of sanctions. I’m a scholar of Vladimir Putin. I would say that whatever studies have been done of different countries don’t take into account, first of all, the criminal nature of this regime. Vladimir Putin is like a mafia boss with the powers of a sovereign state. And they don’t take into account the psychology of Vladimir Putin himself, which may not have applied in other situations where we’re judging sanctions.

And it also doesn’t apply in situations . . . We’ve never had a country with the kind of concentration of wealth that you have in Russia, where it’s all held in the hands of a hundred people. And those hundred people hold that money offshore. And those people hold it for Vladimir Putin, and he values that money more than human life, because he spent the last 20 years killing people to get that money.

Now, there is the nuclear button, but the nuclear button exists with or without these sanctions. He will use the nuclear button and it’s not as if we can somehow appease him. And if we think that we shouldn’t sanction him in case he wants to use the nuclear button, then he’s going to see that as weakness, where he’ll then use the nuclear button for whatever else he wants.

Luigi: Now, you have a particular plan of sanctions in mind, which is quite interesting, because it is targeted to the oligarchs, but it’s also targeted to the enablers. Can you explain to us what this idea is that I find very intriguing?

Bill Browder: So, we’re saying Putin’s money is held with the oligarchs. The oligarchs hold their money offshore. Let’s sanction and freeze the money of the oligarchs. Well, there’s one missing link there, which is, where is the money of the oligarchs? I’ve been getting calls on a regular basis from governments around the world and law enforcement around the world saying, you’ve been an oligarch hunter for the last 10 years. Where do we find the money? And the answer is that these oligarchs have spent an enormous amount of time and energy, working with the very best lawyers and the very best accountants and the very best advisors of all different kinds, to make their money seizure-proof. And not sanction-proof, it’s seizure-proof. They never envisaged a situation where governments would go after them in this way.

And so, the money is all well hidden in all sorts of structures of trusts and offshore companies with bearer shares and all sorts of very complicated schemes. And the best way of unraveling this complication is to get the people who created them to unravel them. And so, one of my ideas, one of the suggestions that I’ve been making to different lawmakers, is that a law should be passed, which would reverse the responsibility of these enablers to basically say that if you are a lawyer or a trustee or an accountant that’s in any way been involved in setting up a structure for a person who shows up on a sanctions list, then you have a positive legal duty to report that to the government, under penalty of law if you don’t. And so, to basically take the entire enabler community—and there’s a lot of these people and they’re very smart—and turn them from enablers into whistleblowers, whether they like it or not.

Bethany: Is the enabler community so powerful and such experts in getting around rules and structuring things in secret ways that the enabler community might be able to undermine any effort to get the enabler community to turn into whistleblowers?

Bill Browder: Well, it all depends. All you have to do is make a one emblematic case of an enabler going to jail. And these are people that blow with the wind. They all sold out morality and decency to make a whole bunch of money with the oligarchs. I’m sure they’d throw out loyalty to the oligarchs at the first sign of getting in trouble with the US federal government.

Luigi: Once I was in London, and I had the chance to listen to a talk by Saviano, who is the Italian author of Gomorrah and an expert on the mafia. And he was saying that the real place where the money was, was London. In Naples, you have people killed, but the safe harbor, where all the money is, is London and probably also New York. In a sense, the problem here is that for all too long, the financial community in the West has protected these guys by acting so aggressively. First of all, had we done it ahead of time, we would not be here in this situation.

So, I think that this is important. I don’t want to sound like a broken record, but transparency and ultimate transparency of ownership is the better cure for many of the evils of the world. What chances do you see that you have a turnaround like that? Because it’s easy to say we stopped selling burgers to Moscow. It’s much more difficult to say we are going to clean up. And, by the way, there would be collateral damage among a lot of oligarchs in the West, because I don’t think that the Russian oligarchs are the only ones with stolen money, corrupt money, and so on and so forth. So, ultimate transparency would be the ultimate cure, but how likely it is that we’re going to see it in our lifetime?

