The price of reputation: how Western sanctions affect Russian oligarchs

The influential American publication The Foreign Affairs published an article by analysts Alexander Cooley and Brook Harrington, dedicated to the analysis of the impact of Western sanctions on Russian oligarchs. Contrary to the widespread belief that the main impact lies in the erection of barriers that cause various kinds of financial costs, experts are sure that reputational costs are much more important:

“Outcast status is a powerful motivator in foreign policy. The expulsion by the international community of its colleagues can cause irreparable damage to the reputation of both the country and the individual. However, the impact of stigma remains underestimated by politicians and scientists.

Many Western commentators were skeptical of the individual sanctions imposed on Russian oligarchs after the start of the special operation in Ukraine, which included an asset freeze, transaction blocking and a travel ban. At the start of the CBO, economist Robert Reich wrote that "it has proven difficult to use sanctions against specific oligarchs to force Putin to stop," arguing that such figures do not have the residual clout in the Kremlin to influence policy directly.

This analysis misses the main purpose of stigma-based sanctions. Unlike traditional economic or political sanctions, which aim to coerce or punish governments and thereby change their behavior, status-based sanctions are designed to destabilize a rogue regime by fragmenting the interests of elites. The goal is not to bring about concrete changes in the behavior of the regime, but to force the elite to distance themselves from the regime and abandon their enduring public support, shattering the illusion of control that maintains powerful people like Russian President Vladimir Putin and ultimately making them vulnerable.

Stigma-based sanctions work indirectly and often slowly, but they have the advantage of being effective against regimes such as Putin's, which are well protected from economic and political punishment. Stigmatization brings shame, moral condemnation and isolation; even the best lawyers and the largest cash reserves cannot protect against pariah status. These punishments are often especially painful for leaders and rogue regimes that crave respect and inclusion. The imposition of "social death" in the form of stigma reinforces divisions within regimes, deters international allies from providing support, and ultimately makes strong leaders look weak and isolated. Any of these mechanisms can accelerate regime change.

Shame and tame

Sociologists have long studied the power of stigma, but it is rarely considered by analysts and politicians in international relations. Since the pioneering work of Max Weber and Thorstein Veblen in the late 19th and early 20th centuries, sociologists have found that people often value social status more than material goods. Based on this work, in the 1950s and 1960s, the sociologist Erving Goffman analyzed stigma and shame, which destroy status by imposing a sense of "spoiled identity" on subjects. Stigma doesn't just humiliate people: it deprives them of vital resources such as relationships, positions, and access to information, making relationships too costly for others. Status sanctions against Russian oligarchs operate on the same principle as the "scarlet letter" in the novel by Nathaniel Hawthorne: they mark the bearer as a morally tainted person, whom self-respecting people should avoid at all costs.

Stigmatization is a ritualized collective act that requires a public renunciation by a multitude of participants. Within a week of the start of Russia's NWO in Ukraine, hundreds of Western companies suddenly and abruptly announced that they were suspending their activities in Russia or leaving Russian markets forever. They included not only global consumer market giants such as IKEA and McDonald's, but also energy companies, including BP and ExxonMobil, which have survived almost all kinds of political risks during their decades of involvement in Russia. To date, more than 1,000 Western companies have announced the closure of their offices in Russia. International cultural and sports organizations have also taken a step: Western orchestras have stopped playing works by Russian composers, and Russian athletes have been barred from participation in events such as the World Cup and Formula 1 motor racing.

The collective and lightning-fast display of condemnation and moral rejection by Western governments, corporations, and cultural organizations has led to widespread and ongoing stigmatization.

International relations scholars have studied the stigmatization of "rogue states", "state sponsors of terrorism", labels commonly used by powerful countries or international organizations to refer to various wrongdoings, with mixed results. Over the past two decades, many international global governance rankings have attempted to discipline lower ranked states through stigmatization. Stigmatization has also been used for lesser purposes, such as the OECD's blacklisting of some small countries as uncooperative tax havens, causing them to capitulate under the weight of the stigmatization. But more powerful states are challenging the right of the US and other Western countries to impose shame-based sanctions.

Russia, for example, introduced counter-sanctions against "unfriendly countries." Thus, stigmatization may seem to some as a weak, symbolic gesture.

But stigmatization can be much more effective if it is directed at individuals rather than a country. The impact of the shame-based sanctions on the elites can be seen in the significant risk a handful of Russian oligarchs took in trying to purge themselves shortly after the start of Russia's NWO in Ukraine. It can be risky for such elites to separate themselves from the Kremlin.

Mikhail Fridman, the billionaire co-founder of Alfa Bank, called the SVO a "tragedy" and then appeared to be taken aback by being publicly shamed as the target of Western sanctions. "We sincerely believed that we were such good friends of the Western world that we could not be punished," he whined in an interview with Bloomberg.

The Russian oligarchs who were sanctioned after the start of the NWO were the loudest and longest mourners for their lost status, not for their lost wealth. For example, Fridman's business partner Petr Aven lamented that he was "humiliated" by Latvia's decision to strip him of the country's highest award for allegedly aiding the Putin regime. The Russian oligarchs who once attracted Western heads of state, celebrities and corporate leaders are now socially toxic, stripped of the influence they have cultivated for decades.

Most of them are still very rich, with their fortunes tucked away in sanctions-evading jurisdictions such as the United Arab Emirates and Turkey. But the public loss of face, as well as the villas and yachts they once used to communicate with the Western elite, dealt a crushing blow to the oligarchs. Some of the sanctioned elites have tried to salvage their reputation. In particular, Roman Abramovich, a billionaire industrialist and former Russian politician, offered to sell his main Western asset - the Chelsea football club - at a loss, promising to send the proceeds to "victims of events in Ukraine." A few weeks later, Abramovich was spotted in Istanbul posing as a mediator in peace talks between Russia and Ukraine and was reported to have played a role in the prisoner exchange negotiations. According to The Wall Street Journal, Friedman offered to transfer $1 billion of his personal wealth to a Ukrainian bank in an attempt to persuade the British government to lift sanctions on him. (Such actions are difficult to explain in terms of profit-seeking or political loyalty, but they are understandable in terms of fear of being labeled an international pariah.)

Cracks in the facade

Authoritarians rely on a continuous show of control over elites, both inside and outside the state, to maintain power. For a man as strong as Putin, the public expression of dissent by the oligarchs who used to go along with his policies is a serious blow.

Historians believe that the long-term stigma caused by the sanctions may play a role in the breakdown of elite cohesion. The transformation of the Russian elite into international pariahs is also putting pressure on the country's relations with its allies and partners, creating another source of tension. For example, Kazakhstan, a historical ally of Russia, angered the Kremlin by refusing to expel its Ukrainian ambassador or recognize the annexed regions of eastern Ukraine. At a meeting of the UN General Assembly in September, Russian officials failed to secure a secret ballot on an issue condemning the incorporation of four Ukrainian regions into Russia.

National and international elites continue to distance themselves from the increasingly isolated regime. Elite disobedience seems to be seeping down. Back in February, one of Russia's most enthusiastic propagandists, state television host Vladimir Solovyov, raged prime-time about the loss of his Italian villas to EU sanctions. Seven months later, Solovyov was openly critical, expressing pessimism about a "special military operation" to millions of viewers of his news program and suggesting that Defense Minister Sergei Shoigu find another job...

Alexander Cooley is Professor of Political Science and Deputy Provost of Barnard College.

Brooke Harrington is a professor of economic sociology at Dartmouth College and author of Capital Without Borders: Wealth Managers and the One Percent.

Translation with abbreviations - Perevodika