Sanctions for sale

Sanctions are a curse for those who are targeted by them. For private individuals, being sanctioned effectively means losing access to financial assets and severely restricting their ability to exercise basic property and economic rights. For companies, sanctions generally mean the loss of banking relationships as well as access to suppliers and markets.

Europe’s population initially embraced the EU’s sanctions regime with enthusiasm. After all, the goal was to demonstrate to Vladimir Putin and his allies that Europe stood with Ukraine. Four years into the war, however, it has become apparent that the sanctions have not produced the results many expected. They have also damaged Europe’s domestic economy, driven up consumer prices and, particularly in the food and energy sectors, contributed to what appears to be an almost endless escalation in costs.

European consumers are therefore feeling the consequences of the sanctions far more acutely in their wallets than their Russian counterparts. Ursula von der Leyen and Kaja Kallas continue to insist that sanctions are an indispensable tool for bringing an end to the war in Ukraine. The reality, however, appears considerably more complicated.

An investigation by AlpineWeekly has found that, alongside the EU’s stated geopolitical objectives, sanctions can also serve far more mundane purposes: eliminating Russian—or even European—competition.

To achieve that objective, European companies sometimes hire highly paid public-relations specialists, lobbyists and former senior EU officials. Their task is to persuade officials and policymakers to place unwelcome competitors on the EU sanctions list, thereby allowing their clients to capture the sanctioned company’s market share.

In extreme cases, this can result in monopolies or, at the very least, oligopolies emerging in European markets. For consumers, the consequences are usually straightforward: less choice, higher prices and dependencies that are difficult to control.

“Putin’s Childhood Friend”

To get a competitor placed on the sanctions list, the process allegedly begins with the hiring of a lobbyist tasked with influencing officials and politicians. Those individuals, in turn, are expected to press European sanctions authorities to target the company in question—whatever the stated justification may be.

A public-relations consultant will typically be brought in to help develop the rationale for sanctions. The more difficult it is to establish a case against the target, the more expensive the consultant—and the more imaginative the narrative—may become. When all else fails, there is the time-tested phrase: “childhood friend.”

If the owner of a company can be portrayed as a friend of Putin, there is often little apparent appetite in Brussels to scrutinize whether the claim is true. Being described as a “friend of Putin” by even the most obscure publication on the internet can, under the current system, become grounds for sanctions against an individual or company.

Sanctions authorities have, at times, referred directly to such media reports, effectively transforming allegations into facts. What appears to be missing is a thorough examination of the underlying claims—or even of who operates, finances or controls the outlets publishing the supposed “facts.”

The approach can resemble the Wild West in the days of Jesse James: shoot first, determine what you hit later. In Brussels, critics say, the sanctions gun appears to be kept remarkably loose in its holster.

People familiar with the scene claim that some Brussels cocktail parties can resemble a “sanctions bazaar,” where lobbyists and EU officials allegedly haggle over the price of sanctioning a Russian company. The most lucrative cases, however, are said to be those in which sanctions are used to drive a European competitor out of the market.

Once sanctions have been imposed, getting off the list can be extraordinarily difficult. The companies commissioning the lobbying efforts know this. They are the ones paying substantial fees for the services.

After the Russian—or European—company has disappeared from the European market, the remaining players can begin dividing up the spoils. Market share “freed” by the exclusion of the sanctioned competitor is redistributed among surviving European companies, often accompanied by another round of price increases for consumers.

Sanctions à la carte

Behind closed doors, there is reportedly talk in Brussels of sums exceeding €30 million allegedly being paid to secure sanctions against unwanted competitors.

The supposed “sanctions fee” depends, among other things, on whether an entire industry or merely an individual company is to be targeted—and on who is enlisted in Brussels to advocate for the sanctions.

According to an unnamed insider, Ukrainian politicians can allegedly be persuaded for as little as €10,000 to mention individual names in discussions with EU officials and push for sanctions. EU officials or ministers from member states are said to command considerably higher prices, with double-digit millions of euros reportedly at stake depending on the target.

At times, the alleged corruption is barely concealed. One foreign minister reportedly joked at a diplomatic reception that her son’s summer vacation at a luxury resort in the Alps, as well as her daughter-in-law’s diamond ring, had their origins in Europe’s sanctions practices.

The biggest challenge, however, appears to be the appetite of political decision-makers.

Consider Europe’s major fishing companies. For the big players, sanctioning the entire Russian fishing sector reportedly seemed simply too expensive. The expected profits from the fishing quotas that would have been freed by excluding all Russian seafood products from the European market, one insider said, would barely have justified the alleged cost of securing the sanctions. The industry therefore settled for targeting the two largest Russian fishing companies, Murman SeaFood and Norebo.