Bill Browder: I’ve been living in London for 32 years, and London is the money-laundering capital of the world. And they do so with fine accents and white tablecloths and gentlemen’s clubs here, but it’s truly a dirty place where all this money gets laundered. And part of the reason that everyone loves to launder money here is that they have a rule of law and property rights. So, your money is safe here, and you have a totally and absolutely ineffective police force that never asks any questions about any dirty money. In the United States, the Department of Justice has really smart people. Very good people go to work for the Department of Justice. They have lots of resources to prosecute cases. Here, the budgets are de minimis, and they have this one terrible rule here, which is that if the Crown Prosecution Service loses a case in a financial-crime case, they’ve got to pay the lawyers’ fees of the winner.

And they have such tight budgets that one lost case, and it completely ruins their whole financial solvency. And so, as a result, they just never take on a case against anybody they know will hire fancy lawyers to oppose them. And so, this whole thing needs to be . . . The whole system needs to be fixed. They need to have more money. They need to get better people. They need to second people from the private sector, and they need to get rid of this loser pays the winner’s fees, so they can start going after people.

Bethany: I wanted to back up to the creation of the oligarchs under Yeltsin—and there was a view and perhaps I’m being overly simplistic in this, I was outside of it—but the glory of Western-style capitalism would do more to reform Russia than anything else we could think about. And I was struck by that because in one of your recent talks, you called us timid, narrow-minded and business-focused. And I’m wondering if, in looking back on this, if there’s any lens through which we should see this or a broader lesson about capitalism taken too far, capitalism left unpoliced, or things we should look back on from the fall of the Berlin Wall and say, we should have done this differently?

Bill Browder: Well, first of all, this is not our fault. This is their fault. Russia went from communism to capitalism, and it was like building a house, and they forgot to put in the plumbing and electricity. The plumbing and electricity were rule-of-law institutions and property rights. You can’t even call it capitalism because it was just true law of the jungle, where murder was one of the business tools you used to maximize profit. It was just organized crime on a grand scale. And that’s not our fault. I mean, sure, there are a few American advisors who came in with optimism and idealism and trying to help out the Russians. But this is the Russians’ fault.

Luigi: It’s true that it is Russia’s own fault. But I think there was a rhetoric in the West that was a little bit too laissez-faire. I remember a consultant . . . When I visited Russia in 2002, 2003, when we met the first time, there was a consultant, I think it was for UBS, who was also writing an academic paper, Peter Boone, I don’t know if you remember.

Bill Browder: Yeah, of course.

Luigi: Yeah. He had this view of the Titan view of Russia that, like in the United States, the Great Titans, Vanderbilt, Rockefeller, and Carnegie, made the US economy. Now, the big oligarchs of the time in Russia were making the Russian economy, and he was seeing a very bright future for Russia, because he said, in the West, you have old managers who are not very aggressive and sophisticated, driven, and in Russia, we basically have these oligarchs that own the country, and by owning the country, they’re going to do great things. So, there were a lot of apologists who played a role. Do you think that this role of apologists was irrelevant?

Bill Browder: No. I think the apologists played a very big role in it. I mean, this is Putin’s big thing, he created all these Westerners that were tamping down any outrage about any bad things that were happening. Gerhard Schröder, the former chancellor of Germany, goes on the board of the gas pipeline and then starts saying that Putin is not such a bad guy and, hell, Donald Trump, saying, well, Putin is, I don’t think he’s a killer. And everybody in between. I mean, there was a huge, huge community of people who wanted to somehow get some benefit from Russia and were talking in their line. None of these apologists were doing it for free. They were all getting paid one way or another. They were getting some benefit, favors, they were getting recognition. Academics were invited to this thing called the Valdai conference each year.

If you were either a pro-Putin academic or just somebody sitting in the middle, an on-one-hand, on-the-other-hand type of person, and you were prestigious, you got invited to this thing called the Valdai conference in Moscow, and you got a special audience with Vladimir Putin. And there were a lot of academics that were doing the same thing. I mean, in every field, there were people helping Putin create this watered-down version of, yes, Russia’s not perfect, but it’s got to emerge. And we can’t be so tough on Russia. It’s developed, it’s come from a different place, and you have to respect Russia, and so on and so forth. And I think that those people have played a significant role in the mess that we’re in right now.

