Great ResignationInflationSupply ChainsLeadership

The vast power of Putin’s riches is forcing Western Europe into a reckoning

February 25, 2022, 10:23 PM UTC

Western Europe united in outrage as Russia invaded Ukraine this week.

But not some of its luxury goods companies.

Italian diplomats reportedly called for the luxury goods sector to be left untouched, allowing Italian exports of clothing, jewelry, and other products to continue being sold in Russia. Belgium was also reportedly unhappy that sanctions were to be placed on the diamond trade, with officials saying that these would do more to harm the diamond trade than Russia itself.

Both Italian luxury goods and diamonds were ultimately spared from the West’s sanctions on ultrawealthy oligarchs as of Friday, but questions remain as to how sanctions will handle the deep-seated ties Russia’s wealthiest people have with Europe.

The U.S. and Western European economic punishments revolve around curtailing Russian banks’ ability to do business abroad and in other currencies, blocking the country’s access to foreign-made technology, and limiting international trade. But the Italian carve-out exposes an uncomfortable truth: The riches of Putin’s Russia are sunk deep into the heart of the Western world.

Italy has deep economic ties to Russia, where around 300 Italian companies have business interests. Big spenders in Russia are fans of the made-in-Italy brand, and they are an important part of the Italian luxury goods sector’s customer base, according to Italian financial newspaper Il Sole 24 Ore.

The U.K. has also been home to a huge flood of Russian cash for over a decade, with the capital city even acquiring the nickname “Londongrad,” in reflection of how many oligarchs make the city home. 

One of these oligarchs, Roman Abramovich, became a tabloid celebrity in 2003 when he acquired one of the capital’s oldest and richest football clubs, Chelsea, and the sport is a good stand-in for the wider embrace between Russian money and the West. St. Petersburg’s Gazprom Arena was due to hold the Champions League Final this year, the Super Bowl of Europe (except watched by more people), before the governing body UEFA stripped it and moved the final to Paris on Friday.

Many Western Europeans are facing uncomfortable questions about just how willing they are to cut off the flow of Russian cash. U.K. Prime Minister Boris Johnson “misspoke” earlier this week, according to his spokesperson, when he said in Parliament that he believed Abramovich was already facing sanctions. Through several rounds of sanctions from the U.S. and EU, Abramovich has not been named yet.

Although the Biden administration, the U.K., and the EU have sanctioned some Russian elites, major assets for many wealthy Russians such as penthouses, private jets, and superyachts (some owned by Abramovich) have remained untouched. Assets such as these tend to be held through shell companies and can take longer to verify ownership.

In a tweet, the office of Italian Prime Minister Mario Draghi suggested that the country had not been explicitly looking for an exemption from sanctions for its luxury goods sector.

“Italy has made no requests for carve-outs on #sanctions. Italy’s position is fully aligned with the rest of the EU,” he wrote.

But that denial was not enough to save Italy and other countries from international scorn directed at the carve-outs.

Global leaders criticized Italy, Germany, and Hungary on Friday for failing to agree on isolating Russia from using the SWIFT payment system, a network that enables international financial transactions. Those countries mostly cited SWIFT’s implications for Russian natural-gas imports, on which Europe is reliant.

But diplomats were also unhappy with Italy’s push to have luxury goods exempted from the EU’s sanctions. “Apparently selling Gucci loafers to oligarchs is more of a priority than hitting back at Putin,” an EU diplomat told Joe Barnes of the Daily Telegraph.

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