Following a familiar pattern, rumors that the companies’ owner was a friend of Putin allegedly served as the initial justification for sanctions. The companies were subsequently accused—again following a well-worn script—of spying for Russian intelligence and sabotaging European institutions. Evidence? Apparently not.

The companies could, after all, challenge the sanctions in court, Brussels officials have reportedly responded matter-of-factly. What that response leaves out is that legal proceedings can take years; that relatively few lawyers are willing to represent Russian companies; and that mounting a defense can cost millions of dollars in legal and court fees.

The consequences for European consumers and taxpayers are similarly dismissed in Brussels, critics contend. The result is a classic market vacuum: every European competitor stands to earn more when Russian fish disappears from the EU market. Companies in Iceland and Norway, in particular, stand to benefit from a substantial increase in the value of their fishing quotas.

“The Story Could Have Happened That Way”

The case of Norebo is particularly revealing.

The company is run by Vitaly Orlov, who spent decades in Britain and Norway. He built Norebo according to Western business practices and, in areas such as environmental protection, minority rights and compliance, reportedly outperformed many of its European competitors by a considerable margin.

That corporate culture also translated into product quality and strong performance. It did not take long, therefore, for the Russian fishing company to attract the attention of its predominantly European competitors.

Orlov and Norebo had become a problem for rivals precisely because of the corporate culture he had created—and the success that followed from it. What better solution, critics allege, than to “buy” sanctions against Norebo and push the troublesome competitor out of the market?

Following an established playbook, a media campaign was launched in which Orlov was described as a “friend of Putin” without any supporting evidence being presented. Norebo was portrayed as part of Russia’s intelligence apparatus and “shadow fleet.”

Private and state-linked media outlets, particularly in the Nordic countries, eagerly picked up the story and turned it into something resembling a spy thriller. The details were cinematic: men dressed in dark clothing and wearing sunglasses, secret codes, surveillance equipment and other elements supposedly used by the Russian fishing company to make European waters unsafe.

There was, however, one problem. Norebo did not quietly retreat. The company not only vehemently rejected the allegations but also fought them in court, producing facts that were deeply embarrassing for the EU—including information drawn in part from databases maintained by the EU itself.

Eventually, European media outlets were forced to acknowledge that not every claim had been subjected to a proper fact check. Some reports appeared to have been entirely unsupported by evidence, and perhaps even fabricated.

Yet the media outlets emphasized that even if there was no evidence that the events had occurred, the story could have happened that way. John le Carré would have appreciated the plot.

The EU Discovers the Conditional

According to an unnamed senior EU official, some politicians have now begun noticing that “friend of Putin” appears with suspicious frequency as a justification for sanctioning individuals and companies.

The EU’s sanctions authorities are therefore reportedly developing a new line of argument—one in which the question of whether a company has actually violated sanctions becomes largely irrelevant.

The question, instead, is whether the company could theoretically violate them: “Could Company X circumvent or violate the sanctions?”

If the answer is yes, sanctions may follow. The Kafkaesque implication is obvious. Under such reasoning, virtually any company anywhere in the world could become sanctionable. Apparently, that does not constitute a contradiction for the EU.

A Dilemma for the EU Courts: Law or Morality?

There is at least one institutional check on the system. The EU’s General Court has begun, albeit cautiously, to push back against some of the more extraordinary actions taken by sanctions authorities. Since the beginning of the war, the court has annulled more than 30 sanctions designations, in whole or in part, after finding that the EU had failed to provide evidence that met even its own stated standards for imposing sanctions.

Yet the court has so far generally stopped short of describing individual sanctions as abusive. Instead, it has preferred formulations such as “errors of assessment.” The court faces an uncomfortable dilemma: It is required to apply the law, while at the same time operating as an integral part of an EU institutional structure committed to confronting Russia.

Every ruling in favor of a Russian claimant—or even someone merely alleged to have ties to Russia—therefore carries a political dimension for judges in Brussels and Luxembourg.

Some scandals are simply too large, too consequential or too politically sensitive to be exposed to public scrutiny. The alleged purchase of sanctions may belong in that category.

Whether corruption surrounding supposedly “ordered” sanctions will ever become public remains uncertain. One thing, however, is clear: ultimately, European consumers and taxpayers are the ones who pay the bill. Whether they are thereby helping Ukraine or weakening Russia is far less certain.

Written by Andreas Hofer andreas.hofer@alpineweekly.com