Bethany: So, there’s this grand idea that I’ve invoked in our last couple of podcasts. I’m not sure what the genesis of it was, but that closer economic ties between countries, between individuals, would help the world stay out of war. And yet the subtext of what we’re talking about is that these economic ties can also actually be really dangerous. They can begin to enable corruption and begin to enable the rise of somebody like Putin. Is there any general lesson we can take away from this, about when economic ties are a good thing and when they become a dangerous thing?

Bill Browder: The world doesn’t have the capacity to be anything other than highly simplistic about this. So, we say, if we do business with these people, countries with McDonald’s don’t go to war. Have you ever heard that one before? Or, let’s let China into the World Trade Organization, because if they’re a capitalist country, they’re going to be much more reasonable. And of course, this didn’t work. They’ve set up concentration camps, and then they use the fact that we’re all integrated with them to say, if you mention our concentration camps, we’re going to cut off all NBA television in China, which you get paid a lot of money for.

And so, I don’t think there’s any rules of thumb, but I do think that the world is basically pairing off. It used to be that there was an organization called the Communist International. I think that now it has to be replaced with the Authoritarian International. And there are these Authoritarian International members like Russia, China, Iran, Venezuela. We have to treat them differently than we treat democracies, where everybody is playing by a different set of moral standards, and I don’t think that we should give the same economic treatment to the countries that are treating their people in such horrible ways.

Bethany: What would be your ideal version of the path with Gazprom, given the reliance of Europe on Russian gas? How do we move toward cutting off that huge source of money for Russia? How do we navigate between those poles of a Europe that still is very dependent on Russian natural gas and a need to deprive the Russian economy of the money brought in by those sales?

Bill Browder: Well, I just learned today that the German economy minister was in Qatar negotiating with them to purchase more gas from Qatar. They’ve got a lot of gas in Qatar, and they could provide liquid natural gas and replace Russia. There’s lots of ways of doing this. And it all depends on the motivation to do it and the cost for doing it. It may be more costly, but sometimes you have to pay a higher price in order to . . . I mean, world war would be infinitely costly. So, things we can do to prevent world war would be good, and even if you have to pay more for that.

Luigi: So, Bill, one of the questions that people have when they listen to you is, how can you still be alive? You have been fighting Putin for many years, and as you said, Putin really goes after his enemies in the most aggressive way. How were you able to survive that many years?

Bill Browder: Well, for whatever their own logic was, they decided not to try to assassinate me abroad, because I was so integrated with politicians and governments around the world that they knew that the consequences would be very costly. And so, their main way of trying to kill me was to arrest me and get me back to Russia, so they could kill me on their own turf in a situation which would be plausibly deniable. And I’ve been subject to eight Interpol red notices. They’ve been trying to get me extradited from the UK. I was arrested in Madrid a few years ago. I was arrested in Geneva. I’ve been lucky—there’s an expression that I’ve got to be lucky every time, they only have to be lucky once—but so far, I’ve been lucky every time.

Bethany: Can you pause on that for a bit? We’ve talked about the complicity of Western enablers in this, and that partly is the complicity of the Western legal system, but I was thinking of it as the complicity of the system as it pertains to corporate law and financial law. And this seems to be . . . What’s happened to you with arrests seems to be also the complicity, in some ways, of Western criminal law. Would you go that far?

Bill Browder: Of course. The entire system has been bastardized and corrupted by Russians: the Interpol system, the mutual legal-assistance system, regulators, money laundering, investigations. Vladimir Putin and his people have corrupted law-enforcement officers in different countries where we’ve been conducting our money-laundering investigations.

In Switzerland, for example, the head Russian investigator in the Swiss federal police, who was involved in investigating the Magnitsky case in Switzerland, was bribed by the Russians while he was investigating the Magnitsky case. [Note: Although one of the investigators in the case was charged with bribery, this charge was later dropped for a lesser charge.—Ed.] And the Swiss are now intending to return tens of millions of dollars to the Russians who committed this crime. It really is shocking how much of the world has rolled over and allowed Russia to take over. I hope that there is a moment of a reckoning now, when everyone understands what’s going on for these people who assisted Russia in their crimes that they should pay a price.

Luigi: Bill, you are a unique figure because you’ve been a very and still are a very successful investor. And you’re also a social activist. And, generally, the two groups of people don’t hang out in the same circles, let alone be the same person. What lessons do you want to tell investors of how to be social activists? Because if you are an average investor with his or her 401k, they have to make some choices and say, I can make a little bit more money . . . Somewhere I was reading that some investment banks are suggesting to buy Russian debt today, because of course it’s very cheap. So, you can make more money on the one hand, but you have some responsibility on the other. How do you handle that choice?

Bill Browder: Well, I think there’s a lot of people. I mean, I’m involved right now in a big movement to cut off Western companies from Russia and to shame the ones that aren’t cutting themselves off. I think that the financial consumer or the actual consumer can make consumer choices. And so, if a bank refuses to withdraw from Russia, then you withdraw your money from that bank. If Nestle, which is a real example, refuses to leave Russia, don’t buy any more Nestle products. I think that’s totally reasonable in these circumstances. And in these circumstances, I think that any money spent benefiting Vladimir Putin is blood money and it shouldn’t be allowed. This reminds me a little bit. I wasn’t a fully functioning financial adult but during the anti-apartheid movement against South Africa, it took a couple of years before everybody put enough pressure on companies to divest, but they did divest, and that’s what ended apartheid.

Luigi: But where is the limit of this use of boycotting and sanctioning and divestment? Because, as you know, in the United States, there is a huge movement of BDS against Israel.

Bill Browder: Well, I don’t know much about the movement against Israel, but what I can say is that the movement against Russia, I mean, all you have to do is turn on your TV any day and watch what’s going on there. And the Russians are perpetrating on the Ukrainians—I should say, Putin is perpetrating on the Ukrainians with his army—the equivalent of September 11th every day. What Ukraine is going through is September 11th every day. And we’re not talking about military personnel being killed, although they shouldn’t be killed, either. We’re talking about civilians being killed.

In Mariupol, there was a theater that was bombed that contained women and children, 1,500, and they’re all trapped under the rubble. I don’t know how many are dead. I would imagine a lot of them or most of them, and just that thought by itself is enough to make you want to do anything you can possibly do, and certainly not have to enjoy your Nescafe. You can find another coffee, and I do think that this is a highly appropriate reaction to a terrible, terrible thing that’s going on, and everybody wants to do something. This is something that everyone can do.

Bethany: Thank you so much for your time. It’s really helpful. And we are really looking forward to reading your book when it comes out.

Bill Browder: Thank you.

Luigi: So, the first point that I think is important is the role of oligarchs and the role of what he called secondary sanctions, or putting the heat on the enablers. I think that this is a theme that Bill has had for a long time, and I think it is very important. There is an important fraction of our society that actually lives off helping brutal dictators. And, as he described, once, if you were born in Russia and grew up in a rough country where you did not know any better, and you committed something quite disgusting, maybe you could be understood, if not forgiven.

But if you are born in New York, part of the financial elite, and you help those guys, then it’s a completely different ball game. At the end of the day, one of the strengths of the West is that all the criminals want to save their money in the West. There is no trust among thugs, and so we play a unique role in protecting, if you want, wealth and protecting criminals. That is what we should not be doing.

Bethany: I was very struck by the difference in the rules between the rest of the West and the United States, and how much stronger, at least in Browder’s view, our rules are on this front already than they are, for instance, in the UK. And we can’t do what you say until there’s uniformity, and the West is in agreement.

I think one of the difficulties, though, I was thinking, in the oddest way, it’s a little bit like the start of COVID. We just didn’t see it. People were willfully blind until they couldn’t be willfully blind anymore, and then we had to lock down the world in order to try to protect the hospital system. And this feels a little bit like the same thing, in that we were willfully blind to who Putin really was, except for people like Browder, who had dealings with him and were running around screaming from the rooftops like some epidemiologists were with COVID. While it feels so obvious now that the West should have excommunicated Putin in a long time ago, it is a harder decision to make in the moment, given human nature, than you would like it to be. Who do you cut off? Who do you do business with? And so, where do you draw those lines, and how do you know who is the criminal?

Luigi: I think you’re right, Bethany, but two objections. First of all, if we had a system of transparency of ultimate ownership of everything, then it would be much easier to intervene when you find out. And I think that this is, to me, one of the key issues that has been discussed in a G20 meeting. There is some desire to push this forward, but there is a lot of resistance. As you said, it is not something you can do in one country alone. You have to do it at least in the entire G20, at least in all the Western countries—including the small ones, because sometimes the small ones want to deviate. That’s a good precondition to do that, to enforce when things go wrong.

Allowing people to steal money in their own country is a precondition to have thugs. And this is not unique to Russia. This is spread throughout the world, and there is a responsibility of Western companies that go into other countries, and they basically compromise with the local politicians in order to get what they want and bribe back and forth. I think this is a new form of colonialism that in this case brought us this terrible war, but it also brings us a refugee crisis. It brings us other terrible things. I think we need to attack it at the source.

Bethany: It is hard to know where and how to draw the line. So, remember, we had David Barboza on, whose piece in the New York Times, back in—the world blurs for me—detailed how much money had been stolen by the ruling families in China to augment their personal fortunes. So, what would you do in China now? Would you say, OK, this meets the criteria of a country where the leaders are stealing money for their own accounts, or would you continue to let it play out, given the essential nature of cooperation between China and the West?

Luigi: So, my understanding of what Browder said, and certainly what I would like to do, is not to say that we shouldn’t trade with Russia or China. We should not allow Xi Jinping and his family, as we should not have allowed Putin’s family, to hide money in the West. If you know that that money is a source of corruption and stealing, not only should you not help them hide it, but as Bill Browder said, you have a responsibility to report it. It’s much less fun to become a billionaire if you cannot spend that money in the West.

Bethany: What would happen to New York and all the empty apartments where oligarchs from around the world are stashing their money?

Luigi: Maybe some New Yorkers would be able to live in Manhattan.

Bethany: I’m just pushing on this, and I agree with you. And I think one of the interesting things, to me, there’s this idea—I remember thinking about it in the wake of the financial crisis, Alan Greenspan had some direct quotes along these lines—that capitalism would always be a race to the top. And, in so many ways, it’s a race to the bottom. And, in so many ways, that race to the bottom can become enabled by a lack of transparency. So, when it comes to stashing money for oligarchs and thugs around the world, and enabling ways to evade any kind of rules, it’s a race to the bottom.

Luigi: Absolutely. And what scares me a lot is that he said that London is the money-laundering capital of the world. In England, in the UK, you don’t have enforcement, especially against rich people, and that has made it really a paradise, because they bring money, and then everybody’s silent. That’s a silent crime but a crime with a lot of victims. And I think that the Ukrainians are among the victims of this crime.

Bethany: I guess, thus it was ever so. I’m tempted to say something about the worship of money in our modern society, but I guess that’s not really different than it’s ever been in the world. But I was thinking about the Malaysia and 1MDB scandal, and I’m blanking on his name, forgive my pandemic-era brain, who stole all the money and all of a sudden had tens of millions of dollars to run around throwing at things. And nobody asked questions because he had money. Or, in a different way, there’s the great new series Inventing Anna, and people just . . .

Luigi: Oh, I actually saw some episodes. It is fascinating.

Bethany: And people just looked the other way in the face of the appearance of money. And it’s interesting how corrupt we all are. And, like I said, I’m tempted to say something about modern society, but I think thus it’s ever been.

Luigi: To change tone, I was actually a little bit disappointed by the lack of analysis of the potential risk of the sanctions. He did say that Putin is terrible, that he is somebody who, once he digs in, he never goes back, and that he’s prepared to do anything, et cetera. So, if you have this psychological profile of Putin, the last thing in the world you want to do it is put his shoulder against the wall, knowing that he has a nuclear weapon. And so, I was thinking about the sanctions. The sanctions work when they create a differential between being in a punished state and not being in a punished state. That’s usually why sanctions work very well when you threaten them, because they work ex ante, before the fact, but ex post, there is the risk of, when will the sanctions be lifted and under what conditions?

Now, if you are super aggressive with sanctions that are somewhat irreversible, so when you see a lot of Western companies leaving Russia, they’re not going to come back tomorrow, and you are basically forcing Putin to dig in more to his positions. So, I don’t know, from a strategic point of view, if what he was saying moving forward is necessarily the right thing, but I don’t claim to know all the truth.

Bethany: I think his answer would be, and I don’t know, but I think his answer would be that we have gotten ourselves into the situation where this is the only path forward, because if you don’t do it, it’s worse if you continue to enable him. The more irreversible ones are what he’s really advocating, which is seizing oligarchs’ wealth and seizing Putin’s wealth, and there’s no coming back from that. While business might come back to Russia over the next decade, were there to be peace with Ukraine tomorrow, once Putin’s money is gone, it’s gone. So, he is cornered.

Luigi: So, I know it’s disgusting, but in this situation, providing a way out is sometimes the least costly way to act. After all, the United States has a tradition of protecting dictators that leave office without too much blood. Remember, the Shah of Persia was protected because of that. It is disgusting from a moral point of view, but from a practical point of view, it might be the best solution. I don’t know whether Putin will ever take it, but I’m not so sure that digging in will result in a better outcome. It’s really an awful situation.

Bethany: I guess if I had one thing in listening to him, and I hesitate to say this because my knowledge of Russian history, even recent history, is not great, but I was surprised that he had so little blame for the rush to make money off Russia in the immediate aftermath of the fall of the Berlin Wall. And I wonder if that lets us off the hook too easily in another way, in the sense that people who came into Russia in those early years didn’t want any safeguards on capitalism as it was practiced, because there was so much money to be made by so many people. And I understand his point. I also do wonder if there are lessons. I mean, this situation hopefully will never repeat itself, but if there are lessons we should learn about the early stages of the Wild West in Russia and our enabling in the creation of the oligarchs in the first place.

Luigi: I agree. I think that the responsibilities, first of all, are political. It is very difficult to ask each capitalist to be so ethical in that moment. I think that the US government should have put guidelines in place and should have been much more aggressive. And, honestly, I take responsibility for the profession at large. There was a lack of understanding, in my view, of the institutional foundations of capitalism. I always thought that, with all due respect, Americans were so lucky in getting it right that they never thought about how difficult is to create it, and being European and seeing how difficult it is to get it right, I think that there is that sense that it needs to be constructed with the proper rules, and without the proper rules, you end up in the wrong place.

Bethany: It’s really interesting. I guess it comes back to one of the themes of this podcast that there is really no such thing as a free market. How the market operates is conditioned on the institutions and the rules that you put in place when you set it up. I absolutely agree with you that that is something that Americans have far too little appreciation for. I certainly didn’t. And it’s only been in recent years that I’ve started to think about these foundations. There’s certainly a belief through much of America—the free market, let it rip—without any respect for the laws and the institutions that make it function. And it’s a different way to think going forward. It’s the hidden part, if you think of the surface of capitalism as firms competing with each other to make products, and then the whole buried stuff underneath, the substrata, are all the rules and the institutions that make it function in the way we want. And without the latter, the former just becomes a jungle.

Luigi: You know that there is a basic distinction among two types of liberalism. The American one tends to emphasize free everything. The continental European one is often called ordoliberalism that emphasizes the importance of the rules in order to make the market work. One of the thinkers who was part of this was basically the first real president of the Italian Republic, Luigi Einaudi, and he has this beautiful image that the market is a country fair with a policeman in front. The country fair is an example of the market, but without the policeman, it doesn’t work the way it should work.

Bethany: I love that image. That resonates with me.